transportation funding ideas

First, some background. The California Department of Transportation (Caltrans) publication: Transportation Funding in California (2019), documents what funding is currently available in the state, but mostly serves to reflect how complicated the whole funding stream is. I don’t think this is an unintended consequence, but a design feature, as a complex system benefits engineers, planners and politicians by obscuring inputs and outputs.

Next, there are many useful sources of information on potential funding, but two I find useful are: Key Local Funding Options, by Transportation for America, and A Guide to Transportation Funding Options, by Texas Transportation Institute.

I don’t claim any expertise in transportation funding, but I am reading and thinking, and am presenting some ideas for your consideration.

This exploration is both the result of Sacramento Transportation Authority (SacTA) to pull the ordinance and request for ballot measure for the 2020 Measure A transportation sales tax, as well as an ongoing dissatisfaction with our current funding models. The current Measure A is a 30-year (2009-2039) transportation measure for the county of Sacramento which implements a half-cent sales tax. Though there are minor amounts of funding from other sources at the county level, and in the cities, this measure is the main source of local funding for transportation.

Sales taxes are regressive, in that lower income people spend a higher percentage of their income on sales tax than do higher income people. Of course most of our tax system is set up this way, as the higher income people, particularly the top 1%, buys politicians with political donations who will make sure that their tax burden remains as low as possible. The Trump tax cuts are just one example, where nearly all of the benefits went to high income individuals and large corporations. The huge income and wealth disparity in the US is no accident, it is the design of the taxation system. Nevertheless, it is worthwhile to talk about less regressive taxes.

A few alternative potential sources are listed. This is not meant to be an exhaustive list, please see the leading documents if you want a fuller list. Rather, it is ideas that appeal to me.

  • Income tax: While. in theory, income taxes are progressive, they have been made less and less so over time, and in fact are currently regressive because high income and high wealth individuals, and large corporations, write tax code that reduces their obligations. In fact many large corporation pay no taxes at all. Because California largely follows the federal tax law, California’s income tax is also regressive. Nevertheless, income tax is less regressive than sales tax. However, California does not allow local income taxes.
  • Property tax: Property tax is based on the value of land and improvements (at least theoretically, though assessment practices actually muddy the waters). This is the least regressive tax available, since the value of the property being taxes correlates highly with income and wealth. It is what should be funding most of our government services. But as you well know, Prop 13 corrupts that by holding the taxation rate on some properties to artificially low values. Proposition 15 (2020) will remove that limitation on commercial properties, but does not touch residential properties. Most of the billions in income from Proposition 15 will go to education, as it probably should, but some can be made available for transportation.
  • Property tax increment: When the value of property increases due to a specific transportation investment, the additional property tax collected can be used to pay for the investment, usually through bond repayment. Sounds good, but in California the tax increment has been so corrupted by giving tax breaks to large corporations that almost no one trust the funding mechanism anymore.
  • Property tax assessment: Taxes are raised on parcels that are expected to benefit from a transportation investment. This seems like a great idea, but from my understanding Prop 13 limitations mean that this is rarely done, and special assessments default to parcel taxes. Worth learning more about.
  • Parcel tax: These are flat rate taxes on property. Because every parcel pays the same amount, these taxes are incredibly regressive. Unfortunately schools and many other local taxing districts use parcel taxes. Their regressive nature should preclude their use for transportation.
  • Vehicle registration fee: These include a number of related fees, see https://www.dmv.ca.gov/portal/vehicle-registration/registration-fees/ if you want more details. These fees are based in part on vehicle value, so they are more progressive than many fees/taxes. It is not clear whether counties/cities/regions can charge vehicle fees. As a highly visible fee, this one tends to get a lot of attention from anti-tax people.
  • Fuel tax (or mileage fee): This tax, or fee, relates to fuel used or miles traveled. These taxes/fees are therefore a user fee, the user of the transportation system pays for the transportation system. However, I don’t think California allows such taxes/fees at the local level.
  • Parking fees: Parking charges are a variety of user fees, but instead of based on the vehicle when moving, based on when the vehicle is still. Parking fees are collected and expended at the local level, so this a strong nexus. In California, parking fees are theoretically only allowed to cover the cost of administering the parking, and not even the cost of constructing and maintaining the parking space, however, this is widely violated and is probably a ripe are for reform. Parking is in many ways a wasted part of our transportation system, socialism for car owners, so this one should be at the top of the list.
  • Congestion pricing: A fee changed to vehicles entering a defined area of the city where there is congestion of some sort. I think the term ‘congestion’ is unfortunately in this context, as it implies that congestion is something to be solved, but it is, for now, the commonly used term. Transportation use fee or something else might be better. At any rate, sometimes the fee is per vehicle, and sometimes it is adjusted by the weight (= pavement damage) or pollution output of the vehicle. Congestion fees have been criticized for having an inequitable impact on lower incomes, but this idea has been widely rebutted by the realization is that the most inequitable transportation system is on that requires people to own and use private vehicles.
  • General Funds: Cities and counties may of course, spend general funds, raised by any variety of taxes and fees, on transportation. But they rarely do. Part of the reason has to do with federal and state grants being a ‘free’ source of funds, that the local entity doesn’t have to raise or be blamed for, but flows freely from a higher level of government to the local. I would argue that at least some general funds should be spent on transportation, to provide at least a basic level of services and infrastructure.

This is just a quick run-through. Next post is about what I think should be emphasized for Sacramento county.

property taxes and blight

dead zone on 1000 block of J Street, downtown Sacramento
dead zone on 1000 block of J Street, downtown Sacramento

Why do buildings and lots sit empty for years throughout downtown Sacramento and beyond? Because there is little consequence to the property owner of leaving them empty. They continue to pay property taxes while waiting for some development scheme that will make them so much money that the years of property tax are a drop in the bucket. Occasionally, a property is taken for non-payment of property taxes, but that is rare.

While the building or lot remains empty, the city (I’ll use “the city” for the cities and counties and utility providers) still has costs associated with the property. The cost of electrical, water, sewer, telephone, the street network, and transit in an area has more to do with the capacity of the system and the network passing by a property than the specific connection to the property, so the city still has costs even though they are receiving only a pittance of property tax. Fire and police services are actually higher for empty building and empty lots because they attract vandalism, crime, illegal occupancy. They drag down the property values of everything around them, and therefore the property tax income from everything around them. They are in large part the very definition of blight.

Ironically, many of the empty buildings and empty lots in downtown Sacramento are owned by the city itself. So the city is costing itself money by letting these sit, and of course that means that it is costing us taxpayers.

When the economy slowed, those big projects that would make a lot of money evaporated, and so more and more property sat unused. But it did not need to be unused. Smaller scale projects were always possible. I think one of the big differences between downtown and midtown in the downturn was that midtown had a large number of small properties owned by people with moderate dreams of development and redevelopment, while downtown had a few large properties owned by people with grandiose dreams. Those dreams crashed, and so did downtown. A number of successful businesses were dragged down by the failures around them. Midtown went through a slow time, but lost far fewer businesses, and is now picking up in a way that downtown has not.

So, what to do? As always, I have some outside-the-box (or off-the-wall, some would say) solutions to propose.

1. Assess property tax on all government entities. What purpose would this serve? Wouldn’t it just be moving money from one pocket to another? Yes, but it would make the cost of maintaining empty buildings and empty lots show up on the balance sheet as a direct expense. As with all things financial, we pay it no attention until it shows up on the balance sheet and affects the bottom line.

2. Assess empty lots at the value they would have if developed, based on typical properties surrounding it. Seems unfair? Not in my mind. The empty lot is costing the city, and all of us, directly in terms of services needed, and indirectly in creating blight that lowers property values and depresses economic activity. This higher level of property tax would encourage the owner to move forward with development. In a few instances, these empty lots could be converted to public purpose such as a park or farmers market location, but the number of those conversions would be small relative to the number of properties

3. Double property taxes every four years for both empty lots and empty buildings. This would give the owner a strong incentive to do something. While regular property taxes can largely be ignored, when it goes up 2X, then 4X, then 8X, then 16X, no property owner will leave the property unused.

I have no illusions that even these radical proposals would bring vibrancy back to downtown, but along with many other policies and actions, they would certainly help.

I think something needs to be done about surface parking lots, which are another unproductive use of land that costs us all money, but that is another topic for later.

I’ve uploaded a few photos to Flickr of abandoned downtown, along J and K streets. It would take days and thousands of photos to document it all.