The disagreement among Dallas Area Rapid Transit member cities has shifted from a healthy debate to a very disagreeable and dangerous dispute. If cooler heads don’t soon prevail, the current path could very well lead to a diminished agency incapable of supporting basic public transportation services to transit-dependent residents.
It is odd and surprising that Plano would lead the charge to lower the sales tax that funds DART at the very moment of the pending introduction in 2025 of the Silver Line commuter rail system, which will provide two new stations in Plano and direct service to the University of Texas at Dallas and DFW International Airport.
Even more surprising is that Plano would suggest this without even inquiring what impact it would have on the agency’s 20-year financial plan, approved by the DART board, which has very capably guided decisions regarding capital investment and service plans.
To be clear, the 1% sales tax currently being collected will remain for the foreseeable future. And, no, the Texas Legislature cannot provide Plano or other cities with relief from this obligation. The Master Debt Resolution adopted by DART at the inception of bond issuance makes that quite clear.
The Texas Constitution is very specific about the sacrosanct nature of contracts. Should the Legislature attempt to modify an existing bond covenant, it would trigger concerns among virtually all local government debt issuers in Texas — especially so among the institutional investors who purchased DART bonds and rely upon their assured repayment.
As harsh as this may sound, what Plano is asking is for DART to break its contract, ignore the concerns of its creditors and start a cascading crisis of public finance.
While it is true DART could work around the covenant by refunding all outstanding debt and then rewriting the Master Debt Resolution, the cost of refinancing, along with increasing interest costs, would be in the hundreds of millions. It would most likely trigger an immediate downgrade in bond ratings, which would increase interest rates even more. It might also lead to a bondholder lawsuit brought by major institutional holders of DART debt. It is not going to happen.
Review needed
It is difficult to understand how Plano could arrive at a recommendation to reduce the sales tax without having undertaken a full fiscal and service review.
What Plano and other cities have suggested — lowering the rate to three-quarters of one cent — has no supporting analysis other than the argument that some member cities would like to obtain funds for other uses.
The impact of reduced funding levels on service levels must be determined and brought forward in a fully transparent manner. Major service plan changes and large service-provider contract deliberations usually consume a full year and often two years.
Plano and the other suburbs in support of reducing DART funding should request a full review of the impact of their proposal throughout the DART service area with a goal of finding common ground. Some patience and careful reflection is advised.
Let fairness prevail
To be fair, Plano and the other suburbs in the system are making a valid argument that should be addressed. A system in place for nearly four decades will naturally see demographic and economic circumstances change dramatically over that time period.
When DART was created, it was probably unimaginable that Plano, a small suburban community, would grow to a population of 289,000 and become the second-largest contributor of sales tax in the entire system, after Dallas. It was also likely unimaginable that the suburban jurisdictions would generate, in the aggregate, total sales tax contributions larger than the city of Dallas. It is entirely reasonable to assume that funding allocations and the mix and amount of mobility services provided might get out of balance when considered against the original estimates.
But rather than an arbitrary 25% cut, the member cities would be much better served by setting up a “balanced service levels by city” policy framework based upon some agreed-to fiscal and social equity principles. This is currently done in Seattle, Salt Lake City and Phoenix. It is tedious and occasionally contentious, but allows arguments about fairness to be defused more calmly.
That approach would gradually shift resources to suburban areas. It would also likely require providing each participating jurisdiction with more control over the choice of modes and levels of service (bus, rail, on demand, paratransit) it prefers.
The DART board has the full authority to undertake this level of policy development and adoption without the need to go to the Legislature. Hopefully the elected officials and their appointed representatives on the DART board of directors can be convinced to consider these other less contentious and damaging options.
A solution
There is a legislative solution to Plano’s problem already in place under Chapter 452, Section 2.2 (6) of the Texas Transportation code. That chapter provides the opportunity for a member city to conduct a pullout election and withdraw entirely from the agency.
Sales tax would continue to be collected until accrued debt and liabilities allocated to the city have been fully covered. In Plano’s case, that would likely take 15 years or more.
The statute also stipulates that service to the jurisdiction would immediately cease following a successful pullout election. The consequences of that are fairly stark. It is understandable that Plano would like to avoid the pushback that would most likely generate.
If Plano wants to get relief from the pullout requirements, it could consider a legislative modification to provide one or two alternative wind-down methods. These could include a longer paydown period with some earlier access to a portion of the sales tax, and possibly provide for re-entry into a contract for services. This would provide an option to retain access to the upcoming Silver Line service and vital paratransit services.
As it is, Plano’s proposed legislative solution is tortured and difficult to implement. It would impose new burdens on other member cities. It would consume unnecessary amounts of time and money in the upcoming legislative session, generate a great deal of animus among the DART member cities and the outcome would almost assuredly be defeat.
David Leininger is founder and CEO of Leininger Analytics. He previously served as CFO and interim CEO at Dallas Area Rapid Transit.
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