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SANDAG Admits To Overestimating What It Would Collect From Tax Hike

Traffic on a San Diego freeway is shown in this file photo, Nov. 22, 2011.
Associated Press
Traffic on a San Diego freeway is shown in this file photo, Nov. 22, 2011.
SANDAG On How It Overestimated Revenue From Tax Hike
SANDAG On How It Overestimated Revenue From Tax Hike GUEST: Kim Kawada, chief deputy executive director, SANDAG

We all know that sitting in traffic jams is not the best way to spend your time and traffic is only getting worse in San Diego. The agency responsible for planning ahead to make sure that we can keep San Diego moving is SANDAG the San Diego Association of governments. Have raised billions of dollars to widen freeways expand trolley lines and build bike paths. As we learn on Tuesday from voice of San Diego reporter Andrew keeps the money for future projects is much tighter than previous projections would have us believe. The question is will SANDAG be able to keep improving our transit system to keep up with this growing population? Here to talking with us about that is Kim who is chief executive director. At your last board meeting they told you to build the projects they would have to raise an extra $17 billion over the next about 40 years. Why would the financial forecast so far off. I do not believe the financial forecasts were so far off in terms of what we learned and shared with our board on Friday was that we have a great need for infrastructure in the San Diego region and transit is one part of that. One of the reasons we have updated the forecast is the boy just asked us after the results of the election to take a look at the transit program and we looked at our capital cost and actual cost side to take a closer look at the revenue side. How did the analyst over the -- overestimate the revenue by so much. In terms of the revenue we took a closer look at our forecasting and we generally estimate forecast in terms of population and travel quite well. I think they are reliable. When we have to layer on and take a look at sales tax revenue which by nature is unpredictable in terms of the up and down economic cycles with that we would take a closer look at that in part due to the media reports and some of the work we were doing internally already with the long term forecast. What we looked at was that our revenue forecasts were a bit optimistic and we sort of moved in a direction to look at independent consensus forecasts. That led us to project our revenues for the remainder of the program. How much is the overestimation? The overestimation I would say is about 15% from a we included in our last finance for the remaining projects in the corridors program. Does that translate into dollars in any way? It is about $3 billion. It's not just that there was an overestimation of sales tax what of some of the other reasons we have that pacing is now? We look at the cost and revenue side. On the cost side taken a look at the program with a fresh eye we used our most updated cost estimates which the board approved and our latest information is from the latest regional plan that the board approved last October. That's where we started rather than relying on early cost estimates that were done more than a decade ago. On the rubber meets the road what projects could this affect? We do not believe it will affect any projects. Looking back at our history in terms of 30 years back we've been able to leverage it with a three to one ratio. Every dollar we have raised we have attracted about three dollars of state local and federal.-- dollars to match the projects looking forward to the next three decades have it about that same level of matching funds we do predict that at this point we would be completing the projects in the major corridors program. So Andrew Keats was telling us that he would have to leverage those tax dollars even more effectively to more than a three to one ratio in order to meet this goal. I think it is perhaps a little bit more than the three to one ratio but it is in the same general ballpark and I think looking 30 years out there is a number of things that we do expect. We have continuing sources beyond TransNet there are federal funds that the state and federal level that continue to flow in the region and as we have discussed there are opportunities both in the near-term and long-term horizon for infrastructure funding at the state and federal levels. Have you change the forecasting method looking forward. We have change the forecasting method at this interim point and we are looking at our forecasting structure like with any tool that we update we look at our models periodically from time to time. Over the course of next year as we get into put -- preparing our next round of forecasts we will be updating our models. If it does mean construction of fewer projects who gets to decide which of the projects might be put -- is probably not erased but put on the back. I don't believe at this time that we are anticipating not completed any projects that are included in the ordinance. We have 30 years to go and predicting and developing a long-term capital program over a 30 year period can be challenging. We realize that but at this point given where revenues are coming in we believe the house of the transit program is sounds. Basically you are hoping that SANDAG will be able to raise more than a three to one ratio to tackle this very challenging some of money and meet the goal. I believe we will make -- meet the goal. Let's say that the year 2048 arrives and there are one or two projects to remain to be completed but the revenues do not stop flowing in terms of dollars that come to the region for transportation. If you look in the past we have the original transit measure that they approved in 1987. It was a 20 year measure that ended in 2008. We have about three projects remaining to be completed from that midcoast project and a couple other projects that we have done past that deadline. I think there is a commitment from Sandag and that board to keep the promises made to voters when the measure was approved. Do you think that the new administration might make it more or less challenging to get that 3-1 match. I think what is promising from being talked about at the federal level was infrastructure and the fact that infrastructure and the number as much as $1 trillion for infrastructure has been thrown out at the national level but at least that discussion is occurring. As we know we will need to look into the details as federal infrastructure packages are introduced. It is a topic at the federal level. Even voters here at the San Diego region when we did meet that's two thirds photo threshold which is a fairly high mark to meet 58% of voters in the San Diego region wanted proof Addison infrastructure but it is proof that there is a need in the region and across the nation. You are keeping an eye the mistake Outlook -- optimistic outlook. My guess. That was Kim that she deputy director at the San Diego Association of governments.

The San Diego Association of Governments has officially admitted it has a revenue problem — and that its researchers need to revamp the forecast they use to predict how much money is coming in.

At a board meeting Friday, staff from the regional planning agency conceded that to finish all the highway expansion, new transit lines and other transportation projects promised in a 2004 sales tax extension, it will need to find as much as $17.5 billion from federal and state sources.

SANDAG Admits To Overestimating What It'd Collect From Tax Hike
SANDAG Admits To Overestimating What It'd Collect From Tax Hike GUEST: Andrew Keatts, reporter, Voice of San Diego

In today's top story, traffic is at the heart of many of San Diego's rapidly evolving problems come out to get around without spending hours stuck in traffic is on many people's minds. Now we learn that the agency responsible for raising the money to improve our roads and transit systems has overestimated its future revenue stream so there may not be enough money to do in the projects already in the works let alone ones. The voice of San Diego reporter Andrew Keatts reported on this in October but the subject gained little traction until a meeting last Friday. At the meeting, the transit sales tax the San Diego's voted for in 2004 is not raising as much money as forecast projected. Andrew, thank you for joining us. Tell us, how much money exactly did the SANDAG say they are short and why? They basically acknowledge that what they had initially promised voters was not coming through and they did acknowledge that it has something to do with the great recession but not all of it. It also has to do with some really overaggressive and generally flawed assumptions that were built into the forecasting methodology. The way SANDAG transportation programs work as they bring in a local source of money, sales taxes and the use that money to get projects prepared to go out and compete for state and federal funds so they go to the design work and they say this project is ready to go. They are competing against somebody and saying, Lawrence Kansas for federal funds that magic. That is how they get the overall budget spoken for. Altogether based on the warpath of local revenue that they have, what they are going to need to do is find $17.5 billion from state or federal sources that they hadn't anticipated in order to make good on all the promises that they had made to voters back in 2004. It is a 17.5 billion hold that they are in and if they cannot find the money from the state or pads to get all of that they will have to cut back -- state says to get all of that they will have to cut back. How much time in the future was is projected? To get an example of what this means what are some the projects built using these dollars in the past decade and what might be jeopardized in the future? A couple of weeks ago they got a nice lot of coverage for the groundbreaking for the midcoast trolley line comes extension of the trolley system from old town up along the 5 into UTC. The Freeway widening project on I-5 not that they just kicked off recently is another project that is part of these programs. Previous programs, all of the rapid bus lines, the I 15 widening, all of that are the types of transit, regional transportation programs that SANDAG is in charge of. SANDAG has a track record of raising money. What about bringing in more state and federal money to fill in the gap? That is a good question. This was one of the ways they attempted to paper over the problem when they delivered this news to staff is they said, we are so good at going out in competing for state and local money. In the past we have got $3 from outside sources for every $1 that we have locally. The TransNet measure that was on the ballot only assumes a one-to-one match so they have exceeded that over the last 30 years. The TransNet extension approved in 2004. It was originally approved in 89. Over the last 30 years we have done a 3 to 1 ratio. Wellies who may one-to-one ratio. This new expectation, the new amount of money they will need to bring in will actually go even above and beyond that 3 to 1 ratio that they have been able to manage in the past. It is about $3.40 for every $1 locally that they will need to make good that might sound like somewhat attainable but it is important to remember that they achieved to the 3 to 1 ratio with the help of the federal stimulus program passed under Obama which was in direct reaction to the greatest economic downturn since the Great Depression. It might be similarly very optimistic to expect that type of flood of outside revenue coming available again in the first place and not to mention it is important to note that it is hardly a guarantee that they will be able to compete against other cities as well as they have in the past. A here is the thing. There is the possibility that President-elect Donald Trump, may have a major boost in infrastructure spending could that help? At that programmer to come forward and a structured in such a way as to benefit the types of projects that San Diego has in the pipeline than it absolutely could be the type of thing that would help her the devil is in the details. If you front a little bit about the things that the Trump administration is talking about, they are quite different than the types of funding opportunities that were included in Obama's stimulus. He is talking about a lot of public, private partnerships and things that actually privatize highways and privatize new infrastructure spending. One must question the summit they are short is similar to what was proposed in measure A if they had approved another sales-tax increase. To think measure A might have been put on the ballot to disguise this problem? Yes and no matter. I think dissimilarity, -- I think the similarity is a coincidence. However, the $18 billion number, SANDAG now admits that was not realistic. They have junked their forecasting model. The model the used to create that model, that they used to treat all other forecast there now throwing it away and relying on outside forecasting models they had to purchase. That measure A number was never real. Thank you Andrew for filling us in on this problem. That is voice of San Diego reporter, Andrew Keatts.

SANDAG staff also disclosed that the forecast the agency uses to inform regional planning decisions isn’t reliable. The agency effectively admitted the new tax hike it put on the ballot in November would not have raised the $18 billion they said it would.

After SANDAG staff presented all this Friday, they asked if any of the board members had any questions. Only San Diego Councilwoman Lorie Zapf chimed in — but then she decided against asking anything, because the meeting was running over time.

The result was that no elected officials said a word about a potential $17.5 billion shortfall and any resulting impact on the communities they represent.

In 2004, voters extended the countywide, half-cent sales tax TransNet, and so far SANDAG has collected far less than it expected. At the same time, cost expectations for the remaining projects have increased by $8.4 billion since the last estimate.

Now SANDAG either needs to find new money elsewhere, or scale back its ambitions.

The agency relies on its own long-range revenue and population forecasts to make regional planning decisions. The forecast produced the revenue expectations for TransNet that the measure is now failing to meet.

SANDAG also relied on that forecast for the expected revenue from Measure A, which was defeated by voters last month. As Voice of San Diego reported in October, that forecast assumed the typical San Diegan would spend more money than at any time since 1970, even after accounting for inflation.

“In light of recent news reports that raised concerns that our revenue forecasts were possibly too optimistic, we took a closer look at the forecast methodology that was being used in the plan of finance,” said Ray Major, SANDAG’s chief economist. “And what we found is that there were some aspects of SANDAG’s demographic and economic forecasting model that were overestimating taxable retail sales.”

SANDAG staff is now revamping its model to fix the flaws that created its overly aggressive forecasts.

Its report to the board Friday relied instead on an average of national forecasts from Moody’s, IHS Global Insight and Woods & Poole.

In other words, SANDAG can no longer trust its own forecasting numbers, just months after it went to the ballot promising voters a set of improvements that relied on those forecasting numbers.

The new forecast, relying on outside experts, decreases the expected average increase in sales tax growth by a half of a percent over the life of the tax, from 4.4 percent to 3.9 percent.

That means SANDAG will bring in 15 percent less money over the life of the TransNet extension measure than previously anticipated, Major said.

The agency now expects to bring in $6.3 billion between now and 2048 for its so-called major corridor projects.

It needs to find another $21.5 billion from state or federal sources to build all the of the projects that are part of that program.

That could be a problem.

For one, that would mean winning more state and federal money in the future than SANDAG ever has before.

SANDAG uses its local revenue to get additional money from state and federal grants to cover the overall cost of its various projects.

Over the last 30 years, SANDAG has managed a three-to-one ratio on that front; it brought in $3 from outside sources for every $1 it raised locally. But it’ll now need to do even better, bringing in more like $3.41 from the state or feds for every $1 it collects from TransNet.

The TransNet measure itself only anticipated that SANDAG would bring in $1 from outside San Diego for every $1 it raised in sales taxes locally.

But SANDAG’s historical success bringing in outside money might not be so easy to repeat, let alone exceed, as it now needs to do.

It reached that three-to-one ratio with the help of two major infrastructure initiatives. One was California’s Prop. 1B, and the other was the federal stimulus program, passed in reaction to the worst economic downturn the country’s faced since the Great Depression.

It’s hardly a guarantee outside sources comparable to those will materialize again, or that SANDAG will be as successful competing for them a second time around.

A staff report said SANDAG can almost certainly count on $4 billion of the $21.5 billion it needs. The other $17.5 billion represents a funding gap with no clear solution – SANDAG will need to find that money, but it doesn’t know from where.

In a memo included in the documents given to SANDAG’s board, Public Financial Management, the agency’s financial adviser, deals with the issue more directly than SANDAG does. It says there is “uncertainty regarding future federal and state funding.”

PFM’s memo also considers whether a new local tax increase – like Measure A could have been – could be introduced to deal with the agency’s $17.5 billion funding shortfall.

“In order to meet these project needs, appropriate federal, state and local funding sources will need to be identified,” the memo reads. “Prior to identifying any new funding source, no additional financing strategies beyond 2021 are incorporated into this TransNet Program Update at this time.”

Nonetheless, SANDAG staff in their presentation to the board emphasized the positive.

“Big picture, looking backwards we’ve had about a three-to-one ratio, if we do have that same level of three-to-one matching funds, we do predict that you’ll be able to complete the projects in your major corridors program,” said Kim Kawada, SANDAG’s chief deputy executive director. “So that’s some good news to land on.”

SANDAG board members must have been satisfied. After learning they had $17.5 billion in needs and no clear idea how to get it, they asked no questions and adjourned the meeting.

Andrew Keatts, reporter for Voice of San Diego, can be contacted at andrew.keatts@voiceofsandiego.org or (619) 325-0529.

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