Planetizen highlighted an Op Ed piece in the Toledo Blade that called for a new transit funding source. Toledo relies exclusively on property taxes to fund their transit system.
The Toledo Area Regional Transit Authority is one of the nation’s few transit agencies still funded by local property taxes. It’s an inadequate, unreliable, unsustainable, and unfair way to pay for the 3.4 million rides TARTA provides each year.
As with any tax source, revenues fluctuate. In Toledo's case, the variability was considerable.
[P]roperty tax revenue fluctuates with property values: Two years ago, TARTA lost more than $1 million in revenue, spokesman Steve Atkinson told The Blade’s editorial page.
Based on the examples of Grand Rapids and Denver, the paper's staff seems to think that sales tax-funded transit systems do not suffer from the same fluctuations in tax receipts. That, of course, is not the case. One might recall Denver's struggles after sales taxes fell short of initial estimates (e.g., 2010 Examiner article).
Furthermore, shifting the burden from property owners to consumers has other consequences. It happens that CityLab just published a piece on the regressive nature of sales taxes.
Of the three main forms of state taxes—sales, property, and income—the sales tax hurts the poor most, says Gardner. State sales taxes are highly "regressive," he says. That is, they end up taking a bigger chunk of change from people that have smaller sums of money and slower income growth.
Respected individuals in the transport field have also been talking about the issues of shifting our focus away from user fees to local sales taxes. For example, Marty Wachs has noted the inequity of sales taxes and discussed the governance issues that arise from voter-approved funding plans tied to specific transportation projects.
I certainly wouldn't argue that Toledo's transit needs are fully met. Nor would I suggest that they abandon their search for new transit funding. However, I would caution them from trading a viable and relatively equitable and efficient source of transit funding, the property tax, for a sales tax. To supplement their property taxes, perhaps they should consider hotel/motel taxes, business income taxes, or taxes and fees that discourage driving and encourage transit use. For example, Toledo could enact a vehicle license tax, a gas tax, congestion charges, or mileage fees. There are many revenue sources that would be preferable to sales taxes.
David Levinson is a big fan of value capture and always good for a blog post reference every month. Well, the Transportationist has done it again in a recent blog post:
Ideally transit would be paid for by user fees. But given roads are not, this would result in there being very little transit, since fares would be very high, and users driven away. Still, these could be higher.
He goes on to talk about several other mechanisms. Before finishing his post, I had to think back a second about why user fees might be better than value capture. Why would that be?
User fees reflect the beneficiaries pays principle of taxation. So do many value capture mechanisms. User fees are proportional to benefits. So too are (or can be) value capture mechanisms. They sound like equals.
But Levinson points out that value capture has concentrated loses (I think he means "impacts" on payees) with
Happy New Year! Here's the math on 2015 thus far: A new year = a creative value capture mechanism! Actually, it's just a politically palatable variation on an old dog. Who says you can't teach an old dog new tricks?
Randy Simes over at UrbanCincy reports that the Cincinnati Streetcar is making great strides. Branding, initial ticket sales, and an operating budget are in place. Interestingly, the funding agreement for operating the new streetcar includes a real estate value capture component. Property taxes will pay approximately half of the operating cost of the new streetcar service.
The agreement also utilizes an innovative technique that would lower property tax abatements 7.5%. This is an important component of the agreement as it addresses a longstanding call from opponents for those benefiting from real estate valuation increases to cover more of the costs of modern streetcar system. It also eliminates the need to utilize the Haile Foundation’s $9 million pledge, and would instead only tap into those funds in a worst-case scenario.
This brilliant value capture method defies some aspects of tax theory while still being politically palatable. Taxes tend to be politically viable when their burden is felt widely and minimally while their benefits are accumulated by a small, influential group that has a special interest in the adoption of the tax. In this instance, a small and influential group of property owners are feeling the brunt of the burden while a broad group of transit riders and property owners expect benefits.
This instance is distinguished from a new tax because it is actually a roll back of a prior tax avoidance. This is the same idea as eliminating tax breaks for specific industries. The perception is that the rich are getting richer while the poor populace gets nothing. In this instance, the rich landowners get a little less rich and the populace gets streetcar service.
This is an interesting case study and I look forward to following the implementation. Thanks for the update, UrbanCincy!
Ian Carlton is a transportation and land use expert specializing in transit-oriented development (TOD). He helps clients - including transit agencies, planning departments, and landowners - optimize real estate development around transit.
Special thanks to Burt Gregory at Mithun for permission to use the Portland Streetcar image above.