SMART says it faces multimillion-dollar deficits without sales-tax renewal

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The North Bay’s commuter rail system could face crippling multimillion-dollar deficits within three years if voters in Sonoma and Marin counties don’t pass a proposed sales-tax extension in March, SMART officials revealed for the first time Wednesday.

Starting in 2022, Sonoma-Marin Area Rail Transit would need to slash at least $9 million annually — about a seventh of its operating expenses — resulting in cuts to service and SMART’s workforce if the 12-member board opts not to seek early renewal of the tax next year, or if the extension is put to voters and they reject it, officials said.

The agency’s financial forecast showed operating expenses climbing from $58 million this fiscal year to about $63 million two years from now, with tax and fare revenues not expected to keep pace. The rise is driven mostly by escalating payments on debt accrued in SMART’s buildout, as well as rising labor, fuel and maintenance costs.

“We just need to call a spade a spade as we see it today,” Farhad Mansourian, SMART’s general manager, told the board. “Doing nothing is not an option and pretty bad for everybody. We’re being straightforward. We don’t want to mislead the members of the public. We want to tell them what the pains are, what the chokeholds are and what our options are.”

The newly unveiled forecast marked the first public acknowledgment by SMART officials that the 2-year-old line already faces a potentially deepening near-term shortfall in its budget. The projections did not account for the possibility of a recession, which would carve an even larger hole into the system’s budget. More than 70% of SMART’s spending on operations is supported by the quarter-cent sales tax.

It isn’t set to expire for another decade, but SMART officials say early renewal would allow them to restructure and reduce debt payments, which are now set to rise to $16 million next year and $18 million by 2022.

Without the tax renewal and financial adjustments it would support, SMART would be forced to cut commuter service in half, according to the agency’s finance chief, effectively sidelining 18 of the 36 train trips. Dozens of jobs could be also eliminated from the workforce of about 200, officials signaled.

The cuts to service could spell “almost a death spiral” for SMART, said San Rafael Mayor Gary Phillips, the board chairman. The agency, he said, needed to level with taxpayers in order to prevent that demise.

Phillips said SMART would need to publicly recognize that it had fallen short of promises made under Measure Q, the 2008 voter-approved sales tax that envisioned a 70-mile system from Cloverdale to Larkspur, with an accompanying bike and pedestrian path. Forty-five miles of track — from north of Santa Rosa to Larkspur — is set to be in service by the end of this year; only about 20 miles of the path have been completed.

“We do have some baggage as far as SMART operations go and the SMART board — perhaps not attributed to any of us individually, but to us collectively,” Phillips said. “It’s time to lay out what our situation is and how best to deal with. It’s certainly not ideal.”

The financial revelations confront SMART with what looks to be an exceedingly difficult political challenge: How to secure support from two-thirds of voters in two counties, where a minority of residents — and voters — currently ride the train?

“The realities are tough, but we’ve come to grips with them earlier rather than later, which is really important,” said Steve Birdlebough, co-founder of advocacy group Friends of SMART. “We’ll be there when it comes to the ballot.”

Any campaign would also be without a key piece of information on future northward extension. SMART officials have been unwilling or unable to say when they think the line will reach Healdsburg and Cloverdale, the last two stops on the planned line.

Officials acknowledged that SMART forecasts showed it would not have the money to support buildout beyond Windsor, where rail service is set to begin at the end of 2021. Construction of those final 22 miles would have to rely almost exclusively on regional, state and federal transit funds.

“How am I going to go back to my constituents and say, ‘Well, even with a 30-year extension, sorry, there no money here to fund the extension?’” Healdsburg Councilman Joe Naujokas, a SMART board member, asked Erin McGrath, SMART’s chief financial officer. “Help me explain that to them.”

In May, SMART estimated a $364 million price tag to complete the line to Cloverdale. Officials on Wednesday offered no updated figure cost or completion date.

The new projections factored in fare revenue and costs tied to the Larkspur extension, as well as a third station in Novato, service to Windsor and the addition of a second station in Petaluma.

Erin McGrath, SMART’s chief financial officer, said the projection model included “conservative estimates” for ridership figures and capital expenses, though it does not account for an economic downturn.

“There will be a recession in the future, we don’t know when. It could be next year, it could be the following year,” said McGrath. “It will probably happen in the next five years, and we will deal with it when it happens.”

She noted SMART has secured $323 million in state and federal grant money to lengthen the rail line and to construct segments of the bike path. An extended sales tax would cover the additional cost of service to Healdsburg and Cloverdale once those segments are constructed, McGrath said. But to get there SMART will need hundreds of millions in outside funding.

“Without SMART, without the sales tax, we certainly aren’t going to get to Healdsburg,” said McGrath. “If we basically have to cut service in half, then we will use all of our funds just to survive. So the most successful way to get to Healdsburg is to extend the tax, give us some time to work on it, and figure out ways to use the strategy that’s worked for us so far to go farther.”

The agency is considering 20- and 30-year terms for any renewed tax measure. SMART staff members will now take the financial projections back to a citizens oversight group for more feedback before seeking final approval from the board for a sales-tax extension by November.

The outlines of a campaign in favor of the measure — and its potential pitfalls — are already clear.

“The greatest challenge passing the measure will be reconciling what was promised with what was delivered to date,” Santa Rosa Vice Mayor Chris Rogers, a new SMART board member, said Wednesday night.

Hours earlier, several board members at the meeting said that now was not the time to walk away from the more than $500 million already invested into the transit system conceptualized more than two decades ago and pitched twice to voters — in 2006 and 2008 — as a badly needed alternative to traffic-clogged Highway 101.

Sonoma County Supervisor Shirlee Zane, one of SMART’s longest-serving board members, conceded that the financial projections were “gloomy.”

“We still have to find a balanced way to show the public … what’s at stake,” she said. “It’s almost like building a new house and then walking away from it. To pull away from that after you spent all the money building it is very, very foolish. Because, it’s all of our train. It’s not SMART’s train. It belongs to the voters and the taxpayers in Sonoma and Marin (counties), and I think that’s the message.”

EDITOR'S NOTE: This story has been revised to provide the accurate approximate date of service beginning to Windsor. It is the end of 2021.

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