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SMART predicts ‘modest growth’ in fare revenue as it confronts deeper financial uncertainties

Key SMART figures and dates

Measure Q, quarter-cent sales tax, passed by voters in 2008

Passenger service launched in August 2017

Passengers to date: 1.4 million

Current annual operating expenses: $58 million

Projected annual operating expenses, 2021: $63 million

Projected annual debt costs, 2022: $18 million

Projected start of Larkspur service: End of this year

Projected start of Windsor service: End of 2021

Projected cost to reach Cloverdale from Windsor: $364 million

Officials with the North Bay’s commuter rail system anticipate 5% growth in fare revenue in two of the next three years with the scheduled opening of new stations in Larkspur and Windsor. The projections emerged this week as part of a more comprehensive financial portrait put forward by SMART of the 2-year-old system, where officials hope to renew taxpayer support as early as next year at the ballot box.

The new details came two weeks after SMART officials warned that within three years it would require deep cuts to service without voters’ early approval of the quarter-cent sales tax that funds the system.

But the system’s emerging financial outlook also has some smaller, brighter points in its forecast. Those include “modest growth” in fare revenue tied to the new stations south and north - about $200,000 each year, according to the draft strategic plan presented to SMART board members on Wednesday. The plan assumes a steady baseline of 3% revenue gains from sales tax, SMART’s primary funding mechanism. Tax revenue from Measure Q, passed in 2008, is expected to reach $39 million this year.

“The purpose is to look ahead and say, ‘Well, knowing what we know today, what do we see in the future?’” Erin McGrath, SMART’s chief financial officer, told the board. “The forecast areas are based on a single point in time. As you get to next year and the year after, your reality will have changed and you will deal with that different reality.”

Even if voters do approve a tax extension next year - nearly a decade early - SMART, which celebrates two years of operations Sunday, still would not have the $364 million it estimates is required to extend service north of Windsor, to Healdsburg and Cloverdale. That money would have to come from outside sources,?including regional, state and federal grants.

The extension would, however, allow refinancing of ballooning debt payments, and preserve operating funds - including the roughly $5 million needed to run service the additional 22 miles from Windsor to Cloverdale. That projection in the draft plan offered up for the first time an assumption that the line would reach Cloverdale by 2029, two decades after voters authorized the Sonoma-Marin Area Rail Transit system.

Healdsburg Councilman Joe Naujokas, who joined the SMART board earlier this year, said he hoped service to the city he represents would arrive sooner than a decade from now. Nonetheless, he said Wednesday at the board meeting, that he is steadfast in his support of the rail line and what it has accomplished to date, despite no timeline in place for completing the 70-mile line.

“The story is still emerging, it’s still being told,” Naujokas said at the board meeting. “It’s something that I can tell my constituents with pride that I’m happy to stand behind what we’ve done. I’m happy to charge forward. Let’s keep our chin up, there’s still plenty of opportunity to go north.”

SMART officials remain noncommittal about when they’ll be able to reach either Healdsburg or Cloverdale, especially in light of the significant development cost. The agency has secured more than ?$300 million so far in outside money for rail construction and is continuing to seek additional funds - upwards of $270 million - to move north.

But the cost-benefit ratio in going to Cloverdale may not be competitive in the hunt for outside funding, Sonoma County Supervisor David Rabbitt cautioned on Wednesday. Cloverdale is home to roughly 9,000 people, but getting there from Healdsburg will take $170 million, according to SMART.

“Just like with your investments, the past does not dictate the future going forward,” Rabbitt said to his fellow board members. “I think it makes it more difficult to define the date based upon previous experience. Not all entities that are going to be giving you dollars might look at that the same way as delivering service to Santa Rosa, San Rafael, Petaluma and so on and so forth - the population centers.”

SMART currently operates service along 43 miles of track from San Rafael to the station near Charles M. Schulz-Sonoma County Airport north of Santa Rosa. The new Larkspur station is scheduled to open by the end of the year, offering two miles more of service. Nearly 90% of the $55.4 million price tag for that project was covered by outside funds, with the remainder coming from SMART’s sales tax.

Also Wednesday, SMART officials offered their first detailed look at the costs involved in extending service north to Healdsburg from Windsor. The overall cost, $194 million, includes about $70 million for rail cars and a new rail holding yard, and $50 million to $75 million for a new bridge over the Russian River. The rest of the money would be designated for new track and the city’s lone station.

SMART’s accumulated debt from construction costs over the past decade now amounts to $180 million in principal, plus interest. This year, the rail agency will spend nearly $17 million on debt service - 43% of its tax revenue. Without restructuring, the annual debt expense will rise to almost $22 million in 2028.

Without an early sales-tax renewal, SMART would need to cut up to ?$9 million - about a quarter of the annual operations budget - by 2023 to avoid depleting its $17 million in reserves, officials have said.

Despite the financial difficulties ahead, board members said the promise that SMART holds for the region - for current and future riders as well as the North Bay’s economy and environment - should be the thrust of the campaign to win voters’ support.

“Plenty of uncertainties, to be sure,” said Marin County Supervisor Damon Connolly. “But I think we have the makings of having all the parameters in this strategic plan and vision, where voters can then really make an informed decision. And really it is going to come down to, with all the challenges and the opportunities, do we want to have a commuter rail line in the North Bay? I think the public ultimately sees value in that.”

You can reach Staff Writer Kevin Fixler at 707-521-5336 or kevin.fixler@pressdemocrat.com. On Twitter @kfixler.

Key SMART figures and dates

Measure Q, quarter-cent sales tax, passed by voters in 2008

Passenger service launched in August 2017

Passengers to date: 1.4 million

Current annual operating expenses: $58 million

Projected annual operating expenses, 2021: $63 million

Projected annual debt costs, 2022: $18 million

Projected start of Larkspur service: End of this year

Projected start of Windsor service: End of 2021

Projected cost to reach Cloverdale from Windsor: $364 million

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