SMART outlines ‘doomsday’ scenario if tax renewal fails

SMART officials are doubling down on a tax renewal measure as the only viable option to keep the North Bay passenger rail service from shutting down.

The assessments came in response to a Marin County Civil Grand Jury report released over the summer. The watchdog panel asked Sonoma-Marin Area Rail Transit to provide details on how it would continue to remain financially viable beyond 2029 if its main funding source, a quarter-cent sales tax, is not renewed before then.

Performing an analysis this past month on various scenarios, including both a successful sales tax renewal and a “doomsday” scenario where it fails, the SMART staff presented its conclusions at the agency’s board meeting on Sept. 20.

“At the end of the day, I think that what this really indicates is that SMART absolutely has to have a sales tax to continue operations,” Eddy Cummins, SMART’s general manager, told the board.

Board member David Rabbitt, a Sonoma County supervisor, said that while it was no surprise to him that a sales tax is SMART’s only realistic funding source, he said the grand jury’s request for information shows that the agency must begin to educate Marin and Sonoma voters.

“Making generational investments is what some generations ago did, thank God for us. We’re benefitting from that,” Rabbitt said during the meeting. “We need to step up and make those generational investments going forward.”

SMART, which launched its service in 2017, covers 45 miles between Larkspur and Santa Rosa. It aims to expand service to Windsor, Healdsburg and Cloverdale and complete a path running beside or near the track route.

Marin and Sonoma voters approved SMART’s sales tax in 2008 with an expiration date in early 2029. The agency attempted to renew the tax for another 30 years in 2020, but the measure failed to garner the required two-thirds majority approval from voters.

The grand jury report released in June called on SMART to bolster its public communications to address voter skepticism about the relatively young agency’s performance and concerns about its leadership. The report recommended SMART hire a consultant to conduct polling and help with a marketing plan. SMART agreed with the recommendation and plans to hire a consultant.

The report also asked SMART provide more information about what other options it has available to continue operations past 2029.

On Sept. 20, Heather McKillop, the agency’s chief financial officer, presented three scenarios the agency analyzed: a successful sales tax renewal before 2029 and two scenarios where the tax renewal failed.

Of the two failure scenarios, one would have SMART continue full passenger rail service through June 2029. Service would then be cut by 7% in 2030 and continue until SMART’s funds run out.

Under this scenario, SMART would only have an estimated $141,000 in reserve funds by the 2029-2030 fiscal year. The agency would not have enough money even to pay for dissolution, McKillop said.

“It’s a very complicated process, so it will take time and it will take money to do,” McKillop told the board.

The other scenario — the one McKillop deemed more likely if the tax expires — would have SMART reduce service by 50% from July 2029 through June 2030. The service cuts would be similar to those SMART implemented during the coronavirus pandemic, but would also include significant layoffs that were avoided during the pandemic because of federal relief funds.

McKillop said the cuts would leave about $26 million in reserve funds, which SMART could use to begin service renewal if a sales tax measure is approved in fiscal year 2029-2030.

“We do have some reserves then to pick up again, kind of like what we did after the pandemic, and start operating again,” McKillop told the board.

However, she said the biggest difference will be the need to recruit employees, which will delay the return to full service.

“This will take a significant period of time,” McKillop said.

The scenario also would leave SMART with enough funds to shut down in 2030-2031 if the tax renewal fails.

McKillop said it is important to note that SMART will keep receiving federal and state funding while it continues to operate. But with the sales tax making up about 60% of SMART’s annual revenues, those state and federal funds can only go so far.

Additionally, SMART would not have the matching funds required for state and federal grants, meaning that it would not be able to complete its planned rail extensions to Healdsburg and Cloverdale. McKillop said it is likely that SMART would not be able to obtain any more grants for path and rail extension projects beginning in 2027 without having a sales tax renewed before then.

Regarding other potential revenue sources, McKillop said no other types would generate funding comparable to a sales tax. The agency is projecting it will be receiving $61.5 million in sales tax revenue for fiscal year 2029-2030.

“It would be a hill to climb to get that money from any other place, especially if you’re looking at something like a property tax or any other kind of tax that might come forward,” McKillop told the board, noting that sales taxes are the top funding source for transit agencies in the country.

Cumins said that in discussing “doomsday” scenarios with the public, he heard suggestions that another agency could come in and take control of SMART’s passenger rail services. He disputed that idea.

“Without a sales tax that is not going to happen,” Cumins told the board.

He said it is also unlikely that the state or federal government would step in with any sustained form of relief funding to keep SMART afloat if the tax expires.

Rabbit was more firm in stating that SMART will not receive aid because the state is already working to plug a projected $5.1 billion shortfall among state transit providers in the aftermath of the pandemic.

SMART board member Patricia Garbarino, executive committee president of the North Bay Leadership Council, said, “As someone who has lived in Marin County a long time, I can’t imagine finding the courage anywhere to come up with the ask of $60 million for a community that is so affluent and didn’t frankly think about the next generation enough to want to give it a sustained form of mass transit.”

SMART also operates North Bay freight operations, which are not funded by its sales tax revenues. Should SMART dissolve, Cumins said, freight services would likely be passed on to a new operator or SMART would operate solely as a freight operator.

If SMART needs to dissolve, McKillop said, it would require voter approval either through a voter initiative or through the board placing an ordinance on the ballot.

SMART board member Barbara Pahre, who sits on the Golden Gate Bridge district board, said the agency must prepare for some people to turn this analysis against SMART and discredit the progress it has made.

“I think we would be naive to think that people are going to embrace this positively all the way through the spectrum,” Pahre said during the meeting.

SMART board director Chris Coursey, a Sonoma County supervisor, said that while the conversation was “tough” and “bad for morale,” he said it is important the agency not lose sight of the opportunities it still has.

“We have control of that,” Coursey said during the meeting. “We have multiple opportunities to go to the voters over the next few years. We’re doing all kinds of good things to convince the voters that this is a good project and it’s viable for the foreseeable and unforeseeable future.”