New data on supporting transit thru a land value tax

The previous post notes that the value of taxable land in the Chicago metro area exceeds $1 trillion. Therefore, if we want to get an extra $200 million for transit, we can do it with a land tax rate of 0.02%, meaning $40/year for the owner of a $200,000 lot. Another option is to raise $2 billion/year, use some for transit and some for roads and parking, so that people who don’t ride transit will still see direct benefit. This would cost our typical homeowner $400/year, likely deductible from federal taxable income and partly credited on state income tax. Renters, at least in theory, will pay none of this tax; it will fall on owners of the land on which their rented quarters are located.

A proper analysis of this would compile current transit funding sources and uses, and show how funds will be freed up, and taxpayers unburdened. In addition, it would use information compiled by Richard W. England, from a study by others of Washington, DC, which estimates a drop in job growth of 2.08% for every 1 percentage point increase in the sales tax rate. Applied to the Chicago area, this means that the existing and proposed transit sales tax will reduce, by 9,422, the number of jobs which would otherwise be in the metropolitan area ten years from now. [These figures are calculated in a simple spreadsheet which I would post here, if I could figure out how to post it, and will send to anyone interested.]

Responding to PIRG, despite WordPress

Phineas Baxandall, one of the authors of the Illinois PIRG report blogged yesterday, commented on the item. Well, I responded to his comment, but for some reason WordPress swallowed the comment. Twice. I tried to comment as a normal person instead of myself. Swallowed again. Tried again. Rejected as “duplicate.” I don’t know what’s going on at WordPress, possibly there is some difficulty regarding html in the comment. But following is my response to Phineas Baxandall.

I’m always happy to see activists claiming that Henry George would approve of their work, but in this case there’s a serious gap between George’s proposal and yours.

George wanted to remove all taxes from productive activity, and instead charge for control of land (and other natural resources). Retail sales and service are productive activities, and when they’re taxed then the cost of living increases and living standards are reduced. Real estate transfers, too, usually involve productive activity, either construction or at least the transfer of property to someone who can use it more effectively than the seller.

Development impact fees likewise make it more expensive and difficult to provide housing (or other kinds of development). If such fees were truly user fees, then they’d be paid by all users, rather than just by those who seek to build.

You’re certainly not the first person to misunderstand George’s ideas, which is why we have Henry George Schools in Chicago and elsewhere, run courses by Internet, and have Progress & Poverty posted in original and modernized versions. Some relevant (and more succinct) modern documents are here.

It’s not so important whether your proposal would please Henry George. What’s important is that, had you proposed supporting transit thru a tax on location values, you would have recommended a policy to reliably fund transit in the long run, encourage transit-supportive development patterns, and improve the standard of living of ordinary working people.

"Protect land speculators" — Illinois PIRG

A solicitor stopped by my house a week or so ago pushing Illinois PIRG’s campaign to “save our transit.” They do have a report, funded by the “Illinois PIRG Education Fund” and prepared by Brian Imus, Nick Christensen, and Phineas Baxandall, that explains how they want us to pay more money for transit service.

The report notes that “Locations served by transit… show increased property values compared
to similar locations not served by transit.” Although they do cite sources for this assertion, they don’t refer to either of the Chicago studies which are (see footnotes 3 and 4 on page three of this). So then do they propose a tax on location value?

No surprises here. They proclaim “Seven Principles for Funding Transit:”

1-Enhance market efficiency

2-Low collection costs


4-Diverse funding

5-Fare increases are self defeating

6-Budget accountability

7-Community participation

They do provide some discussion of each. Then they evaluate several potential sources of funding:

-Sales taxes

-Gasoline tax

-Rental car tax

-(auto) License, registration or title fees

-Several other driving-related taxes

-Real estate development impact fees

-Stormwater fees

-Real estate transfer tax

-Parking tax

Their recommendation:

-Higher sales tax

-Extend sales tax to services

-Establish a real estate transfer tax, or maybe one of a few other taxes.

But although they acknowledge that transit service increases land value, there is no consideration of this option. Instead, they want to reduce economic efficiency by raisng taxes on economic activity.

CTA pension liability isn't the only one

A February Civic Federation report(pdf), which I just encountered, reviews the year-end 2005 status of  ten pension funds serving local gov’t employees in Chicago and Cook County, including CTA.  Total unfunded liabilities: $16,486,000,000.   And of course this doesn’t include any of the inadequately-funded State pension funds, nor suburban funds.

So some solution will have to be found for public pension funds, and I see no reason why transit riders should pay any more than other taxpayers for unwise decisions made by those they elected.

Chicago Transit Audit

On March 15 Illinois Auditor General William Holland released his “Performance Audit” of the RTA, CTA, Metra, and Pace. It can be downloaded from here. Apparently most of the actual labor was subcontracted to Maryland consulting firm Infrastructure Management Group.

The main techniques used seem to be peer group comparisons and trend analysis. Thus, cta is compared to such agencies as New York MTA, MARTA, SEPTA, MBTA, etc. (with separate comparison groups for bus and rail), Metra is compared to various commuter rail agencies, and Pace to smaller bus operations including Milwaukee. This technique may be appropriate if the “peers” are reasonable “models” to be followed, but if some of them are less than competently managed it’s of limited value.

Although it’s one of the last items reviewed, I think the most important point made (and it’s not really news to those who’ve been paying attention) is the disasterous state of CTA’s pension funding. A detailed history is provided, starting from the 20 months in the mid-1990s when, even though the pension plan wasn’t fully funded, transit management and labor decided to take a “pension holiday” and suspend contributions to the pension fund. Then on 1/1/2000, actuaries recommended that the pension contributions be increased to 16.54% of payroll (from 9%). Not only was the rate not increased, but pensions were raised by $40 to $75/month.

Actuaries continued to recommend increases in funding (to 18.19% in 2001, 29.46% in 2002, 34.98% in 2003, 45.16% in 2004, 48.32% in 2005, 50.3% in 2006), but the reaction of the management/labor board that runs the pension system was to keep the contributions at 9% and again raise pensions. Thus we are in the position where the plan is only 34.42% funded (meaning if I understand it correctly that it has only 34.42% of the money it should have to pay benefits already earned), with an unfunded actuarial liability of $2.3 billion. This is money which, under the Illinois Constitution, will have to be paid even if the entire transit system is liquidated or disintegrates.

I hope a few folks can be jailed for this pension mess but the auditor does not deal with that issue. Of course, the CTA’s Board is covered under a different plan, one that receives “pay as you go” employer contributions equal to 135% of salary. There are 22 beneficiaries (former Board members) and 6 active.

In nonpension matters, the Audit makes some good points but in a number of aspects does not go deep enough. Discussing planning, they don’t deal with the issue of why the Brown Line expansion or Douglas rebuild were approved without adequate consideration of less costly and equally effective alternatives.

The lack of a strong, centralized planning function, and the absence of a long-term strategic plan that sets a structure and broad guidelines encompassing financial, programmatic, and operational aspects of the Service Boards and the RTA, has been a major contributing factor to the present state of transit in northeastern Illinois.

and so here’s the Auditor’s recommendation about planning:

The RTA should conduct a long-term, comprehensive strategic planning process that sets a structure and broad guidelines encompassing financial, programmatic, and operational functions of the Service Boards and the RTA. The RTA should perform this
strategic planning process on an ongoing basis.
In addition, regarding major new Service Board initiatives, such as New Starts projects, the RTA should establish a set of criteria for funding and prioritizing such initiatives across all agencies.
Such criteria could include:
• How does the proposed project fit within the regional long-range strategic planning process;
• What is its priority;
• What is the desired schedule;
• What resources are available; and
• Which transportation mode is preferred.

But this recommendation is being made by a Maryland consultant probably unfamiliar with (and not contracted to consider) the details of Chicago planning issues, so it’s probably the best we could expect.

Following are some other highlights, all direct quotes from the report except where outdented.

We were also told that the CTA president was evaluated by the CTA Board at the
December 2005 Board meeting. The minutes from that session constitute the only written record of that evaluation. We reviewed these minutes, yet they did not contain any specific reference to the president’s review.

CTA’s monthly customer complaint report tracks the volume, but not the category, of complaints.

CTA’s trains are slower than their peers, which makes them less efficient in terms of cost/passenger or cost/mile, even after adjustments have been made to reflect their smaller size.

CTA’s operating costs for buses are $97.24/hour, compared to $105.24/hour for railcars. So apparently it would be cheaper to pave over the elevated, run buses every thirty seconds or so, rather than keep operating the trains. However, bus costs may be somewhat understated because apparently cta counts a bus as “in service” while deadheading (and in fact, most deadheads do permit passengers.)

To gauge the performance of maintenance personnel, the CTA rail operations group uses a “Periodic Maintenance Inspection Program.” Under this program, the Quality Improvement Section inspects cars at each of the nine shops and assigns points based on the nature of any oversights that are found, with more severe oversights earning higher points. Each shop is ranked according to its overall score, encouraging competition between shops to improve performance.

Wouldn’t it be interesting to see those numbers?

Currently CTA’s call center handles an average of 19,000 calls per month, with an average hold time of 6.2 minutes and a 55 percent abandonment rate. Abandonment rates and hold times had been between 4 to 36 percent and 23 seconds to 9 minutes and 25 seconds, respectively, from 2002 through 2005.
The customer service department attributes the jump in the abandonment rate to the implementation of a referral to the web site in the recorded voice.

• Reduce total bargaining unit compensation package to market levels ($191,800,000). The AECOM report notes that this would be system wide savings, but full implementation through attrition could require several decades.

I am not familiar with the AECOM report but apparently it assumes cta staff are massively overpaid. I wonder on what basis?

Pace buses costs $69/hour to operate (compared to $97 or more for CTA), spends less on maintenance than CTA but their buses break down only one-eighth as often. Only 22% of Pace’s buses are past “retirement age” compared to 47% for CTA, but could this be the entire explanation? I wonder why the Auditor didn’t recommend having Pace take over one CTA garage to see how they could do.

I have read somewhere that the Audit slams cta’s absenteeism as a major problem, but actually cta’s sick days seem to be only in the neighborhood of 1% of hours worked (sick) and the cost of sick days and workman’s comp is only maybe 2% of total labour cost. I don’t think it’s unreasonable for an average bus driver to take two or three sick days a year, and that’s all this seems to imply. In fact, if he really feels sick, I don’t want him driving the bus I’m on.

The Audit makes clear that one reason sales tax revenue has grown more slowly than operating expense is that most of the population (and sales) growth is in the collar counties, where the sales tax rate is only 1/4 of the Cook County rate.

The report has some interesting observations about fare elasticity (the ratio of ridership change to fare change), estimating that it’s about -.15 for cta, between -.3 and -.4 for pace, and very small for Metra. There is of course no further segmentation, nor any long-term analysis. A proper understanding of fare elasticity would have to consider the interaction with parking prices and long-run effects on travel demand.

p. 274 gives us a context-free analysis of transit funding flows:

Whether one bases the subsidy allocation on passenger miles or boardings, the results are essentially the same: the city of Chicago is the largest net importer of transit tax revenues, and suburban Cook County is the largest net exporter of sales tax revenues. Since a predominant number of trips made by residents of Chicago is on the CTA, it is clear that CTA benefits from the current statutory and discretionary allocations of sales tax revenues.

The current revenue allocations also favor the collar counties, with the exception of Kane County, which is a net exporter of sales tax revenues. Generally, the net import of tax revenues by the collar counties reflects the effect of a lower sales tax rate than is levied in Cook County, while at the same time their residents have good access to transit services provided by Metra and Pace.

It would be interesting to compare this with expenditures of highway funds. And consider that some transit trips are cheap to serve (reverse-direction commute, and any non-cbd trip that can use a feeder bus required to serve cbd trips), while others are expensive (mainly peak-direction cbd-oriented).

And cta’s multiple administrative hq’s:

p. 381: The top floor of the CTA Headquarters building (approximately 34,000
square feet) is unoccupied. The CTA has been attempting to rent it, but
has been unsuccessful. The CTA’s financial plan for acquiring the new
headquarters was based on the assumption that rental income would be
generated by this space.

p.383: When CTA consolidated its headquarters at West Lake, most of the administrative functions that were located at North Racine were relocated to West Lake. The CTA control center remains in the North Racine building, occupying the top floor of a three-story building, which has a total gross floor area of approximately 100,000 square feet.
The decision to vacate two-thirds of that building (approximately 71,500 square feet) did not relieve CTA of its lease payment obligations









If you can't afford to waste transit funds

then you don’t. This was brought to mind back in June, when a speaker at the Metropolitan Conference on Public Transportation Research reported a conversation with the former Mayor of Curitiba, Brazil. The Mayor said something to the effect of “It is fortunate that we in Curitiba don’t have as much money as you have in Chicago, because if we did we would waste it.”

Maybe the same thing is happening in North Carolina, where the [Research] Triangle Transit Authority was unable to secure Federal aid for their proposed rail line, so apparently they’re working with a developer to get some of the land value increase. I say apparently, because the article in Metro Magazine isn’t very clear and I’ve been unable to find anything else.

Landowners paying for transit

Since public transport makes certain locations more valuable, some transit activists have long insisted that the owners of sites benefitted by transit service ought to pay the cost of it. Now we have a surprisingly obscure report that gum manufacturer Wrigley Co. is doing approximately that. The Chicago Transit Authority’s new route 132 Goose Island is apparently is paid for under a “five-year subsidized agreement with Wm. Wrigley Jr. Company.”

No word about the amount of the subsidy, or even the schedule of the service, (update January 10, here‘s the schedule), but as a downtown worker for the past 35 years I can testify that the route does appear justified. Wrigley has their big “Global Innovation Center” on Goose Island, and there are other employers in the vicinity. Direct service from the loop and Metra stations should find a market.  As far as I can tell from their corporate reports, Wrigley owns the site of their facility.

I’m surprised that CTA’s press release doesn’t mention the Wrigley funding, which appears only in a brief powerpointlike presentation (pdf) inflicted on cta’s Board, and I find nothing about it on Wrigley’s site.