By Andrew Keatts, Voice of San Diego
The San Diego Association of Governments knowingly misled voters in 2004 about how much money it expected to raise from a new sales tax.
The deception allowed the agency to overstate how much it could accomplish for regional transportation, transit operations and local infrastructure projects throughout the county in the coming decades. Voters approved the tax increase – and have been paying more money in taxes for 13 years – based on the false projection that appeared on the ballot.
Voice of San Diego reported in October that SANDAG is now on pace to bring in nearly $5 billion less than the $14 billion it told voters the half-cent sales tax would raise. In December, the agency admitted that was true, but said it was only just then learning of a problem with its revenue forecast, and in February launched an investigation into what went wrong.
But records newly obtained by Voice of San Diego through a public records request show the agency knew back in 2003 that the tax was not expected to raise $14.2 billion.
Nearly a year before the 2004 election, SANDAG’s board officially adopted a long-term economic forecast that differed dramatically from the one it used to sell voters on a TransNet extension. The new forecast, formally approved by the agency’s board of directors in December 2003, suggested a half-cent sales tax would actually raise just $12.9 billion.
Confronted with Voice of San Diego’s findings, SANDAG officials last week admitted that the $1.3 billion downward revision existed, was formally adopted by the board and was not disclosed to the public. That is more money than SANDAG will spend on the Mid-Coast Trolley, a light-rail extension from Old Town to University City that is one of the highlight projects from the TransNet program.
Overpromising how much money the tax would bring in allowed the agency to promise more construction projects and regional infrastructure funding, and therefore generate more support for it.
This is now the third instance in which SANDAG either knowingly overstated how much money it could collect to pay for transportation projects, or understated how much those projects would cost to complete.
The agency also told voters this past November that a new sales tax, Measure A, would collect $18 billion for new projects. Internal emails and documents proved the agency knew the tax would not collect that much.
At the same time, the agency intentionally withheld an $8 billion cost increase on all the projects it was set to build through TransNet from the financing plan for that program. The agency formally updated the cost estimates for those projects in October 2015, but didn’t acknowledge the increase in TransNet’s financing plan until after the November 2016 election. Had the agency disclosed the cost increase ahead of the election, it would have given more weight to concerns that the new money from Measure A, had it passed, would really go to paying for the old TransNet promises.
And the latest revelation is that SANDAG went to voters in 2004 with a revenue estimate that it had officially abandoned a full year earlier without acknowledging as much to voters.
SANDAG has hired a law firm to investigate the issues, and that investigation is expected to go before the board in early August. It’s unclear whether the scope of that investigation includes SANDAG’s failure to disclose cost increases for a year, or the newly discovered deception from 2004.
In addition to reinforcing the pattern of SANDAG’s behavior, the latest revelation about SANDAG’s forecast for TransNet back in 2003 also undermines one of the agency’s primary arguments in defense of its funding shortfall.
Board members have regularly defended the shortfall as a byproduct of the recession – not the result of a bad forecast.
In fact, SANDAG itself knew it would not collect $14 billion from TransNet a full year before voters approved it, and four full years before the Great Recession started.
The Forecast Change
Every four years, SANDAG adopts a new long-term plan for regional growth. It’s a massive undertaking. The agency must spell out what transportation improvements the region needs, and how it will manage the county’s carbon footprint.
During that process, it also adopts a new forecast for demographic and economic growth – basically, how much it expects the population to grow and change, and how much money it expects residents to make and spend.
In December 2003, SANDAG adopted a new, updated forecast when it adopted its new regional plan.
Earlier that year, the agency estimated how much money it could raise with a half-cent sales tax. It created that estimate using an early draft of the forecast that it would officially approve in December.
That’s where the $14.2 billion number that eventually appeared on the ballot came from – the unofficial, draft version of the agency’s forecast.
But in the ensuing months, SANDAG’s modeling experts made substantial changes to the forecast before it was finally adopted in December.
Those changes resulted in a forecast with a significantly less rosy vision for the future of San Diego’s economy.
Despite that, SANDAG did not update its revenue expectations for TransNet to reflect the more conservative outlook, even though it was formally adopted by the board 11 months before it was put before voters.
That means SANDAG asked voters to approve a transportation plan built around a revenue estimate that it did not itself believe, and which it had officially contradicted with its formally adopted forecast.
The official forecast, if SANDAG had used it, would have projected an 11 percent drop in retail sales throughout the county.
The drop in retail sales would have cut SANDAG’s total revenue expectations for TransNet by roughly 10 percent, from $14.2 billion to $12.9 billion.
SANDAG’s board first discussed putting the TransNet Extension Ordinance that was eventually approved by voters on the ballot in February 2004, two months after SANDAG adopted its official (and more conservative) forecast. The spending plan still relied on the out-of-date, more bullish version.
It then appeared on the ballot in November 2004, still relying on the $14 billion estimate that SANDAG itself had formally acknowledged it would not raise.
SANDAG admitted to this when presented with Voice of San Diego’s findings.
It blamed the problem on Marney Cox, the agency’s chief economist at the time, who has since retired.
“In early 2003, SANDAG’s former chief economist, Marney Cox, developed the revenue forecast for the TransNet Extension Ordinance,” wrote SANDAG spokesman David Hicks in an email. “Cox has since retired. It appears from reviewing his files that in the spring of 2003 he created a spreadsheet that he used to estimate future revenue that could be expected from the proposed TransNet Extension. It also appears he used demographic and economic data from the (draft forecast) – the most recent data available to him at the time – in that spreadsheet.”
Hicks said that modelers continued to refine the forecast and make adjustments after Cox developed his estimate, which is why the forecast officially adopted 11 months before the November 2004 election actually projects TransNet to raise $1.3 billion less than SANDAG told voters.
SANDAG has not yet responded to questions regarding why it did not correct the TransNet Extension Ordinance to reflect its officially adopted forecast, who made that decision and whether there was any discussion within the agency about disclosing the change.
Hicks said Cox was the person to answer those questions. Cox declined to be interviewed.
It’s Not Just the Economy, Stupid
Since SANDAG admitted in December to the revenue shortfall it’s facing, various officials have pointed to the Great Recession to explain it, and to suggest they are victims of circumstance, not the subjects of a scandal.
“I think totally, these projections are related to the economy,” said Escondido Mayor Sam Abed at a SANDAG board meeting in which the board approved an investigation into the agency’s forecasting scandal.
“As we saw in that other chart with the ups and downs in the economy, nobody had the prediction of what was going to happen in 2006, with any real certainty, and that really changed our world,” said National City Mayor Ron Morrison at the same meeting.
But it’s now clear SANDAG itself knew years before the recession started that it would not collect $14 billion through TransNet.
Just last month, the independent oversight committee created specifically to act as a watchdog over TransNet said economic conditions explain most of the shortfall in its annual report to SANDAG’s board.
“Through late calendar year 2016, the shortfall was approximately $450 million less than had been forecast in 2002, primarily due to the “Great Recession” in 2008–2009, when overall economic activity slowed and fewer than expected people moved into the county,” the report reads. “As a result of the slow recovery, sales tax revenues in San Diego County today are still slightly less than they were prior to the recession whereas the original estimates prepared for the TransNet extension assumed there would be slow but steady growth in sales tax every year.”
The committee acknowledged a spreadsheet error in SANDAG’s forecast led to part of the revenue shortfall, which has been SANDAG’s public explanation to date, but it otherwise said the recession was the primary cause.
In an email exchange this week over Voice of San Diego’s most recent findings, Stewart Halpern, chair of the Independent Taxpayers Oversight Committee, reiterated the committee’s point that the recession is the primary cause of TransNet’s funding shortfall.
“The historical data we’ve seen shows that the actual collections tracked the forecast quite closely until the Great Recession, so it appears that the principal cause of the shortfall to-date does in fact relate to the recession and the slow subsequent rebound,” he wrote.
Hicks said something similar in his email response.
“It’s worth noting here that the estimate made by Cox using the (preliminary draft forecast) tracked very closely with actual tax collections until the Great Recession, an extremely rare and unpredictable event,” Hicks wrote.
It is true that in the booming economic years that famously led to the Great Recession, SANDAG’s tax collections managed to track with the bullish forecast used to create the revenue projection that went before voters. The more conservative forecast that SANDAG actually adopted, though, was perhaps more realistic about how likely it was for the economy to continue on that path.
Nonetheless, Halpern said Voice of San Diego’s inquiry was the first he had heard of any changes to SANDAG’s forecast that would have led to lower revenue expectations for TransNet.
“If – and I emphasize ‘if’ — the SANDAG staff and/or board of directors knew that the $14.2 billion forecast was materially higher than more updated numbers at the time showed it should have been, and they continued to use the $14.2 billion number to promote the TransNet Extension Ordinance, that would be very troubling,” Halpern wrote. “I haven’t seen any indication of that aside from your email, but will also raise this question with the staff and will be happy to update you.”
SANDAG then provided him with the same email response it had sent to Voice of San Diego.
“I haven’t yet dived into the financial detail, but as a follow-up I’ve inquired as to why, IF the change from (the preliminary forecast to the officially adopted one) was at all noteworthy, the ($14.2 billion) estimate wasn’t updated before going to the voters,” Halpern wrote.
Andrew Keatts is a reporter for Voice of San Diego. Contact him at andrew.keatts@voiceofsandiego.org or 619.325.0529. This story was first published by Voice of San Diego. Sign up for VOSD’s newsletters here.