Author Archive | Michael Andersen

Solar contractor defends TriMet’s $366,000 panel array, calling it ‘art’

This is a guest post from Michael Andersen of Portland Afoot, PDX’s 10-minute newsmagazine for TriMet commuters.

TriMet’s plan to build a $366,000 solar project near PSU that’ll kick off $4,550 a year of electricity sounds like a nutty waste.

That’s certainly how it played in TriMet’s initial press release, and on the front page of The Oregonian Tuesday. When I saw those numbers (they’ve been slightly amended since the initial release) I was ready to pounce, myself.

But a funny thing happened on the way to the snarky news item I wrote up for our little commuting magazine: the more I learned about the project, the better I liked it. Now I think it’s a seriously clever project that’ll even sneak some much-needed money into the agency’s bottom line.

First, four seemingly damning facts:

It’s a money-loser. Assuming energy prices rise 3 percent faster than inflation, the project won’t “pay for itself” until 2051, five years after its predicted expiration date.

TriMet’s got lots of capital investment options with higher returns. For comparison’s sake, a new bus costs the agency $426,800. Last year, scrambling to find cash for its next MAX line, the agency saved $100,000 by scrapping preparations for a future stop in Moreland, near Reed College.

It could have been spent elsewhere. The project will shake the last drops out of a 2005 federal rail grant that built the Green Line, so I suppose it might have been available for (say) building spots for LIFT vehicles to stop along the Transit Mall, though not for (say) bus service.

The public is paying the full bill. Though TriMet will probably only be on the hook for $134,000 of the $366,000 pricetag, the rest will come from state taxpayers (a $100,000 BETC subsidy) and utility ratepayers ($132,000 from the Energy Trust of Oregon and PGE).

Now, three additional facts that didn’t, somehow, make it into the initial news release or the next day’s newspaper:

TriMet had already been required to dress up the buildings. The city permit for the new Transit Mall required a “gateway treatment,” a potentially major decorative expense, at the otherwise sort of ugly MAX turnaround. Most of the ways to satisfy this requirement would not have generated revenue. This one does.

The finished product is actually going to look pretty sweet. Note that this is not technically a fact. But that doesn’t mean it’s not true.

It’ll convert capital grants to operating revenue. $4,550 a year isn’t much. But nearly every penny of electricity revenue that TriMet pulls out of these solar panels for the next 35 years will basically be a federal subsidy of TriMet’s operating costs. In an agency that keeps digging its way deeper into a long-term cash flow crisis, that’s a nice change.

That leaves one last problem: The solar panels are still heavily subsidized by the general public. But you know what? The public subsidizes solar power for a reason: It’s a technology we’ve decided to put a bet on. We can fight about that another day. Let’s not let it obscure the fact that TriMet found a clever way to stitch together a bunch of funding and save a little cash for its own constituents.

Though I am annoyed that I had to rewrite that snarky news item.

The Hidden Leak in TriMet’s Payroll Tax

We’re happy to publish this guest post from Portland Afoot’s Michael Andersen – he said only Portland Transport’s audience was wonky enough to appreciate it! – Chris

Through all the hubbub of the last decade – through the ridership booms and the budget cuts – there’s been a little gremlin quietly sucking the juice out of TriMet’s budget. And not only is the agency totally unprepared for this gremlin to grow – it sounds as if its leaders, and the Metro forecasts they depend upon, haven’t even realized it exists.

I’m not talking about TriMet’s much-publicized obligations to its retirees, and I’m not talking about its looming need to serve Portland’s growing senior population. TriMet’s bosses are quite aware of both these gremlins, in part because we share them with transit agencies across the country.

No, this little guy is TriMet’s alone. Here he is:

It’s been a gradual slide, hard to spot amid the booms and busts. But from 1995-2000, the working-age (25-64) population in the Metro area grew by an average of 2.9 percent annually. In 2000, that rate began falling sharply; in the next 10 years it’s expected to slip to 1.8 percent, then 1.2 percent. Starting in 2020, even if you assume rising retirement ages, Metro expects working-age population growth in the area to fall to 0.9 percent per year and basically hover there indefinitely.

For 30 years, baby boomers have been the secret fuel in TriMet’s payroll-powered budget. Even when wage growth slowed, hundreds of thousands of workers at the peak of their earning power kept total payrolls growing. But as boomers slip out of the workforce, TriMet’s ability to keep up with growth will have to rely more and more on the wages of the workers who remain.

In other words, just as Portland’s TriMet-riding population is poised to swell, the tax that financed TriMet’s amazing 30-year expansion is about to shrivel.

The expected drop in payroll tax base growth, 2 percentage points a year, sounds small. It isn’t. To prove it, let’s look in detail at a big decision TriMet’s board will make this week: whether to let the agency borrow up to $60 million from future operating budgets to build a new MAX line to southeast Portland and Milwaukie.

A $60 million construction loan would cost TriMet’s general fund about $5.1 million for each of 20 years, and operating the line would cost another $14 million annually.

That’s a lot of money. TriMet thinks it can pay the bills, even as it restores and improves service on existing routes, with growth: Metro’s long-term growth projections estimate that the payroll tax base will grow by 4.5 percent annually.

At a glance, this looks like a conservative estimate. It’s a bit slower than growth from 1995 to 2010. But let’s look closer.

There are three factors that drive the payroll tax base, in increasing order of predictability: inflation, real wage growth, and the number of people working (itself mostly a function of demographics).

We’ll assume, with Metro, that long-term inflation will be 2 percent annually. That leaves real wages and demographics.

And indeed, if you assume no changes in the Portland area’s demographics over the next 30 years, the real wage growth required to meet Metro’s and TriMet’s revenue expectations would be perfectly reasonable by historical standards – 0.3 percent per year.

There’s just one problem: This projection ignores the aging workforce.

So let’s use demographic projections from Metro or the state to project future workforce growth. Here’s what would actually have to happen for TriMet’s assumptions to work:

To stay ahead of our graying workforce and falling birthrate, TriMet would need real wages to grow at five times the reasonable rate … forever. If wages don’t grow at the rate above, the agency will be trapped in its debts and service will suffer.

Keep in mind that this project requires a permanent and nearly unprecedented explosion in real wages in addition to the rising tax rates, overall population growth and continuing inflation that most of us expect. To make the Milwaukie rail numbers work, this unending boom will be needed even if all those things happen, too.

All these projections, by the way, generously assume a long-term inflation rate of 2 percent. That’s Metro’s long-term inflation assumption, and it’s also the upper bound of the U.S. Federal Reserve’s long-term projections. If inflation were instead to average 1.75 percent, the middle of the Fed’s range, TriMet’s assumptions would become even more far-fetched.

At Metro’s recommendation, I’ve also assumed a major shift in the workforce over this period: that 10 percent of people aged 65-70 will be in the workforce by 2020, gradually ramping up to 50 percent by 2040. Frankly, this trend represents a few drops in the ocean.

Finally, let’s look at the projections together. The green line represents the economic growth that TriMet and Metro leaders intuitively think they need, based on their life experience, to keep expanding service.

The yellow line is what TriMet would actually need, based on Metro aging projections.

The red line is even scarier: That’s what TriMet would need based on population projections from the state Office of Economic Analysis.

But could there be an error in my calculations? Maybe I’m wrong to conflate “working age” population so closely with available workforce?

I wrote TriMet to ask.

TriMet spokeswoman Mary Fetsch defended the payroll tax base assumption, suggesting I compare it to projections from Metro and the Western Blue Chip forecast from Arizona State University: “We think you will find that it is reasonable and in line with what others are forecasting.”

Well, the Western Blue Chip forecast isn’t much help: it goes only through 2011.

So to check the long-term forecasts I turned to Metro and to Dennis Yee, Metro’s chief forecaster, in two phone calls last month. He, too, defended Metro and TriMet’s assumptions.

“Anywhere from 1 to 3 percent” real wage growth, Yee said, is “not outrageous.”

No? Let’s look at Yee’s implicit expectations one last time.

Does an indefinite average of 1.5 percent wage growth look reasonable to you? It does not look reasonable to me. Yet it’s the assumption on which TriMet is building billion-dollar decisions.

I sent Yee this chart on Nov. 16, along with my calculations, asking for comment. I’ve since called him twice but not heard back.

I hope I’m wrong about all of this. Please, check my work. But I’m afraid that somewhere along the bureaucratic line, this hidden leak in TriMet’s payroll tax simply hasn’t been noticed.

Seems to me that someone in TriMet needs to notice it – immediately.