State of the SANDAG Transnet Program

DRAFT Op-Ed Voice of San Diego State of the SANDAG TransNet Program

The time is right for the Board and staff of the San Diego Association of Governments (SANDAG) to take stock of the TransNet program, our region’s half- cent sales tax dedicated to transportation projects such as extending the Trolley, building Rapid transit lines, and adding HOV lanes to our freeway system.

Fundamentally, the TransNet program remains sound. Using this local source of money since 1988, SANDAG has successfully attracted state and federal matching funds to complete more than 650 projects. And in the first eight years of the 40- year TransNet Extension program, the agency has finished or started construction on 40 percent of the projects promised to voters. These investments are providing real benefits to everyone who uses our regional transportation system.

Recognizing that even with the success of TransNet our region will need more transportation choices as it continues to grow, the Board of SANDAG (made up of elected officials from all of the region’s 18 cities and the county) placed Measure A on the ballot in November. It asked voters to approve an additional half-cent sales tax to fund transit, open space, highway, bike/pedestrian, and local infrastructure improvements. While 58 percent of voters in the region supported the measure, it fell short of the two-thirds needed to pass.

In the wake of the election result, Board members asked SANDAG staff to evaluate the state of the TransNet program overall. In addition, questions have been raised (in articles published here in the Voice of San Diego) about the reliability of the forecasting used to estimate how much revenue will be generated by TransNet between now and when the tax expires in 2048.

In a recent report to the Board, SANDAG staff laid out the estimated costs for completing the remaining projects, presented a new revenue projection, and discussed the challenges of TransNet revenue forecasting. As part of this evaluation, cost estimates for completing the projects in the TransNet “major corridors program” – the capital improvement portion of TransNet – were updated based on the most current figures used in San Diego Forward: The Regional Plan. These updated estimates replaced those made back before voters countywide approved the extension of TransNet in 2004. (The estimates increased for a variety of reasons as planners looked more closely at the projects. For example, State Route 78 will cost more to widen that initially expected because it will be necessary to replace the bridges that pass over the highway.) As a result, the overall cost estimate for completing the major corridors program (including debt service) increased by about $8.4 billion (from $19.4 to $27.8 billion in year-of-expenditure dollars).

A close look also was taken at the revenue expected to come in from TransNet over the next 32 years. SANDAG staff used a new method for forecasting revenue which relies on three independent national forecasts. If looked at independently of one another, those three outside forecasts would result in estimates ranging from $16.1 billion to $20.1 billion. SANDAG staff used a consensus, or average, of those forecasts, applied it to the conservative SANDAG population forecast, and estimated that TransNet will bring in approximately $17.3 billion between now and 2048, roughly $3.3 billion less than previously forecast (in year-of-collection dollars). Of that, $6.3 billion will be available to fund the major corridors program, with the rest going to a variety of other initiatives included in the TransNet ordinance such as local road improvements, transit services, and transit operations.

The key to understanding these numbers is to focus on this major corridors program. At least once a year, SANDAG develops a “plan of finance” for the program, looking at the expected costs of the remaining projects, and the revenue expected to be available to pay for them. TransNet is just one source of the revenue that goes into the plan of finance – it also includes a wide variety of grants and funds from the state and federal sources. So with that in mind – as mentioned above – the cost estimates in the current plan of finance indicate it will take about $27.8 billion to complete the projects in the major corridors program. Of that, this new, more conservative revenue forecast estimates that approximately $6.3 billion will be available from TransNet. In addition to that, SANDAG already has identified $4 billion in various grants, state funds, and federal funds that will come in over the next few years. That leaves a need of $17.5 billion in matching funds over the next 32 years – or approximately three dollars in outside funds for every one dollar generated locally, which is close to the track record SANDAG has with the TransNet program to date.

To be exact, the ratio needed is somewhat higher than 3-to-1. It’s 3.4-to-1. That is, it will be if all these projections – population, inflation, costs, revenue estimates – looking out over decades turn out to be correct. With changes to any of these factors, the ratio would change. For example, if more funds were to come in – due to something like an increase in federal investment in infrastructure such as the one being discussed by the incoming administration – that ratio could drop significantly.

In other words, forecasts are just that – estimates used for planning and budgeting. They vary widely based on the inputs used, the methodology, the assumptions, the state of the economy, etc. And very small changes made in the assumptions in the early years can have huge impacts when calculating out over decades. Nevertheless, we need them. Without estimates, SANDAG cannot plan for the work it will accomplish in the near term, including projects like the I-5 North Coast Corridor, State Route 78 widening, and additional Rapid bus and transit services.

In fact, SANDAG produces a variety of forecasts for different purposes. One tool in this process is the agency’s Demographics and Economic Forecasting Model (DEFM), which forecasts population, housing, and job growth. Over time, DEFM has reliably forecast trends (and its population numbers are tied to state Department of Finance numbers). DEFM then uses these population growth estimates – and a large number of other inputs – to further make economic forecasts. Historically, the TransNet plan of finance has used trends projected by DEFM as part its calculations in estimating future taxable retail sales.

DEFM, a complex computer model, is used to produce new forecasts every four years so the data can be incorporated into the Regional Plan, which is also on a four-year update cycle.

SANDAG staff began the initial work of refreshing DEFM a year ago. And, going forward, planned to more fully update DEFM as part of the coming fiscal year’s work program in order to complete the updates for use in producing the next Regional Plan. As part of that larger process, staff planned to address what appeared to be aggressive taxable retail sales produced by the model.

While SANDAG staff already had identified the need to further investigate the taxable retail sales forecasting issue as part of the larger update, they began their work on that specific issue sooner after reports in the Voice in late October challenged the validity of TransNet revenue forecasting. After an intense effort, staff identified the root cause errors in DEFM in November, and they will be corrected as part of the update to the model. In the meantime, the independent methodology was developed to avoid any potential bias caused by the DEFM model.

The Voice has asserted that exactly when SANDAG staff knew about these errors is important. When SANDAG placed Measure A on the ballot, it estimated that the proposed new tax would generate approximately $18 billion (in 2016 dollars) over 40 years, and that amount affected what projects could be promised to voters in the measure. While, in general, staff was aware that DEFM’s taxable retail sales forecasts were aggressive at the time the $18 billion estimate was generated, they were considered reasonable. The specific issues were not identified until after voters went to the polls on Measure A. There is a simple bottom line question to all these complex efforts: Will SANDAG be able to deliver the projects it promised to voters when the TransNet Extension was approved? If the past is a good indicator, there is every reason to believe that, yes, the agency will be successful.

We remain confident that more opportunities will present themselves over the next 32 years. And SANDAG has a proven track record of being able to take advantage of those opportunities and deliver on its promises to voters in the San Diego region.