City of Lawrence

Public Transit

TO:	Dave Corliss, City Manager
FROM:	Cliff Galante, Public Transit Administrator
CC:	Diane Stoddard, Assistant City Manager Cynthia Boecker, Assistant City Manager
DATE:	June 4, 2008
RE:	Proposed Transit Sales Tax Rate Analysis

Attached for your review is a spreadsheet analysis recently prepared by staff regarding proposed sales tax rates to support public transportation service in Lawrence.  For comparison purposes, varying sales taxes rates of .15%, .20% and .25% were analyzed to evaluate the impacts.

The analysis factors projected revenues received from the four primary sources of funding for the next 10 years that includes:  Federal Transit Administration, Kansas Department of Transportation, fares and bus passes collected from transit patrons, and proposed local sales tax.  In addition, the analysis evaluates projected expenditures needed to support transit system operating and capital needs based upon historical costs and current pricing.  Many assumptions are made regarding projected revenue and expenditures over the next ten years that have been clearly outlined. 

Staff believes that rising fuel costs will be the most difficult expenditure to project in the long-term.  Since this time a year ago, the price of diesel fuel per gallon has increased by an astonishing 79%.  The pace at which the price of fuel is increasing is unprecedented and making it very difficult to predict what the cost of fuel will be in the future. 

Another challenge to be addressed is how to budget accordingly for transit system capital and infrastructure needs.  As with any service, there are both operating and capital needs.  To ensure that the service is well positioned for success in the short and long-term will require funding that adequately addresses both these needs.

In summary, in order for the transit system to maintain status quo service operating 67,018 revenue hours of service annually based on existing demand for service and to adequately address its capital needs will require a .25% sales tax rate assuming projected revenues from other sources and expenditures are accurate.  At this rate, the transit system is well positioned for success for the next 10-years and will operate in the black for 9 out of 10 years. The reason why it does not operate in the black in the first year is that the City will not collect a full year of sales tax in FY09.   A .20% sales tax rate has the transit system operating in the red for 6 out 10 years and the transit system would only be able to partially address its capital needs.  Staff believes it would be highly likely that the transit system would require additional resources within the 10-year period to maintain existing service levels and to fully address its capital needs.  A .15% sales tax rate has the transit system operating in the red or running deficits for the entire 10 year period unable to maintain status quo level of service and unable to address its capital needs.    A lower sales tax rate could possibly work if service is reduced, revenues from other sources are higher than projected or expenditures are lower than projected.