As the County Council deliberates the 2015-2016 budget, one of the most important discussions is how to maintain Metro’s current level of bus service today without increasing the risk of even greater service cuts in the future when the next, inevitable recession hits our region. Here at Metro, our goal is to avoid past experiences in which overly optimistic revenue forecasts failed to materialize and, as a result, we were unable to deliver the services promised to the public.
The topic is hotly debated, including on this blog. We welcome public discussion and ideas for developing a long-term sustainable funding model for Metro. I read Mr. Whitehead’s recent analysis, and while it includes good observations it overlooks two important aspects: the inherent volatility of sales tax revenue, and the disconnect between the formal economic forecast that predicts uninterrupted growth and the well-established cycle that our region experiences a periodic recession.
This is an important and honest debate. We’ve taken major steps over six years to preserve service through innovation and continuous improvement. The proposed 2015-2016 budget reflects these realized savings and finds new ways to preserve some additional service previously proposed for cuts. For the first time in preparing Metro’s budget, we analyzed historical impacts of mild to severe recessions. Through this analysis, it was determined that a prudent reserve target should be set at levels that would allow us to ride out something in between: a moderate recession lasting three to four years. The reserve account is aptly named the Revenue Stabilization Reserve and was created by the County Council in 2011 to serve exactly this function of moderating and absorbing the unpredictable swings of our economy. Until now there was insufficient revenue to put into this fund.
Over the longer term, we also want to have a budget and finances that we believe are sustainable. Let’s remember, twice since 2000 Metro has relied on optimistic and ever-growing forecasts of future revenue only to have recessions (the dot-com recession of 2001-02 and the Great Recession of 2008-10) wipe out expected revenue as people stopped spending – causing Metro to scale back promises of added service. (See sales tax volatility chart – which shows recessions in the 1990s, early 2000s and 2008.)
Under county code, Metro must use the independent Office of Economic and Financial Analysis forecast which in its most recent forecast shows uninterrupted sales tax increases from 2011-2024. Such sustained growth would be without precedent, but Metro accepted these forecasts in the past: in 2000 after the 0.2 percent sales tax measure that partially replaced MVET, and in 2006 with the 0.1 percent sales tax for Transit Now. The 2015-2016 budget the Executive submitted and that Whitehead refers to also must use this forecast. Therefore the near and mid-term financial balance sheet shows substantial cash in our Revenue Stabilization Reserve (aka rainy day fund). Readers must remember this is a forecast; we have not collected this money, it exists only on paper. Continue reading “What is Financial Sustainability for Metro?”