Charlotte Transit Consultant Says Sales Tax Will Grow Faster Than History Suggests
Last month, Charlotte City Manager Marcus Jones told City Council that a proposed penny increase to the sales tax would raise enough money to build the $6.3 billion Silver Line, a rail line to Lake Norman and an extension of the existing Blue Line to Ballantyne.
And there would be money for more buses. Greenways. Sidewalks. Roads.
The total cost is $13.5 billion.
“One of the things that I do want to say upfront is that the one cent covers it all,” Jones told council members during a June 28 meeting. “We’re able to do both the transit and the transportation. It covers the capital costs, the operating costs and the financing costs.”
Jones based that on a consultant’s report that a penny sales tax would grow 4.4% a year for the next 50 years.
But is that realistic?
In 1998, Mecklenburg County voters approved a half-cent sales tax for transit. And over the next 20 years, that tax grew, on average, by 3.8% each year. That time period included the Great Recession in 2008, but also a decade of economic growth that was the longest continuous expansion in the nation’s history.
Having a tax grow at 4.4% compared to 3.8% may not sound like a lot. But over 30 years the difference would be about $1.4 billion. The city plans to finish paying off the debt in 50 years. By that point, the difference is nearly $7 billion.
“That delta between those two numbers is the difference between feasibility and not,” said City Council member Ed Driggs, a member of the transportation committee.
Driggs said the future projection needs to account for recessions and that the rapid growth of the last 10 years may not last.
“You need to adjust for those factors and to try and arrive at a steady-state, long-term growth rate,” Driggs said. “That that number is almost certainly less than 4.4%. The difference that makes over 20 years — or especially 50 years — is huge.”
The consultant is InfraStrategies. Its managing partner is former Charlotte Area Transit System chief executive Carolyn Flowers.
InfraStrategies declined to comment for this story. WFAE requested to interview city officials to discuss the financing plan. The city only provided a statement that said “it continues to work with our consultants to ensure the assumptions, including the revenue growth rate, are consistent.”
The sales tax would need approval from the Mecklenburg County Commission and the General Assembly in Raleigh. Then voters would have to approve it in a referendum, possibly in 2022.
Problems With Past Projections
In 2007, Mecklenburg County voters decided to keep the existing half-cent sales tax instead of repealing it.
And during the campaign leading up to the vote, CATS and the city said that the tax – if kept – could build the Blue Line extension, a commuter train to Lake Norman, bus rapid transit on Independence Boulevard, as well as the streetcar.
CATS did have enough money to build the Blue Line extension. It didn’t have enough money to build the streetcar, so the City Council voted to spend money from its general fund.
Everything else was pushed to the future.
One reason: the sales tax didn’t provide enough money.
“It’s extremely difficult to forecast, and sales taxes are actually one of the most challenging taxes to forecast because so many different things impact their base,” said Whitney Afonso with the UNC School of Government, who has researched sales taxes.
She said they are difficult to forecast because they fluctuate wildly. Sales taxes grow quickly during economic expansions. And they decline rapidly during recessions.
She said there’s another problem: Mecklenburg County’s population growth will likely slow over the next 10 years as it runs out of space for new homes. She said more families will move to neighboring counties that, for now, don’t have transit taxes.
“Once you are stopping adding to the population, a commuter doesn’t spend as much of their income within the city limits as an actual resident,” Afonso said. “And they should be taking that into consideration.”
Another Question: Cost Estimates
While the consultant estimates that sales tax revenue will increase by 4.4% annually, it estimates that construction costs will rise by 3.5% a year.
Steve Polzin, who was a consultant with the U.S. Department of Transportation in the Trump administration, said transit costs will likely increase faster than that. He said that’s based on recent history. And he said President Biden’s infrastructure plan will likely fund more transit projects nationwide, pushing up costs.
"You'll see very significant inflation on the cost side for
things like electric buses and train cars and track equipment," Polzin said. "That will put tremendous pressure on the domestic market."
When voters kept the transit tax in 2007, CATS said the Blue Line extension would cost $750 million. Five years later, when the transit system signed what’s known as a Full Funding Grant Agreement with the federal government, the cost had risen to $1.1 billion. That rate of growth was more than double the consultant’s projected 3.5% annual cost increase.
Former CATS chief executive Ron Tober said the sales tax projections of 4.4% may “be a little high.” But he’s more worried that the consultant is underestimating how much construction costs and operating costs may increase.
He said escalating operating costs are, in his opinion, the biggest threat to the plan. If costs exceed revenues then “sooner or later you are going to become a deficit operation or eat into any reserves that you have built up or over time.”