If north county residents want the SMART (Sonoma-Marin Area Rail Transit) train to come to Healdsburg and Cloverdale, then they at least have to vote for and accept a 20- or 30-year sales tax renewal. That was the message at the Aug. 7 SMART board meeting in Petaluma following a discussion of the transit agency’s budget projections.
If voters don’t renew the quarter cent sales tax in March 2020, future operating costs could exceed revenues for the future and will deplete reserves and the fund balance, according to projections presented by SMART’s Chief Financial Officer Erin McGrath.
What’s more, SMART would need the tax extension in order to stave off diving into their reserves and keep up with operating costs. The tax source of revenue alone would not be enough to construct the Healdsburg and Cloverdale extension.
“I’m sorry that it was promised on opening day that we’d build everything in one sweep, but the financing will not work that way,” said SMART General Manager Farhad Mansourian.
A 20-or 30-year tax renewal would help the situation though. A 20-year extension of the sales tax would allow the board to restructure the outstanding debt. It would also reduce annual payments by $12.2 million.
With this scenario expenses would exceed revenues annually until the debt is restructured in fiscal year 2022.
“From fiscal year 2023 forward, net revenue and fund balance remains positive through end of tax,” according to the projections. Net revenue is estimated at $3.1 million in 2023 and is forecasted to grow annually thereafter, which could be used to fund additional operating costs related to Healdsburg and Cloverdale.
As previously pointed out, net revenue would not provide enough capital for the actual construction of the rail extensions.
“It would provide room for operations if there were capital money available from some other source,” said Sarah Hollenbeck, a financial advisor for SMART.
The other scenario discussed reflects a 30-year tax measure renewal.
According to the projection model, “Restructuring outstanding debt with a final maturity to fiscal year 2052 (30 years) reduces annual payments by $12.5 million, providing capacity for operations.”
The benefit of this scenario is that additional years provide more flexibility to explore other funding options with added net revenue in later years.
“SMART is being very prudent and strategic by analyzing into the future on what the financial situation is,” said SMART board member and Windsor Vice Mayor Debora Fudge. “I think what the general manager and the chief financial officer reported is that it is in SMART’s best interest to extend the tax into 2020. Costs continue rise in the future and no agency likes to dip into their reserves… it would be smart to take action now and provide solid ground for the foundation in the future.”
“I support the tax extension,” Fudge said.
Yet, the question that still remains is whether or not north county residents would support a tax that may not provide enough funds for an extension that now may take years and years to complete.
SMART board member and Healdsburg councilmember Joe Naujokas posed a question during the meeting, “How am I going to go back to my constituents and say, ‘Well, even with the 30-year extension, sorry, there is no money here to do that.’ Can you help me explain that?”
McGrath said, “I would start by pointing out that one of the things we’ve been really successful at has been leveraging the funds that we have to get to here. The second thing I would say is without the sales tax, you certainly are not going to get to Cloverdale, so if we end up having to basically cut our service in half and use all of our funds just to survive, then the most successful way to get to Healdsburg is to extend the tax.”
Fudge added if the renewal were to pass then it would not have to be brought back to voters for another 20 to 30 years.
For the worst-case scenario, if the tax renewal were not approved by voters then drastic cuts would have to be put in place.
McGrath said they have not narrowed down specifics on what potential cuts would look like, however, she said it would likely amount to $9 million in cuts as well as reductions to service.
“We have to become balanced. I know this isn’t good news, but we are telling you what we know and we want to make sure we tell you and members of the public and not sugar coat anything,” Mansourian said of the potential scenario.
“Giving up is not what we have done in the last 10 years,” Mansourian said. “May I point out to you that BART, who has been operating for 40 years, is discussing extension to San Jose … even that is still a work in progress.”
When will the train come to town?
Just as is predicting financial outlooks for the future, this question is also tricky.
The SMART train website says the extensions will be built when funds become available, but no dates as to when that will be, are provided.
“We’ve already demonstrated creative ways to get funds and there is still plenty of room for creative ways to get more money,” Naujokas said.
But is there any sort of date being tossed around?
“No there is really no date,” Naujokas said. “A lot of folks will look at this and say, ‘Well forget it, it is never coming up north.’ But you could say those may be the same people who said it wouldn’t happen at all after the Recession.”
During the Wednesday meeting there seemed to be a bit of reluctance to mention a specific date as they said they wouldn’t want to promise a certain day and not meet that promise, Mansourian referred to the opening day ceremony of SMART, where they had made a promise to build Cloverdale and Healdsburg.
He said even though it may not be the best news, they want to “Call a spade a spade” and be transparent.
So why should residents vote for the measure if it is not going to benefit north county residents for a while?
“A big reason is so we can refinance the debt,” Naujokas said.
He added once the debt is refinanced there might be some funds left over, which then could possibly be used for projects such as the extension.
“I think there are opportunities for Healdsburg and Cloverdale to be integrated,” he said.
Naujokas pointed to the idea of electric bicycle shares or Lyft programs to get to the Windsor station once it is completed.
“That is something I will be pushing for in the expenditure plan,” Naujokas said.