A regionwide one-cent sales tax to fund Metro would have a disproportionate impact on poor families, taking five times the share of income from the bottom 20 percent of earners when compared with those in the top 1 percent, according to a new analysis from a trio of left-leaning think tanks representing the District, Maryland and Virginia.
Calling recent service cuts, fare hikes and a potential sales tax a “triple whammy” on the region’s low-income residents, the groups are pressing local officials to ditch the sales tax proposal in favor of flexible, jurisdictional financial commitments, with each government finding its own way to pay for Metro’s long-term needs.
“It’s not right to ask the families who are least well-off to shoulder the biggest responsibility for fixing Metro, while leaving businesses and high-income families off the hook,” said Ed Lazere, executive director of the D.C. Fiscal Policy Institute, one of three groups that participated in the analysis.
The other two organizations who participated are the Maryland Center on Economic Policy and the Commonwealth Institute for Fiscal Analysis. The think tanks join labor groups, including Amalgamated Transit Union Local 689, Metro’s largest union, in opposing the sales tax.
The tax burden should be placed on businesses and high-
income earners rather than struggling families, the groups say.
Further, a proposal to limit the growth of annual subsidies that jurisdictions contribute to Metro risks hamstringing the transit agency’s ability to perform critical maintenance and maintain current fares and service, the report argues.
The analysis, conducted by the Institute on Taxation and Economic Policy, found that while a penny-per-dollar sales tax would cost those making more than $600,000 less than 0.1 percent of their income, those making less than $25,000 would sacrifice 0.5 percent of their earnings. Black and Latino families in the District would be the hardest hit, according to the report, because 38 percent and 35 percent of their households, respectively, have incomes below $50,000, the report says. Meanwhile, families are already grappling with the region’s high cost of living and disproportionate economic growth that has seen overall wages rise but not for the bottom 40 percent of workers.
“When we’re asking a family who maybe tomorrow is skipping a meal, or two or three by the end of the month, ‘Hey, we need another 50 bucks for Metro,’ that is food that’s being taken off their table because they are spending all of their income,” said Benjamin Orr, executive director at the Maryland Center on Economic Policy. “In many cases, their bills and their obligations, and what they need to survive, exceeds what their income is.”
The release of the report appears timed to influence Monday’s regional summit of Virginia Gov. Terry McAuliffe (D), Maryland Gov. Larry Hogan (R) and D.C. Mayor Muriel E. Bowser (D), where Metro is expected to be a principal topic. The three have been far apart in the past on funding Metro. Bowser strongly supports a uniform, regionwide sales tax, perhaps as much as a penny-per-dollar. McAuliffe would back increased taxes or other new funding mechanisms only after Metro has shown it has made progress on safety, reliability and efficiency. Hogan has ruled out giving Metro any extra money from the Maryland state budget, but he has left open the possibility that Montgomery and Prince George’s counties might tax themselves to pay for Metro.
The three leaders also are due to get an update on work done by former U.S. transportation secretary Ray LaHood, who was recruited by McAuliffe to devise a package of structural changes and funding plans for Metro that could win support throughout the region. LaHood plans to get feedback from the three and make his recommendations in late September or October.
LaHood has not said anything publicly about his intentions, but officials who have been briefed on his plans said they expect him to discuss Metro’s funding needs, labor costs and governance reforms, as well as other topics.
“We’re hoping that this report helps wake our leaders up that they need to think about who they’re actually asking to help to pay to fix Metro,” Lazere said. “I’m hopeful that it will get people to think twice about the sales tax.”
Metro General Manager Paul J. Wiedefeld has called for $15.5 billion over 10 years to support the system’s capital needs — including $500 million in new, annual dedicated funding — and a slew of concessions from Metro’s unions to keep the system’s finances healthy and infrastructure in a state of good repair.
Metro, which is funded through a combination of jurisdictional subsidies and federal grants, is alone among the nation’s major subway systems in lacking a significant source of dedicated funding
The jurisdictional subsidy cap is another area of concern, the think tanks say. Such limits to spending could only lead to further maintenance problems, service cuts or fare increases down the line, they argue.
Under Wiedefeld’s proposal, growth in annual subsidies to Metro from the jurisdictions would be capped at 3 percent.
“A 3 percent cap could . . . force Metro, in a short amount of time to shortchange maintenance, raise fares or cut services, or look for employee concessions,” the report says. “A 3 percent goal can be established but should include flexibility to go above that should a clear need be demonstrated.”
The report says jurisdictions could consider an additional property tax for businesses closest to Metro lines and stations — although it leaves the door open for an exemption for small businesses.
“In addition to business contributions, the remaining costs should be borne largely by higher-income households, both because they can best afford to pay and because they have benefited most from D.C’s growing economy,” the report said.
The groups liken their approach to the “millionaire’s tax” proposed by New York Mayor Bill de Blasio (D) to fund that city’s struggling subway.
Metro board Chairman Jack Evans, a longtime supporter of a one-cent regional sales tax, acknowledged that such a measure would be felt more deeply by poorer families. But, he said, the sales tax is the simplest mechanism for raising the $650 million Metro needs, referring to the amount in dedicated funding recommended by a Metropolitan Washington Council of Governments technical panel. In addition, the region’s lowest-income residents also rely on Metro to get around, so they have a stake in the system, Evans argued.
“I understand, if I’m only making a dollar, a penny’s a lot to me,” Evans said. “If I make a hundred dollars, then a penny’s a lot less work. In the scheme of the world at the end of the day, it is the fairest way. Because everybody benefits from Metro and everybody benefits from Metro’s success.”
Lazere questioned why the region couldn’t use a system akin to the multifaceted funding mechanism that paid for Nationals Park — including the tax on businesses that paid for stadium debt, for example. Evans said, however, that any tax proposal should be bondable, and it wasn’t clear that the alternatives the groups were proposing would be deemed suitable for significant long-term borrowing.
But Lazere, whose think tank studies D.C. budget and tax issues, said the region doesn’t have to be restricted to one source of revenue for dedicated funding.
“As long as there’s a commitment and every jurisdiction puts the full faith of their government against it, I don’t see why there has to be a single revenue source from one jurisdiction to another,” he said. “The notion that you can’t have a bond backed by more than one revenue source — it just seems sort of too simplistic an answer.”
Robert McCartney contributed to this report.