Taxing Districts and Generating More Revenue

After the May 2, 2011 Ferry Task Force meeting, Bill Lee submitted these thoughts and questions about ferry-related taxes and about fare increases and revenue-generation. 

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What follows are some thoughts about two of the issues discussed at the Lummi Island Ferry Task Force meeting on 5/2/11.

FERRY RELATED TAXES

While this topic is scheduled to be covered in a future meeting (May 16, 2011) there was some discussion of a County Ferry District or a Transportation Benefit District for the purpose of a tax levy. A view was expressed that property taxes should be used to help spread the cost of ferry operation to island property owners who do not use the ferry often enough to significantly add to fare revenue, but who benefit by way of the service being in place. Of course, all property owners would be subject to this tax no matter how much or how little they use the ferry subject to various exemptions. Renters would likely also be indirectly taxed by way of costs passed on by their landlords. Simply put, Islanders or any property owners included in the district, would vote to raise their property taxes with the expectation that what funds which resulted would be used to help pay for ferry system costs.

I have the following questions about the concept of supporting the ferry using taxation. I am sure that there are other important issues as well.

  • Would the additional funds be used to reduce fare levels?
  • Would they be applied to repair and maintenance or capital expenses?
  • Would they reduce the grand total of the ferry operation budget or the County’s or Islander’s share of operating costs?
  • Could the funds be transferred to the County’s general budget?
  • Will existing statutes support our needs? (See https://lummiislandferryforum.files.wordpress.com/2011/01/passenger-vs-car-ferries-chapter-36.pdf).   I find the following sentence in section 36.54.130 of the Ferry taxing district code very interesting, “The levy must be sufficient for the provision of ferry services as shown to be required by the budget prepared by the governing body of the ferry district.”
  • Has this kind of district worked the way it was intended to function over time by counties using this form of taxation? While I am very concerned about future fare increases and agree that all who benefit from the ferry should pay a fair share to support it I am concerned that revenues from taxation may be more subject to other uses than fare collections might be.

FARE INCREASES AND REVENUE GENERATION

There has been considerable concern expressed by Islanders that the County might well price the ferry out of business by way of increasing the fares to the point where not enough riders could afford to use and support its operation.

One view held by some Islanders is that the county’s approach to the current budgetary shortfall, increasing fares, has been the wrong approach and that the County should have lowered fares to stimulate use. Support for this idea comes from a previous period (1980s) when the County raised fares, followed by a drop in revenues. Then the Council (at islanders’ request) significantly lowered fares. Ridership and fare revenues increased in the following years.

Is the matter that simple? Should the County have been expected to try lowering fares while running a deficit in our current general economic condition? What kind of analysis beyond the example sited above could be used to justify the County taking the possible risk of loosing more money?

A key question to consider is whether the increases and decreases in fares during the 1980s were caused only by the changes in ridership, or did other (but less noted) factors drive the changes in ridership and revenues? The Ferry Task Force has pointed out several times in discussing this question that is it critical to carefully look at not only the ferry fare returns but also what the general economic conditions at the time were before we use the 1980s example as a basis for accepting the principle that lowering fares will always lead to enough of an increase in income to cover costs. The increased ridership might have come from other factors. For example, a general economic up turn, population growth and other changes that were independent of the fares.

At the meeting, it was reported that an examination of several transportation system budgets where fare raises were accompanied by ridership loses did not also result in decreased revenues. As a general rule, it would seem from the research mentioned, fare raises increase revenues despite fewer riders. So perhaps we should not be surprised that the County choose to raise fares, believing that increased total revenues would result even if ridership did decrease somewhat, rather than choosing to reduce fares in hopes that increased ridership alone would increase revenues.

Where does one start when setting a fare structure? The Task Force suggested we start with the total operating cost of running the ferry. Yes, another general task is to reduce that number if at all possible, but for now, it is what the County sees as the amount that must be covered. The Task Force has given Islanders a set of very nice models in the form of spread sheets to experiment with. (click here for one that lets you see the effects of changing costs, revenues, etc.) Make your choices a see if you can run the ferry and balance the budget! Want to cut costs and change their basic starting point? Come up with and pass on to the Task Force specific choices of how you would change the way the ferry system is run which would result in lower operating costs.

One thought on “Taxing Districts and Generating More Revenue

  1. I am in favor of a special property tax for the lummi island property owners to help spread the cost of ferry operations.

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