Grim Financial Reality Is Settling in at SANDAG

Staffers at the San Diego Association of Governments have taken up a new routine. Every few months, they update board members on just how terrible the agency’s financial situation has become. 

The regional sales tax measure TransNet has been mired in scandal for three years, but the scale of its financial problems, which predate that scandal, are still settling in. 

This month, the agency’s chief economist found a new way to convey the financial straits facing TransNet, the transportation program funded by 2004’s voter-approved sales tax measure. 

When San Diego voters stop paying the half-cent sales tax in 2048, Ray Major said, they will have received about half of the regional transportation improvements promised to them at the ballot box. 

And that’s the optimistic outlook. It could be much worse. 

By the time SANDAG walked into a scandal by inflating the revenue expectations of a second tax proposal, 2016’s Measure A, TransNet was already doomed to come up short, though the agency had not yet acknowledged it publicly. Doing so would have meant also conceding that the new money brought in by Measure A would go toward fulfilling TransNet’s old promises. 

For more than a year after the scandal broke, agency staff continued to insist they could still fund all the projects promised in TransNet. That’s over. 

SANDAG staff now regularly remind the board just how bad TransNet’s finances are. Pending a rescue from billions in new state and federal government transportation stimulus, many of the projects included in the measure won’t be built. 

The dozens of projects that have not yet broken ground – overwhelmingly highway projects – are squarely on the chopping block. Future boards will have to decide which get the small amount of remaining money. But the agency no longer really entertains the idea it will build everything.  

Nearly 40 percent of TransNet money goes to major regional projects like highways and transit lines. At the start of the program, SANDAG borrowed from Wall Street, promising to pay off its bonds with the future revenue, so it would have enough money upfront to build major projects like express lanes on I-15, the Mid-Coast Trolley extension from Old Town to University City, and bolstered bus services like the South Bay Rapid. 

But the agency now expects everything it dangled to voters to cost about 130 percent of its analysts’ initial expectations, while it projects revenue to come in at just 66 percent those early hopes. 

Together, that leaves the agency with about half the buying power it envisioned when it laid out the ballot measure, Major told the board. 

If the agency used a measure of construction costs maintained by the state highway agency, Caltrans, which has shown a larger spike in costs, then the region’s buying power would fall to just 34 percent of what it expected when the measure passed. 

Major indicated he thinks the revenue expectations are only going to get worse from the $9.2 billion in local collections the agency is now projecting by 2048. “All indications are this number is going to be lower than the $9.2 billion that we’re showing here,” Major told the board earlier this month. 

It’s those unfinished major projects that have captured the most attention since the agency’s TransNet scandal and associated financial problems came to light, but those projects account for less than half of everything SANDAG promised to do with that sales tax revenue. 

The measure also sends nearly 30 percent of its revenue to individual cities so they can fill potholes and improve roadways. Between now and 2048, cities are expected to split up about $4.8 billion – or about $2.6 billion less than expected. 

Likewise, the region’s two transit agencies receive 16 percent of all the sales tax to subsidize their operations. They get another 8 percent of the county’s revenues on top of that, meant specifically to cover the cost of operating all the new transit projects built by TransNet. 

Those agencies are short about 44 percent of the revenue they might have received based on the ballot measure’s initial projections, too. 

It’s the money meant for operating the new transit services that’s especially concerning, given the agency’s current financial projections. The agency fears the money marked for those new transit lines now might not be enough to cover the cost of operating those services, leaving the agencies to figure out how to make up the difference. 

Yet each staff update on the state of TransNet seems to bring worse news. 

For instance, in late 2017 the agency estimated that it would need to bring in $3.40 from state and federal sources for every $1 it collected in local revenue, if it were to complete every major regional project it promised. 

Now, though, according to an update delivered by Executive Director Hasan Ikhrata this summer, the agency will need to collect a whopping $9.60 from outside San Diego for every $1 it collects from local residents in order to build everything included in the TransNet ballot measure. 

That’s what it’ll take to make up the $15.8 billion gap facing TransNet’s program for major projects. 

“To make up that gap we have to get $10 from other sources for every dollar,” Ikhrata said. “If you go by last year, we got 2.4 dollars for every dollar. It’s not going to happen. This. Program. Was. Overpromised. You’re not going to have funding to finish the projects.” 

The $24 billion worth of TransNet projects Ikhrata says can’t be finished include improvements to I-805, I-5 in the South Bay, the SR 94 and SR 125, I-5 in the northern part of the county, SR 54 and SR 125, I-8 and SR 56. 

Measure A, the 2016 failed tax measure, would have been allowed to pay back those unfunded commitments if it passed, at the expense of the new projects the measure sold to voters. 

Since the scandal erupted, the agency has long sought to distinguish between an erroneous revenue forecast used to sell Measure A, and the funding shortfall facing TransNet, even as it acknowledged that the new Measure A revenue would have been allowed to backfill that shortfall. 

County Supervisor Jim Desmond, who in 2016 was on the SANDAG board as the mayor of San Marcos, extinguished any doubt that Measure A would have been used to pay back TransNet’s old promises during the July board meeting. 

As other board members praised Ikhrata’s transparency and lamented the lack of oversight of previous boards, Desmond came to their defense. 

“Before we disparage earlier boards: We did realize there was a shortfall,” Desmond said. “That’s why Measure A went out. We didn’t have the money. I supported Measure A. We realized this was a deficit and that we needed to go after more money. It’s great to hear the information again, but it wasn’t that everybody was stupid and had their heads up their rear ends. We realized it.” 

Before the end of that July meeting, Ikhrata had one last dose of good news. 

“This number could only go down,” Ikhrata said, of the agency’s revenue expectations. “If I come back to you in a while and this number goes down, don’t be surprised.”