SMART’s sales tax revenues took a softer financial blow than expected from the coronavirus pandemic, with $6 million more in tax dollars coming in than was forecast two months ago.
The Sonoma-Marin Area Rail Transit district had forecast its 2019-2020 fiscal year would end with about $33.8 million in revenue generated from its quarter-cent sales tax. State sales tax receipts released last month, however, show the agency closed out the fiscal year with $39.8 million, according to staff.
“It’s a small bit of good news amid all the bad news we face every day,” Erin McGrath, the outgoing SMART chief financial officer, told the district’s board of directors last week.
A breakdown of the industries and payers of the taxes is forthcoming and could inform staff on whether to expect high tax revenues for the 2020-2021 fiscal year, McGrath said.
McGrath is set to depart SMART in December after nearly 10 years with the agency.
“She’s been terrific,” Farhad Mansourian, the general manager, told the board. “We will continue to figure out how we can have her change her mind. We have tried very hard and we’re going to not give up. But I’m grateful that she’s giving us so many months of notice so we can figure out if there is a miracle to find somebody who can even begin to fill her shoes so we can have a very good transition.”
SMART communications manager Julia Gonzalez will also depart for a new job at Sonoma State University.
Before her contract ends in December, McGrath said she plans to bring a more comprehensive review of the 2019-2020 fiscal year, which ended on June 30, to the board. The review will also include discussion about cost-saving strategies SMART is considering to deal with an ongoing operational deficit, including refinancing its construction bonds as well as eliminating vacant staff positions.
The higher sales tax revenue will make up for SMART’s $1.9 million underestimation of federal stimulus funds it expected through the Coronavirus Aid, Relief and Economic Security Act. In June, SMART had anticipated $16.9 million from the stimulus package, but the Metropolitan Transportation Commission voted in July to provide $15 million.
Combining the shortfall in stimulus funds and the higher-than-predicted sales tax dollars, SMART is entering the new fiscal year with $4 million more than it expected, McGrath said.
The SMART board voted in June to approve cuts expected to save the district $7.2 million annually. These included removing 13 vacant positions, eliminating onboard Wi-Fi service, ending customer service and some bus service contracts and delaying equipment purchases.
The board also reduced daily weekday trips from 38 to 26. During the coronavirus “shelter in place” period, SMART is operating 16 daily weekday trips and no weekend or holiday trips.
San Rafael Mayor Gary Phillips, a SMART board member, said he is anxious about the agency’s financial future and raised the idea of considering further trip reductions in light of a sustained downturn in ridership.
Average weekday ridership in July averaged about 410 passengers, which is an 83% decline from the average of about 2,409 passengers during the same month last year.
“I think this is going to continue longer than anticipated,” Phillips said. “We as a board are responsible for the ultimate outcome.”
Declining ridership is an issue shared by transit agencies throughout the nation, said Sonoma County Supervisor David Rabbitt, also a SMART board member.
“I think SMART has taken some prudent moves to diminish service as needed but to not give up totally on the service yet because we are a service business providing that need for the people who are out there,” Rabbitt said.
Novato resident and economist Mike Arnold, who worked on the campaign that defeated SMART’s recent sales tax extension measure in March, said an analysis of readily available state data could have been a better predictor of SMART’s sales tax revenue projections, but it was ignored. Arnold said he predicted, using California Department of Tax and Fee Administration data from May, that SMART’s budget was underestimating its sales tax revenue by several million dollars.
“In private industry, one of the things CFOs do internally is they understate revenue streams so that they can present good news to management later on,” Arnold said. “And that is precisely what’s happened here.”
SMART’s budget was based on projections from the HdL Companies consulting firm, which predicted a 15% reduction in sales tax revenue for 2019-2020 compared to what was originally budgeted.
McGrath said Arnold’s statements are incorrect and stated SMART used the best and most conservative estimates available.
“The right approach, we believe, in this very volatile, very uncertain time is to err on the side of caution, which is what we did,” McGrath said.
SMART board chairman Eric Lucan, a Novato councilman, rebuffed Arnold’s comments.
“Nothing was understated. It was clear what was presented to us at the time,” Lucan said.
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