DART's budget: Exploring the need for route reductions
Saturday, March 27, 2010 7:00 AM
It's October 2009. Brad Miller, general manager of the Des Moines Area Regional Transit Authority (DART), is staring at his $23 million budget for fiscal 2011 and facing a 10 percent shortfall totaling $2.3 million.
Now, after months of chipping away at the shortfall by way of furloughs, wage freezes, a fare increase, refinancing of loans and general cost-saving measures, DART still faces a shortfall of about $550,000.
With 80 percent of DART's operating costs in operators, bus driver wages and fuel, the only way to wipe out the remaining shortfall is through service reductions.
The reductions go into effect on April 25.
But why the shortfall?
According to Miller, the primary reason for the shortfall and subsequent route reductions is a vile combination of large payments coming due for accidents in 2007 and 2008 and a sagging economy that has stymied area property values.
"What the commission has been grappling with for basically the past six months is basically a double whammy," said Miller, who also pointed to the economy for drops in fare box and state revenues, which are based on new car sales.
To understand why these two factors are currently affecting DART's service to its 19 member cities, you have to go back to 2006, when the organization transitioned from the Metro Transit Authority (MTA) to its current format.
A new funding formula
The MTA consisted of seven cities, each of which decided every year how much bus service it wanted and then paid for it by contracting with the MTA.
In 2005, the Iowa Legislature gave large communities in Iowa the power to create regional transit authorities. In July of 2006, amid "much hoopla", according to Miller, DART was created.
What that did, however, was change the way cities paid for their bus service. Instead of each city determining how much it would pay, DART would have the ability as an independent taxing authority to issue a property tax levy on member cities' citizens and businesses.
Instead of the money coming from each city's budget, it became its own line on every citizen's and business's property tax bill.
"It didn't change the amount of money (DART would receive), but it did significantly change the decision-making process, or it started down that road," Miller said.
In 2008, after much debate, a new formula for determining the tax levy was agreed upon that spread the cost of DART more evenly among its member cities' residents and reduced Des Moines' substantially higher tax.
It also gave more centralized control to DART by ensuring that collectively the citizens in each city had an equal stake in the system, which in theory would help the system improve and grow.
"Everyone is paying. Everyone is putting their money in equally so if, say, Pleasant Hill wants a new route, West Des Moines is going to pay a little bit of that, and if West Des Moines wants a route, Pleasant Hill will pay a part of that," Miller said.
But when the economy took a trip well below the equator, all of the cities were shouldered with the burden of the budget shortfall in the form of route reductions.
Because of the transition in the way member cities paid for service, a large portion of DART's revenues were tied directly to property values. Property tax revenue, for example, accounts for approximately 30 percent of DART's total fiscal 2011-projected revenue.
In 2006 DART determined tax levy rates that would equal the contributions normally made for service from its member cities. The new formula in 2008 did the same, while not changing the amount planned to come in to DART, rather spreading it among the suburbs.
But those rates, and the rates for future years, were determined based on property values at the time and expectations of continued increases of property values as they had increased in previous years. In the four years prior to 2008, the total value of residential assessed property in Polk County increased 4, 13, 4.5 and 11 percent from the year prior, according to Polk County Assessor statistics.
Then came the economic collapse. In 2008, the total value increased 2.7 percent and in 2009 it increased 2.3 percent.
"The property values, especially of our suburban members, did not increase as we had anticipated, and in a few of the cities' cases they actually decreased because of the economic downturn," Miller said.
The new formula along with the tax rates for each community that were agreed upon in 2008 actually didn't go into effect, however, until July 1, 2009, the beginning of fiscal year 2010.
"And now under this new formula the whole region is working together on transit, so it is all for one," Miller said. "And so because of that economic hit to the property values, the whole system has less money."
One potential solution that was offered to recoup some of the revenues DART was expecting is to raise the tax levy. In fact, while trying to figure out ways to trim the deficit, a 4-cent per $1,000 valuation across-the-board increase was proposed. The measure would have saved approximately $800,000, but was rejected by the DART Commission - the nine-member governing board of DART.
According to Miller, from the start of the budget process the DART Commission said it did not want to increase rates above the levels that were approved in 2008 for fiscal 2011 because it felt that now was not the time to be raising taxes.
DART had some very serious pedestrian accidents in 2007 and early 2008. Those claims are now coming due, a major contributor to the budget shortage.
One August 2007 accident alone resulted in a $2.35 million settlement - $2.35 million that DART hadn't saved up in its reserve account over the years. Furthermore, DART was left unprotected by an insurance policy that had a deductible of $2 million, meaning DART paid its greatest accident payout ever at the end of July 2009 - $2 million - and its insurance covered $350,000.
"Typically, MTA and DART had just gone a very long period of time, 20-some years, without any serious major accident, anywhere close to $2 million," Miller said. "So the MTA and the DART commission over the years had not put aside money or a lot of money for that kind of thing."
As a result, DART had to take out a standard five-year, $3 million bank loan from Bankers Trust.
"We took out a loan from our bank, sort of an emergency loan, and the terms of that loan are not particularly great. It is sort of what the bank could do, which was very helpful to us, but it is only a five-year loan," Miller said.
Since the accidents, Miller said the organization has made a conscious effort to build up its reserves, and also changed its insurance policy so that the deductible is only $500,000. DART is also exploring ways to refinance its debt, and is planning on that resulting in an annual savings of about $100,000.
DART made safety its No. 1 priority by enacting 50 different initiatives after the accidents. According to Miller, the organization has cut accidents by about 50 percent. Miller said he was comfortable that the safety measures make it far less likely that the organization will have another catastrophic accident in the future.
"Unfortunately, that doesn't help us for the accidents that already occurred, and we still had a big problem with pedestrian accidents in downtown Des Moines," he said.
When it comes to property values, well, DART has only slightly less control over the economy. Miller said there is a possibility of more route reductions coming in the summer, but that service likely won't be cut to any part of the region.
As for raising the tax rate as a way to avoid reductions, Miller said that is off the table for now.
The next step for the DART commission is to conduct a system-wide plan to look at all the different services in an effort to develop a comprehensive plan for new services.
"Once they lay out that plan, I think they will talk about what cities and people might get for more taxes, and the region will just have to decide whether it is worth it or not," Miller said.
And, although DART is currently reducing routes, because of grants from the Iowa Clean Air Attainment Program, route 7 will be extended on the east side up to the area surrounding Altoona's Bass Pro Shops, and the frequency of the route will increase, while service will be expanded and improved in West Des Moines near Jordan Creek Mall.
Miller said he stands by the decision to reduce service and is hopeful that DART will get back on the track of expanding and improving service.
"Once the economy does rebound, and we get beyond these accidents, with some time we will be able to put this service back, but not put it back necessarily in the same way it has been for in some cases 100 years," Miller said. "We'll put it back in a better way so we get more riders and increase services."