The Morning Report
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SANDAG expects you – yes, you! – to spend a lot more than you have been on items like clothing, cars and appliances. And it expects you to keep spending more well into the future.
The agency is promoting Measure A, a countywide sales taxes hike that would pay for regional transportation projects. It has said the measure will bring in about $18 billion over 40 years.
But for Measure A to meet the $18 billion number that’s being touted in mailers and in the official ballot language, the typical San Diego resident would need to spend more money on items subject to the local sales tax than at any time since 1970, even accounting for inflation.
In other words, SANDAG’s promise to collect $18 billion, and thus build $18 billion worth of projects, relies on incredibly aggressive growth projections.
SANDAG’s former chief economist and current director of special projects, Marney Cox, defended that aggressive growth projection.
Taxable sales have grown by big margins in San Diego before, Cox said. In the 1970s and again in the 1990s, sales grew even more quickly than the agency currently envisions.
“The chart doesn’t show higher rates of growth than we’ve seen,” Cox said. “It’s consistent with what we’ve seen in the region in the past.”
The current expectations would also rely on San Diego far surpassing the overall high point in spending, though.
Other experts disagreed with Cox. Robert Puentes, president of the ENO Center on Transportation – a think tank that’s currently monitoring regional transportation taxes like Measure A – called the chart showing ever-escalating spending by San Diego residents “extraordinary.”
Lucy Dadayan, a researcher at the policy-focused Rockefeller Institute of Government who is studying a national decline in sales tax revenue growth, cautioned that it’s unreasonable to expect growth beyond the historical average, which is what SANDAG is expecting. She said most forecasts should anticipate returns slightly below the historic level to be conservative.
“It’s better to collect more money than to underperform,” she said.
But the driver of those aggressive growth projections is pretty simple, too. SANDAG’s forecast expects San Diegans to keep getting richer. That’s why it assumes we’ll all have so much more disposable income to spend on things that generate revenue for new transportation projects.
For instance, the agency’s current forecast expects the number of households in San Diego making more than $200,000 a year, adjusted for inflation, to nearly double by 2050. Households making between $150,000 and $200,000 would increase 75 percent. Those making between $125,000 and $150,000 would increase 62 percent.
Those making less than $15,000 a year, and those making between $15,000 and $30,000, meanwhile, would decrease by 9 percent and 3 percent, respectively.
Cox said there’s nothing wrong with those expectations, because the idea that high-income households would represent nearly 30 percent of the overall growth in the county is consistent with other national growth forecasts.
If it sounds counterintuitive, Cox said you need to keep in mind what’s happening to the demographics of the country. People are wealthier at the end of their working lives than the beginning. So as the Baby Boomers shift into retirement, we should expect to see the share of upper-income households increasing, if only because those Baby Boomers are getting older.
“It’s a distribution thing,” he said. “It’ll go away.”
But it’s also possible that the way SANDAG measures household income is itself contributing to the expectation that we’ll soon experience a record level of personal spending.
SANDAG’s measure of household income doesn’t just include the wages of the people who live in one home. It also includes things like the value of their home and the interest earned from things like IRAs.
That’s not all that uncommon — the federal government’s Bureau of Economic Analysis also measures income that way. But the Census Bureau, in its estimate of household income, only accounts for the money you actually earn.
A 2004 paper by analysts from both the Bureau of Economic Analysis and the Census Bureau found that the BEA’s measure tends to make the country seem wealthier than the Census Bureau’s measurement, and the difference is mostly due to the additional measures of income it includes.
It also found that the Census Bureau’s measurement “better measures current capacity to spend.” That makes sense: An increase in your home value improves your financial position, but it doesn’t necessarily mean more spending money in your pocket.
That could be a problem for SANDAG, which uses its household income expectations to figure out how much money people will have to spend, and therefore how much SANDAG will be able to collect in sales taxes.
If that’s the case, it would mean SANDAG has systematically overstated how much spending will occur in the county going forward, and make it much less likely that the boom in local spending required for the agency to collect $18 billion from Measure A will ever materialize.
Nonetheless, Cox stands by the agency’s numbers and the expectation that Measure A will bring in $18 billion for new transportation projects.
If he’s wrong, and county voters don’t reach unprecedented levels of personal spending, many of the projects included in Measure A won’t be built unless the agency can find another way to pay for them – like another sales tax increase.