Tag: bonding

Prop 5 bonding for transportation?

Dan Allison1 Comment

Proposition 5

A Yes on 5 website offers details in support of the proposition. The arguments against, on the voter information guide, are just the standard anti-tax voice, so isn’t useful to this post, but you can read your guide if you are interested. Prop 5 was placed on the ballot by the legislature, as a result of two legislative resolutions. The proposition is entitled “Proposition 5: Allows Local Bonds for Affordable Housing and Public Infrastructure with 55% Voter Approval.“

The proposition would change the voting threshold from two-thirds, 67%, to 55%, for ballot measures by cities, counties and special districts (does this include SacRT?) that bond against property taxes for the purposes of affordable housing and public infrastructure. The proposition does not directly raise property taxes, nor would local bonding measures directly raise taxes, though since the bonds have to be repaid with interest, property taxes could eventually go up within the limits sets by other legislation. This has nothing to do with sales tax, which remains at two-thirds for govenment proposed sales taxes, and 50%+1 for citizen proposed measures.

The history of the proposal development indicates that it is more about affordable housing than public infrastructure, but infrastructure is definitely allowed, and could easily be justified when that infrastructure supports affordable housing. It can also apply to transportation infrastructure. The specific language in the ballot measure related to infrastructure is “construction, reconstruction, rehabilitation, or replacement of public infrastructure”, which is pretty open-ended. More specifically, the proposition lists the following infrastructure uses:

(I) Facilities or infrastructure for the delivery of public services, including education, police, fire protection, parks, recreation, open space, emergency medical, public health, libraries, flood protection, streets or highways, seaports, public transit, railroad, airports, and
(II) Utility, common carrier or other similar projects, including energy-related, communication-related, water-related, and wastewater-related facilities or infrastructure.
(III) Projects identified by the State or local government for recovery from natural disasters.
(IV) Equipment related to fire suppression, emergency response equipment, or interoperable communications equipment for direct and exclusive use by fire, emergency response, police, or sheriff personnel.
(V) Projects that provide protection of property from sea level rise.
(VI) Projects that provide public broadband internet access service expansion in underserved areas.
(VII) Private uses incidental to, or necessary for, the public infrastructure.
(VIII) Grants to homeowners for the purposes of structure hardening of homes and structures, as defined in state law.

The reason for raising this issue is that taxes based on property are progressive, meaning that people with higher incomes and therefore higher value property, pay more in taxes. Sales taxes are regressive, meaning that low-income people pay a higher percentage of their income on taxes than do higher income people. Proposals to increase the sales tax in Sacramento County have been resisted by many who think we have runs out that option and need to turn to options that are not regressive, like property tax.

I prefer pay-as-you go expenditures from most transportation projects, except for a few which are very expensive and of clear benefit to everyone. There are few transportation projects that would or should quality for this. The transportation projects we most need going forward are many small fixes, not the mega-projects done in the past which tend to be motor vehicle projects. But some transit projects could be or should be bonded. The problem with bonding is that interest payments raise the cost to about 1-1/2 times the project cost, depending on the bond length and bone rates, and that money goes to wall street investors, not to the project.

I am in favor of the proposition. It gives local governments, and therefore citizens, control over how they spend their property tax, rather than being constrained by statewide controls that were implemented by anti-tax interests.

If the proposition passes, would it be the solution, or a solution, to funding affordable housing and transportation infrastructure instead of or in addition to sales tax or other taxes and fees? I don’t know, but I do think it is worth exploring. Though the proposition applies to local measures on the same ballot, there are no transportation measures of any sort on the 2024 ballot in Sacramento Couny. There may be in 2026, as a Sacramento Transportation Authority new Measure A transportation sales tax, or a SacRT sales tax for transit with a limited geography, a citizen measure sales tax for housing, transportation, and active transportation (the SMART/Steinberg proposal), or other ideas that have not yet come forward. A property transfer tax has been discussed, which is another progressive tax. The state has a property transfer tax, as do other entities. It isn’t clear to me whether Sacramento County or any of the cities within the county have transfer taxes.

Sac City is transportation bankrupt

Dan AllisonLeave a comment

There is an insightful admission hiding in the City of Sacramento General Plan 2040 update. In the Mobility Element, A Multimodal System section, Maintenance and Funding subsection (page 8-8), “A key challenge for Sacramento is that existing revenue streams do not fully cover operations and maintenance costs, and this same funding is also used to support implementation of improvements for safety and mobility throughout the city.”

Revenue does not cover expenses. Liabilities exceed assets. The city is bankrupt, just as you would be in this situation. Some asset of yours, like your house if you own one, or your business if you own one, is deteriorating, and you do not have the income to fix it. In the case of the city, it has incurred debt in order to build a transportation network that it cannot possibly maintain under the current taxation regime. And it never will. Never. If the city raised taxes, of whatever type, to the point they would pay for debt service and maintenance of the existing system, people would revolt. And that does not even include the new transportation infrastructure that some people would want. The city’s transportation system is bankrupt. It always will be. The core of the reason is that the city asked developers to pay for transportation infrastructure within a development, but then the city takes on liability for maintenance of that infrastructure. It all looks good for about 30 years, until things start to fall apart. The streets need repaving. The sidewalks are cracked. Painted lines and crosswalks have long since faded to invisibility. Not to mention what lies beneath (water and sewer), which is even more expensive to fix. For an in-depth explanation of how cities and counties and states got into this situation, I can recommend Confessions of a Recovering Traffic Engineer: Transportation for a Strong Town, and Strong Towns: A Bottom-up Revolution to Rebuild American Prosperity, both by Charles Marohn of Strong Towns. In fact, just in time for my post, an article today on Strong Towns: Why Cities are Flying Blind When It Comes to Their Own Debt.

So, what to do?

  1. Don’t bond anything again. We don’t need more roadways, or wider roadways, or interchanges. We don’t need big projects. Pay for maintenance of what we have, out of current income. This also means that we would never again bond against future income for current funding, as the city has done with parking revenue.
  2. Figure out what we can’t afford to maintain, and have that discussion with the public. I’d suggest that we can’t afford to maintain parking areas, whether on street, surface lots, or structured parking. Parking has never paid for itself and never will, and if we have to triage our transportation spending, it should be the first to go. Next would be cut-de-sacs and intentionally dead-end streets.
  3. Change accounting and budgeting so that transportation infrastructure shows up as a liability in accounting and budget, because it must be maintained forever, rather than as an asset.
  4. Cease accepting responsibility for new roadways built by developers. If a developer wants infrastructure, they can pay for it, and maintain it, forever, by setting aside reserves to cover the necessary maintenance. This would result in gated communities, which I definitely do not like, but a gated community is better than fiscal bankruptcy. It would also result in far, far fewer greenfield developments, since the financial model for these is that society will take on maintenance responsibility, and will build the surrounding infrastructure of arterial roads and highways that the development must have to pencil out. That is all to the good.
  5. Wean the city off of federal, state, and regional grants. Not all at once, but decrease the percentage of transportation projects that depend on outside money. This would mean even less money for transportation in the city, but it would force the city and citizens to look at what is really important, to individuals and society, and spend on the things that are really important. I hope that safety comes out at the top, and that we spend on transforming out transportation system from the current one that kills and maims people to one that protects vulnerable users first and foremost.

Note that the city is bankrupt in many ways, not just transportation. But transportation is my thing, so that is what I focus on.