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Agenda Item # 5

BOARD MEMORANDUM

RECOMMENDATION:

Adopt the VTA 2000 Measure A Transit Program with a Revenue and Expenditure Plan that assumes a new 30-year, quarter-cent sales tax supporting the construction and operation of the 2000 Measure A Projects and some new projects and programs.

BACKGROUND: 

In considering the recommended new 30-year, quarter-cent sales tax, the Board will recall its adopted policy based upon the recommendation of the Ad Hoc Financial Stability Committee, and the Administration and Finance Committee.   The VTA Financial Stability Strategy, presented by Ad-Hoc Committee co-chairs Don Gage and David Cortese, as approved on March 4, 2004, established (among others) the following as a Mid-Term to Long-Term Goal:

• Work in partnership with community leaders to identify the most viable new or expanded revenue source(s) for VTA.   Continue public input and data gathering in partnership with community leaders and stakeholders to help define the revenue source(s) and timing most acceptable to the community.

The Board of Directors has entertained a series of workshop meetings over the last two years considering options for an expenditure plan that will meet the financial needs of VTA and the 2000 Measure A program of projects. At the June 2, 2005, Board Meeting, staff reviewed four quarter-cent sales tax scenarios. Prior to the June 16^th Board Meeting, Board Member Ron Gonzales outlined assumptions in a memorandum that resulted in direction to staff to develop a Quarter-Cent Sales Tax Scenario based on those assumptions.   Throughout the summer, the Board and community stakeholders provided input, and the North County City Group and the Silicon Valley Leadership Group (SVLG) both requested additional scenarios. The SVLG requested a run that better reflected its polling conducted in March 2005.  The polling tested a new Pavement Management Program and increases to bus, rail and senior/disabled services.

The Board, at its workshop meeting on September 16, 2005, reviewed three proposed
Quarter-Cent Sales Tax Scenarios and concluded that VTA is ready to go forward with a Quarter-Cent sales tax that will sunset in 30 years.   The Board further agreed that this quarter-cent sales tax should include a Pavement Management Program, a re-scheduling of the BART project for completion no later than 2018, completion of Dumbarton Rail by 2011, and flexibility in terms of capital balance amounts for the 2000 Measure A program.

The VTA Scenario was originally scheduled for Board adoption at the November 3^rd meeting. Based on comments from community interests and local jurisdictions, staff recognized the need for additional evaluation to allow for more analysis and open dialogue on this program of projects. Specifically, we evaluated potential ways to advance the airport people mover into the Initial Program by 2018, while keeping the Pavement Management Program in place.

On December 1, 2005, VTA presented a Modified VTA Scenario to the Board of Directors that achieved the goal of moving the airport people mover into the Initial Program. At that time, the City of San Jose also presented a series of recommended changes to the Modified VTA Scenario. The Board of Directors was concerned that the VTA staff and the City of San Jose recommendations had not been evaluated or reviewed through the committee process. As a result, the Board deferred action until February 2006, giving itself, the VTA Advisory Committees, and the County Board of Supervisors an opportunity to discuss and weigh VTA’s modified plan and the recommendations submitted by the City of San Jose.

DISCUSSION

Annual Update to Sales Tax Forecast:

As part of an annual process that started in 2002, the Center for Continuing Study of the California Economy (CCSCE) prepared updated projections of taxable sales for VTA, which staff has been reviewing since the December 1^st Board meeting. The revised projections, which are independently derived, indicate an increase in projected sales tax revenues. These new projections are critical to the Board’s deliberations and appropriately, staff has prepared yet another scenario for the Board to consider.

The immediate result of using the new sales tax data is that all Measure A projects can be completed in the Initial Program, subject to a proposed quarter-cent sales tax passing in 2006.   The fact that these annual updates show an upward cycle in Silicon Valley economic activity after a sustained downward cycle underscores the importance of an annual review of the 2000 Measure A Revenue and Expenditure Plan, thereby allowing the Board to evaluate and revise priorities as conditions change.   It also illustrates the dynamic nature of both the revenue and
cost elements of the Expenditure Plan. An annual review process has contributed to the successful completion of projects in the 1996 Measure B Transportation Improvement Program that, at one time, were not anticipated to be funded.

To remain consistent with previous expenditure plans submitted for Board consideration, VTA has used the midpoint of CCSCE’s conservative and moderate levels of projections.   The projections for the Recommended VTA Scenario include FY 2006 and FY 2007 adopted budgeted amounts for sales tax revenue, followed by annual growth rates determined from CCSCE’s latest projections through 2015.  Beyond 2015, VTA has continued to use a 4.8% annual growth rate, which is consistent with VTA’s historical growth, with adjustments for abnormally large increases and decreases. The projections of taxable sales are based on:

• Job growth
• Population growth
• Personal income growth
• Retail spending as a share of personal income
• Non-retail spending per job

The average annual growth rate for taxable sales in the current forecast has increased from an average annual growth rate of 4.8% to 5.8% between FY 2008 and FY 2015.   The reason for the increase is due to several key factors.   According to CCSCE: (a) commuting from outside the county has fallen, which increases the number of residents contributing to taxable sales within the county; (b) average earnings per job continue to reflect increases; and (c) there is a slight increase in projections for the percentage of personal income that will be spent on taxable sales. 

The following table illustrates the change in sales tax revenue growth rates using the midpoint
of CCSCE’s previous 2004 projections (through 2010) and CCSCE’s new 2005 projections (through 2015¹).

                       Change in Midpoint Projected Growth Rates

2004                         2005                       Change                       

1. 4.9%                         5.7%                         0.8%
2. 5.0%                         5.7%                         0.7%
3. 5.0%                         5.8%                         0.8%
4. 4.8%                         5.8%                         1.0%
5. 4.8%                         5.8%                         1.0%
6. 4.8%                         5.9%                         1.1%
7. 4.8%                         5.9%                         1.1%
8. 4.8%                         6.0%                         1.2%

2016-2036¹         4.8%             4.8%               0%

The updated forecast of sales tax revenues increases 2000 Measure A sales tax projections by
$700 million over the life of the program.   However, the updated projections also affect VTA’s existing half-cent sales tax, VTA’s Transportation Development Act (TDA) funds and the projections related to the proposed new quarter-cent sales tax.   Taking into consideration these four sources of funds, there is an increase of over $ 2 billion, which has resulted in a significant change to the proposed expenditure plan.  While these new projections are auspicious, it is important to note that the expenditure plan would have been revised downward if the new projections were below the previously assumed 2004 levels.

Summary of the Projects and Timelines in the Recommended VTA Scenario:

In using the new sales tax forecast from the CCSCE, many of the suggestions presented by the City of San Jose for the VTA Expenditure Plan on December 1, 2005, can be accommodated. The following is a brief staff response to the seven recommendations presented by the City of San Jose.

1. Accelerate the construction schedule of BART before 2018 but no sooner than 2015 by making it the first funding priority if and when: a) Measure A and/or revenues from any
   2006 tax measure exceed projections; b) new revenue sources are identified; or c) there are Measure A project cost savings.

In the Recommended VTA Scenario, the BART to Silicon Valley project is assumed to be completed in December 2016, which is the current optimum schedule for final design and construction.

1. Move the people mover into the initial program regardless of when it may be constructed.

In the Recommended VTA Scenario, the people mover is in the Initial Program and is assumed to be completed by 2018 without City of San Jose assistance in financing.  There is a significant amount of work that still needs to be done prior to a final decision on the people mover technology and routing. This, too, will be considered during the annual reviews of the Expenditure Plan.

• After the public review processes have been completed, amend the expenditure plan to include the fully funded preferred transit mode for the Alum Rock-Santa Clara corridor in the initial program with a concurrent commitment to construct the project consistent with the construction schedule for BART.

If Single Car Light Rail is selected as the preferred mode and assuming a completion date
of 2021, this project can now be accommodated in the Initial Program using the new revenue assumptions.

• Commit to complete the construction of the Capitol Light Rail to Eastridge project by 2012.        

Capitol Expressway Light Rail project to Eastridge can now be completed by December 2012 and Light Rail from Eastridge to Nieman by 2017.

• Retain funding for the Caltrain electrification project and re-allocate funding to other Measure A projects throughout the region that are ready for construction —except BART – if San Francisco and San Mateo counties have not secured their shares by 2016.

Staff views this as a Board policy issue. However, with annual updates to the Revenue and Expenditure Plan, it appears unnecessary for the Board to adopt a 2016 deadline at this time. The Recommended VTA Scenario completes the initial phase of Caltrain Improvements/Electrification by 2018 and restores the 10% budget reduction contemplated in the previous scenario. The previously deferred Caltrain Electrification from Tamien to Gilroy is also included in the Initial Program by 2018.

• Support the VTA proposal for an annual review of the Expenditure Plan to allow flexibility to strategically respond to changing circumstances, needs and priorities.

This is consistent with staff’s recommendation.

• Develop a “reward policy” for local agencies that use local and/or private development funds to implement regional transportation projects and thereby granting priority for such agencies for other regional funding allocations.

Staff is supportive of this idea in concept. It is recommended that VTA staff work with the Technical Advisory Committee to develop a policy for further consideration by the Board.

A summary of the capital and operating program elements of the Recommended VTA Scenario follows:

• A new 30-year, quarter-cent sales tax
• Maintains VTA’s operating reserves at 15% for 30 years
• All projects are included in the Initial Program and the ending balance is  $ 537 million
• No deferred projects in the Completion Program
• Provides operating assistance at 18.457% on annual 2000 Measure A sales tax revenue to fund existing VTA bus, rail and paratransit service
• Estimates total net bond proceeds required for the program at $ 6.1 billion
• Completes BART by December 2016
• Phases in BART revenue service and the purchase of BART vehicles in order to improve cash flow and funding requirements. This phased service would start with 15-minute peak headways from 2016 to 2025 at a 16% savings to the net operating subsidy. This operating plan is preliminary and will require the review of BART and may require adjustments for new ridership forecasts
• Provides for an initial car order of 119 BART vehicles, with a second procurement of 47 vehicles by 2030 when 6-minute peak headways would begin
• Includes $ 913 million ($ YOE or $ 450 million in $ 2005) in additional cost for BART vehicles, parking impacts and escalation associated with the new ridership forecast for year 2030
• Provides $ 2.7 billion in BART to Silicon Valley operating subsidy through 2037
• Completes Capitol Expressway Light Rail to Eastridge by December 2012
• Completes Capitol Expressway Light Rail to Nieman by 2021
• Accommodates Single Car Light Rail on Santa Clara/Alum Rock by 2021, if that mode
  is eventually selected as the preferred alternative
• Completes the initial phase of Caltrain Improvements/Electrification by 2018 and restores the 10% budget reduction contemplated in the previous scenario
• Completes Caltrain Improvements/Electrification from Tamien to Gilroy by 2018
• Provides for Caltrain Service Improvements in Santa Clara County
• Provides for South County Improvements, and 8.4 miles of double tracking by 2010
• Completes Dumbarton Rail by 2011
• Provides for ACE Upgrades between 2014 and 2025
• Extends light rail to Vasona Junction by June 2012
• Initiates Bus Rapid Transit Projects on Line 22, Monterey Road and Stevens Creek Boulevard by 2011
• Initiates a Bus Rapid Transit Project in Sunnyvale/Cupertino by 2021
• Completes the Mineta San Jose Airport People Mover as a direct connection from the Santa Clara BART station to a central point in the Airport Terminal by 2018. City of San Jose financing is not required. However, the City will need to accommodate the future people mover connection in its current airport expansion plans
• Zero Emission Bus Program includes 80% federal funding and 20% VTA other funding
• Adds $ 717 million for a program of local streets, county expressways, and bicycle and pedestrian path improvement projects over 30 years
• Provides for Senior/Disabled Programs from 2008 to 2036 at an estimated cost of $ 98 million
• Provides for a gradual VTA service increase of 12.4 % by 2015, then gradual increases to 24% by 2020 for an estimated cost of $ 731 million over 30 years
• Estimates an annual operating deficit of $ 75 million in 2038, with Measure A expiring
  in 2036 and a potential 30-year, quarter-cent sales tax expiring in 2037. This scenario will require a renewal of a tax during the 2036 –2038 timeframe.

The previous VTA scenario for the Measure A Capital Program is shown in Table 1 and is compared to the recommended scenario. A more detailed analysis of revenues and expenditures for the recommended 2000 Measure A Capital Investment Program is included in Attachment 1. A comparison of VTA’s Operating Budget in FY 2038 is shown in Table 2.

Table 1.

Comparison of VTA Scenarios for 2000 Measure A Capital Program

Table 2.

Comparison of VTA Scenarios on VTA’s FY 2038 Operating Budget

ALTERNATIVES:

The Board can modify the Recommended VTA Scenario or choose to take no action on this recommendation.

FISCAL IMPACT:

The Recommended VTA Scenario maintains Operating Reserves at the Board adopted policy of 15%. This scenario has a positive ending balance of $ 538 million subject to a new quarter-cent sales tax being passed in November 2006. If a new sales tax is not placed on the November 2006 ballot, or if it were to fail to pass by a supermajority of voters in Santa Clara County, it will be necessary to prepare a revised 2000 Measure A Revenue and Expenditure Plan that would have substantially less funding available for projects.

PLEASE CONTACT OF THE OFFICE OF THE BOARD SECRETARY FOR ATTACHMENTS.

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