Minnesota Transportation Funding (General)

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RailBaronYarr
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Re: State transportation financing and tax reform

Postby RailBaronYarr » May 21st, 2013, 8:20 am

David Greene wrote:This is the kind of thinking that keeps our transit system from progressing. We don't live in the ivory tower. We cannot let the perfect be the enemy of the good. Show me politically how to ensure reliable, adequate transit funding from the general fund and I'll be all for it. We've tried that experiment for 50 years and it's been an abject failure.

Property taxes are highly regressive and more importantly, people are literally abandoning houses because they can't afford the taxes anymore. That stream is tapped out. We'd never get an income tax dedicated to transit past the legislature. Bonding can't fund transit operations.

Believe me, many people have looked at many different ways of funding transit in our state. The sales tax is the only viable solution.
I think this is true only because we've subsidized ourselves in to the idea that every family can and should have a home of their own, and certainly of a certain size. If we operate under the guise that transit can only ever be subsidized because ridership per line will never be high enough to cover costs, then yes you are right. But ideally (and it works elsewhere in the world so it's not that outrageous to propose) property taxes in the areas served would be high enough return to fund a large portion of the capital costs of building transit lines, requiring a much smaller amount of funding from state/federal sources. Ridership would be high because it would be the natural choice for the people living there and would therefore cover operating costs. We're trying so desperately to overlay a certain transportation type on a region that simply cannot financially support it, and scratching our heads how to fund it.

This basically comes down to land-use and stopping subsidizing home and car ownership to get to a point where those things naturally occur. I recognize that we live in a world where this wouldn't realistically occur for 30 years, even if we try. But if we don't make these changes now, we will continue to debate and fight for funding and revenue sources forever. If we need a short-term, here and now change (and I agree we do), can't we start pulling property tax relief from unproductive areas or the higher income population and put it towards building better transit instead of adding to the sales/property/income tax rates?

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Re: State transportation financing and tax reform

Postby David Greene » May 21st, 2013, 9:09 am

RailBaronYarr wrote: But ideally (and it works elsewhere in the world so it's not that outrageous to propose) property taxes in the areas served would be high enough return to fund a large portion of the capital costs of building transit lines, requiring a much smaller amount of funding from state/federal sources.
I'm curious about this. Where is this done in the world? I'd always assumed that most transit systems throughout the world are subsidized by some government agency. Property taxes are a kind of subsidy too but I see how taxing the property adjacent to transit service and putting that money back into the service is a bit more like a user fee.

I can totally believe an individual line might be able to operate this way, but I just don't see how an entire system could do so. It doesn't in Manhattan and I don't think you'll find places much more dense than that.
RailBaronYarr wrote: If we need a short-term, here and now change (and I agree we do), can't we start pulling property tax relief from unproductive areas or the higher income population and put it towards building better transit instead of adding to the sales/property/income tax rates?
I would *love* to see property taxes become more progressive and have us do more revenue sharing. The Minnesota Miracle was called that for a reason. It worked and it was a monumental political achievement to get it done. And that wasn't even a full revenue sharing agreement.

We've spend the last 40 years dismantling that program. Again, I would love to see what you advocate happen, but politically it is just not realistic. We need transit *now* and we can't afford to wait for the winds of public opinion to shift enough to do something radically different from every other region in the country.

Should we try to get such changes started? Sure! But we can't afford to hold up investment in transit while we wait a generation or two for results.

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Re: State transportation financing and tax reform

Postby woofner » May 21st, 2013, 10:37 am

David Greene wrote:Actually, studies show that extending the sales tax to clothing makes it more progressive, not less.
What studies? And please don't cite anything from Heritage, American Enterprise, or Hudson Institute. It is pretty basic political economics that sales taxes on essential goods are highly regressive.

You might note that property ownership is not typically considered an essential good. Yes, property taxes are regressive but because not everyone in poverty owns property while just about every person in property wears clothing, the burden of property taxes is less likely to fall on the poor than the burden of a clothing sales tax. Besides, property taxes can specifically be targeted towards business owners and away from homeowners, thus reducing the regressivity. In addition, the state already has a refund mechanism for reducing the regressivity of property taxes, although this isn't the most efficient for renters especially.
David Greene wrote:people are literally abandoning houses because they can't afford the taxes anymore.
Uh what? Property taxes are almost never cited as a significant factor in foreclosure. I'm not sure why you keep bothering to invent new rationales for a sales tax, because your argument that it is the only politically palatable option is really the clincher. Even though a combination of property taxes and bonding was a stable source of funding for Metro Transit for decades (please look this up), I think sales taxes are an acceptable substitute because at the moment it is all that politicians will accept. But given that we have a Legislature that is willing to buck national trends on tax policy, and that has a history of policy innovation, and given that we have a year to mull things over (yes, they can legislate that the sky is purple if they want to, but why should they? what's in it for them to rehash this year's budget battles before they need to?), I don't see why better, more fair, and more stable sources of funding shouldn't be explored.
David Greene wrote:I'd always assumed that most transit systems throughout the world are subsidized by some government agency.
Most transit systems are funded through general funds. It's unusual to chop up governmental budgets to the degree that we do in this country. It's common for gas taxes to be deposited into a general fund and for transportation projects to be then come out of that pot. Another difference is that typically transportation responsibilities are bundled with planning, urban development and/or environment, e.g the German Ministry of Transport, Building, and Urban Development.
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RailBaronYarr
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Re: State transportation financing and tax reform

Postby RailBaronYarr » May 21st, 2013, 10:53 am

If a DFL controlled House, Senate, and Governor can't get the type of sales tax reform done in support of transit, I would say any of the changes proposed out there are just as politically unrealistic in the *now*.

As for other areas of the world, here is an example of how Paris is funding their 20.5B Euro Metro improvement/expansion:

http://www.thetransportpolitic.com/2011 ... tro-lines/

"Of total funding for the new lines, €4 billion will be granted from the national government, €1.5 billion from local governments, €7 billion from loans, €7 billion from new taxes on commercial activity and real estate (€500 million will be collected this year alone), and €1 billion from existing taxes. The state intends to use eminent domain to redevelop land around each of the stations. It will use the funds it accumulates through sales and added-value taxes to help pay off debt."

Federal involvement below 20% (compared to us at a 50% match). ~33% will be from property/commercial taxes - they will be new/higher taxes but my guess is the higher rate will be due to increased mobility options as a result of the transit (higher value area). Clearly the French are using VATs and sales tax to pay back the 7B loan.

Hong Kong is using a much more value-add method by which the city government is acting as real estate developer and using the funds to build the line. Obviously a different political reality than us in terms of state involvement. HK MTR also has a 149% farebox to operation cost ratio.
http://www.thetransportpolitic.com/2010 ... d-transit/

It would certainly make our job a lot easier in creating transit if we could reasonably say that operations cost would be 80-100% covered (requiring less subsidy from the state to operate) because land-use was good enough to support it. Right now Metro Transit is only at 31.5% farebox recovery, which only includes opex, no capital (up front or ongoing). Any method of state/metro subsidy for building lines would likely go over much better at the hill if they could see it was a) a lower % of total investment coming from sales/income tax and b) wouldn't require ongoing subsidy.

They already do that today for roads/highways where only 50% of direct costs are covered by gas tax/MV registration/MV sales tax. But that number includes capital cost of building. Maybe there's a magic line we need to get to for total % subsidy that politicians would be willing to act?

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Re: State transportation financing and tax reform

Postby David Greene » May 21st, 2013, 12:46 pm

redisciple wrote:
David Greene wrote:Actually, studies show that extending the sales tax to clothing makes it more progressive, not less.
What studies?
Dee Long did one back after her time in the legislature. She's certainly no conservative.
redisciple wrote:
David Greene wrote:people are literally abandoning houses because they can't afford the taxes anymore.
Uh what? Property taxes are almost never cited as a significant factor in foreclosure.
I wasn't talking about foreclosure. People are leaving Minneapolis because they can't afford the taxes. It's not happening everywhere in the city, sure, but it's happening.
redisciple wrote:
David Greene wrote:I'd always assumed that most transit systems throughout the world are subsidized by some government agency.
Most transit systems are funded through general funds. It's unusual to chop up governmental budgets to the degree that we do in this country.
Ok, but that's not the claim that was made. The claim was that significant transit systems around the world pay for themselves via incremental increases in property tax revenue. A general fund allocation is a subsidy. I'm not saying that's wrong. All transportation is subsidized. I'm trying to understand if there really are transit systems that pay for themselves.

Yes, we've put ourselves in a bind with dedication. But as soon as we dedicated gas tax revenues to highways, we were bound to need to find a similar source for transit. The fact that we haven't had one is one of the reasons we're so auto-dependent today.

None of this is pretty. Democracy rarely is.

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Re: State transportation financing and tax reform

Postby FISHMANPET » May 22nd, 2013, 9:24 am

redisciple wrote:
David Greene wrote:Actually, studies show that extending the sales tax to clothing makes it more progressive, not less.
What studies? And please don't cite anything from Heritage, American Enterprise, or Hudson Institute. It is pretty basic political economics that sales taxes on essential goods are highly regressive.
Perhaps the idea is that because luxury clothing is taxed, that the wealthy would be paying more clothing tax than the poor. That sounds pretty progressive to me, if that ends up being the case.

I think part of the draw of the Mall of America to people outside the state is that clothing purchased there won't be taxed. But we're also leaving quite a bit of money on the table by not taxing $100 pairs of jeans and $200 sneakers etc etc that the upper middle class are purchasing. I'm not sure if the overall decrease in economic activity would be outpaced by increased sales tax revenue, but I suspect it might. I would guess that most of that increased economic activity is captured in tax form by income taxes on low income bracket store clerks or be tax dogded by company owners or businesses and end up being at a low rate, whereas there would be a lot of sales tax collected.

I'm actually of the opinion that we should just abolish the sales tax because it's getting too hard to collect because of physical goods on the internet. Internet retailers try to lobby to prevent sales tax being charged on internet sales, but I'm not sure on what basis they can make that argument (other than the obvious one that it makes internet purchases more expensive and thus makes internet purchases less competitive, but that's a pretty bad policy argument). Taxes can serve two purposes: to raise funds for government operations (property tax), or to encourage or discourage behavior (mortgage interest tax deduction or carbon taxes). I don't think we charge sales tax to discourage commerce, so it's clearly meant to raise funds. So why would internet purchases be substantially different that we don't want to charge that commerce? I don't think it is, so we should either be charging sales tax on internet purchases, or just not charging sales tax at all and get that money from somewhere else in a revenue neutral way (preferably income tax).

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Re: State transportation financing and tax reform

Postby RailBaronYarr » May 22nd, 2013, 10:44 am

David Greene wrote:Ok, but that's not the claim that was made. The claim was that significant transit systems around the world pay for themselves via incremental increases in property tax revenue. A general fund allocation is a subsidy. I'm not saying that's wrong. All transportation is subsidized. I'm trying to understand if there really are transit systems that pay for themselves.
Actually my claim was: "But ideally (and it works elsewhere in the world so it's not that outrageous to propose) property taxes in the areas served would be high enough return to fund a large portion of the capital costs of building transit lines, requiring a much smaller amount of funding from state/federal sources."

I never said fully self-supporting. I cited two projects going on where local investment totals a much higher share (the Paris example had an extra $1.5B from the city itself bringing local funding based on existing taxes up to 9.5B of the total 20.5B project.

Other examples I didn't highlight are transit systems in the world whose farebox recovery is higher than opex: http://en.wikipedia.org/wiki/Farebox_recovery_ratio This would allow the 'profits' to be turned back in to system expansion and upgrades as needed without any (or MUCH smaller) subsidies. No, we can never dream of being as dense as cities like Tokyo, Hong Kong, Singapore.. But there are large areas of those cities that have low-rise development but increase space utilization with smaller streets, no setbacks, etc etc. I've been to Singapore several times and I would say the amount of open/park space is phenomenal. It's something the TC could strive toward. Heck, even Toronto has an 82% recovery ratio.

I don't have a problem with a certain amount of subsidization, and lord knows we've subsidized car driving for so long that we can't just pull the plug on all of them right now and let transit fend for itself in a car-dependent area. But my point was that making better use of land taxes and usage could combine to more directly fund the building and operating of a transit system by the people/businesses it serves. If that were a guideline for where the systems went, I would bet dollars to donuts that places like EP, Lakeville, Woodbury, etc would never come close to supporting transit (as they exist today).

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Re: State transportation financing and tax reform

Postby nasa35 » May 22nd, 2013, 10:58 am

Fund better buses, stop all LRT now. Makes no sense, doesn't have the rideship and is way too expensive. The buses work great; we should be doing what we can to improve that and then start adding lanes.

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Re: State transportation financing and tax reform

Postby RailBaronYarr » May 22nd, 2013, 10:58 am

FISHMANPET wrote:I think part of the draw of the Mall of America to people outside the state is that clothing purchased there won't be taxed. But we're also leaving quite a bit of money on the table by not taxing $100 pairs of jeans and $200 sneakers etc etc that the upper middle class are purchasing. I'm not sure if the overall decrease in economic activity would be outpaced by increased sales tax revenue, but I suspect it might. I would guess that most of that increased economic activity is captured in tax form by income taxes on low income bracket store clerks or be tax dogded by company owners or businesses and end up being at a low rate, whereas there would be a lot of sales tax collected.
I've always really, seriously doubted the logic that the lack of clothing sales tax is what REALLY makes people want to visit the MOA (or MN at large for that matter except perhaps people who live on border towns like Hudson, Fargo, or Grand Forks, and even then...). Do the cost breakout of driving to the MOA from Wisconsin:

$30 on gas if they fill up half tank (unless they're from some of the smaller border cities they'll be driving a while) they'd need to spend $440 on just clothes to make the savings in sales tax vs their home state. If it's a full tank then they need to spend double that on clothes. Maybe they do, maybe they don't, but a person with any basic math would certainly think about that before loading up the kids and driving so far.

This says nothing of the people who spend $350 on airfare and $120 on a hotel per night to shop at the MOA (you know, the reason we put it by the airport to draw tourists to come and shop here). 2 tickets and one night means to make up the difference in sales tax they'd need to spend $11,970. I just don't see the sales tax thing as a motivator for people to travel to MN to shop.

And what do we get in return for continuing this as a major reason for keeping sales tax off clothing? A bunch of retail jobs and a mall that requires a crapload of public money to build as well as the infrastructure around it?

I do think the clothing tax is very regressive, which is why I agree we're leaving something on the table if we don't have a compromise in items above $100 (pretty rare that lower income folks spend that much even on the much touted winter coats and shoes).

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Re: State transportation financing and tax reform

Postby MNdible » May 22nd, 2013, 11:07 am

RailBaronYarr wrote:I do think the clothing tax is very regressive, which is why I agree we're leaving something on the table if we don't have a compromise in items above $100 (pretty rare that lower income folks spend that much even on the much touted winter coats and shoes).
I know this was Dayton's idea, not yours, but the $100 cutoff is a silly way to knock the regressivity out of the clothing sales tax. It just invites gimmicks. Much better to tax all clothing and then automatically refund the sales tax on the first $500 (or whatever the right number is) per person.

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Re: State transportation financing and tax reform

Postby RailBaronYarr » May 22nd, 2013, 11:20 am

MNdible wrote:I know this was Dayton's idea, not yours, but the $100 cutoff is a silly way to knock the regressivity out of the clothing sales tax. It just invites gimmicks. Much better to tax all clothing and then automatically refund the sales tax on the first $500 (or whatever the right number is) per person.
I think that's a better route, but the number is still just as arbitrary. It just happens to be on total amount spent in a year and not per item.

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Re: State transportation financing and tax reform

Postby MNdible » May 22nd, 2013, 11:45 am

Yes, the actual number is arbitrary. But it doesn't make any sense (to me) that somebody who buys 5 pairs of fancy jeans at $90 a pop should pay less tax than somebody who buys a $450 suit.

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Re: State transportation financing and tax reform

Postby FISHMANPET » May 22nd, 2013, 1:13 pm

nasa35 wrote:Fund better buses, stop all LRT now. Makes no sense, doesn't have the rideship and is way too expensive. The buses work great; we should be doing what we can to improve that and then start adding lanes.
LRT has a much lower operating cost per rider. Should NYC replace all its subways with buses as well? At what ridership level would LRT make sense? When the two car trains are so full we have to add a third car?

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Re: State transportation financing and tax reform

Postby twincitizen » May 22nd, 2013, 1:21 pm

Thank you RailBaronYarr for pointing out how ridiculous the "people buy stuff at MOA because of the lack of sales tax" argument. Unless you're somehow getting to the MOA for free (from out of state), it doesn't make any financial sense whatsoever. It's like an even dumber version of trickle-down economics. I don't mean for that to be a specific attack on FISHMANPET's comments. It is a popular argument/trope whenever sales tax reform is discussed, but it is full of holes and needs to be retired.

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Re: State transportation financing and tax reform

Postby FISHMANPET » May 22nd, 2013, 1:25 pm

Yeah, I don't really think it's a huge driver, I was arguing from a devil's advocate point of view, "even if you think this is true, the alternative is still better..."

But never underestimate the ability for people to make irrational decisions. I'd bet there are at least a few people who spend more on transportation and lodging than they would save on sales tax but they're still doing it because "WOO NO SALES TAX!"

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Re: State transportation financing and tax reform

Postby Le Sueur » May 22nd, 2013, 2:00 pm

RailBaronYarr wrote:...I just don't see the sales tax thing as a motivator for people to travel to MN to shop...
Generally I agree with you because in the aggregate consumers are suppose to be rational as they teach in Econ. 101. Consumers are not always rational. Often not even when you look at the aggregate.

Per your example, I would argue many tourists coming to MOA would look emotionally at their travel expenses as a sunk cost. This would allow them to still feel as though they are rationally gaining utility from the tax-free clothing they purchase. Even when you and I know they could have shopped closer to home and saved on travel expenses.

My example: A Minnesotan wants to go to a sunny beach. We all know they could go to Calhoun, but they want to take a trip out-state. They can't decide between CA, and FL until they find out CA just passed a $2 beach-fee :lol: . Now it might not be rational to decide based on that fee (because of air-fare and hotel expenses) but people would.

I don't necessarily think it's right that MOA can lobby to dictate the state's clothing tax policy, but their stance on what tourists feel is important to a trip here is not irrelevant even if it is irrational.
Last edited by Le Sueur on May 22nd, 2013, 11:07 pm, edited 1 time in total.

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Re: State transportation financing and tax reform

Postby mplsjaromir » May 22nd, 2013, 3:01 pm

I remember a packaged trip where a department store at the Mall of America would order clothing for a European, then they would fly to MSP take a shuttle to MOA and purchase the clothing and fly back the same day. They would save a considerable amount of money over paying the VAT.

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Re: State transportation financing and tax reform

Postby RailBaronYarr » May 22nd, 2013, 3:24 pm

Le Sueur and FISHMANPET I completely agree with both of your points.

But keep in mind many people have those feelings BECAUSE the MOA lobbyists, politicians, etc have put the idea in people's heads that it is a reality. I personally don't shop on Amazon because I save on the sales tax, and I don't know many (any?) people who make that an explicit rational reason, either. They have by far the widest selection, best (pre-tax) prices, oftentimes free shipping, and the best eCommerce user experience around. For any item except clothing and food I feel like I'm getting as good of a "shopping experience" as in person and for most things I don't need them immediately anyway so why not do it from home. The sales tax savings is a perk. And this is evidenced in that Amazon sales don't significantly dip (or by the state's sales tax % amount) whenever they open up a presence in an area and are thus required by law to charge sales tax. Regardless, Target/Walmart/etc people continue to beat it in to our collective minds that this is a factor so most people just assume it is. People have just caved and admitted that the no sales tax thing must be a reason people come here to shop, specifically at the MOA, and thus is a great reason to have massive public investments LIKE the MOA. When in reality, as FMP shows, the travelers were coming here anyway for the variety/experience and happened to save a few bucks on sales tax. WOO!

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Re: State transportation financing and tax reform

Postby Andrew_F » May 22nd, 2013, 4:08 pm

Good point. That's why we have Amazon actually supporting legislation that would require online sales tax, while Target and Walmart fight it. Why? Because Amazon is now looking forward to establishing warehouses in every major metro in order to offer free/cheap next day delivery. This gives Amazon a bigger edge over other online retailers, and erodes at the lack of shipping edge that brick and mortar stores have.

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Re: State transportation financing and tax reform

Postby twincitizen » May 22nd, 2013, 5:02 pm

^I think you're going to have to back up your comments, because I've read the exact opposite on both counts.

Target and Best Buy have been pushing for "tax fairness" aka online sales tax for ages. Amazon has outright threatened to end their physical presence in states that were looking to change laws to collect online sales tax. Amazon may have since backed off that stance since it's clearly a losing battle and would only make them look bad (plus they're obviously winning the war)


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