Portland Transit Tax Fraud

COST Commentary: This is another story of the deception and fall from grace of Portland as the Mecca for western public transit. It is also a precursor and warning of a similar situation which could lead Austin to bankruptcy if it proceeds with its ill-conceived, high cost and ineffective Urban Rail/Light Rail plans.

TriMet Tax Fraud

by Randal O’Toole in The Antiplanner, Apr 12 2011

TriMet, Portland’s transit agency, gets about half its operating funds from a payroll tax. In 2004, this tax was 0.6218 percent, meaning employers had to pay TriMet $62.18 for every $10,000 they paid employees. Employees, other than the self-employed, are largely unaware of this since it is on top of pay, not a deduction from pay.

In 2003, TriMet persuaded the Oregon legislature to allow it to increase the tax by 0.01 percent per year for ten years, starting in 2005. In 2009, TriMet went back and convinced the legislature to allow it to continue increasing the tax by 0.01 percent per year for another 10 years. Thus, the tax now stands at $69.18 per $10,000 in payroll, and will rise to $82.18 per $10,000 in 2025.

At the time, TriMet promised that all of this tax increase would be dedicated to increasing service, and as of 2010, TriMet CFO Beth deHamel claims this is being done. But according to John Charles of the Cascade Policy Institute, that’s not what is happening.

Poring over TriMet budgets and records, Charles found that, from 2004 (before the tax was first increased) and 2010, total payroll tax collections grew by 34 percent, more than a third of which was due to the tax increase. Thanks to fare increases, fares also grew by 68 percent, so overall operating income grew by about 50 percent, of which about 7 percent (almost $20 million) was due to the increased payroll tax.

So service must have grown by about 7 percent, right? Wrong. Due to service cuts made last September, says Charles, TriMet is now providing about 14 percent fewer vehicle miles and 12 percent fewer vehicle hours of transit service than it provided in 2004 (comparing December 2004 with December 2010). TriMet blamed the service cuts on the economy, but its 50 percent increase in revenues belie that explanation.

By 2030, according to TriMet’s financial forecast (not available on line), the agency will have collected $1.63 billion more payroll taxes thanks to the tax increase. Yet the agency itself projects that hours and miles of service in 2030 will be slightly less than in 2004.

Where did all the money go if not into service increases? Charles says some of it went into employee benefits. TriMet has the highest ratio of employee benefits to payroll of any transit agency. At latest report, it actually spends about 50 percent more on benefits than on pay, and is the only major transit agency in the country to spend more on benefits than pay. This doesn’t count the unfunded health care liabilities; by 2030, TriMet health care benefits alone are projected to be more than its payroll.

TriMet claims it is keeping its promise to the legislature. But it counts debt service on light rail, cost overruns on the Westside commuter train, and similar costs as “increased service.” That’s not more service; it is simply more spending. Substituting high-cost rail transit for low-cost bus transit is not an increase in service. At best, it is an increase in snob appeal.

TriMet ridership in 2010 was about 9 percent more than 2004. But the agency implemented severe service cuts near the end of 2010. We’ll know in a few months how badly those service cuts have hurt ridership.

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