How to pay for a $6B transit plan? Nashville chamber floats 7 ideas

It’s perhaps the most crucial, yet elusive, question that could determine whether Middle Tennessee will build a new regional transit system any time soon.

How will the region, led by Nashville, pay for a plan that would cost nearly $6 billion to construct?

The Nashville Area Chamber of Commerce, which earlier this year came out in support of a robust regional transit plan, has been exploring possibilities. And on Wednesday, the chamber’s Moving Forward transit initiative floated seven transit funding possibilities, calling for further studying on each of them.

Ideas for transit funding are from sales taxes, property taxes, wheel taxes, tourist services taxes, parking taxes, local gasoline taxes and land value capture taxes.

“Really, this is the price of growth for our region for us to continue the great momentum that we’ve had with the rapid population growth that we’re having now,” said Don Abel, who is chair of Moving Forward Revenue and Finance Task Force. “Over the next 20 years, we don’t really have a choice as a region but to invest in this.

“I would suggest to you that we’re going to pay a cost either way,” he said. “It really should be viewed as an investment.”

Any of the suggestions, unveiled by the chamber on Wednesday, would likely face major political hurdles if proposed.

Middle Tennessee leaders adopt $6B regional transit plan

In fact, five of the seven ideas — including a local sales tax dedicated solely for transit, a local gas tax and a land value capture tax — would hinge on enabling legislation from the Republican-controlled Tennessee General Assembly, which has shown strong resistance to tax increases of any kind in recent years.

Tuesday night's election did offer some optimism for transit advocates. Voters in Atlanta, Indianapolis, San Jose, Raleigh, N.C., Portland, Ore., Charleston, S.C. and others each passed referendums focused on transit funding.

The chamber’s Moving Forward effort tapped a third-party, Victoria Transport Policy Institute, to identify transit funding possibilities. They now plan to bring in another outside group to study the seven ideas further.

Boards of both the Metro Transit Authority and Regional Transportation Authority this fall adopted the most comprehensive and expansive plans recommended in transit report called nMotion. The 25-year-plan calls for commuter rail on a new Northwest Corridor from Nashville to Clarksville and enhanced services on the existing Music City Star rail line from Wilson to Davidson counties. It also outlines light rail lines on Gallatin Pike, Murfreesboro Pike toward the Nashville International Airport and Nolensville and Charlotte pikes.

Nashville chamber backs robust, costly regional transit plan

Mayor Megan Barry, who has endorsed the nMotion transit plan, and has called for bold action on transit, has said she plans to propose a funding mechanism by the end of the year. The mayor has made clear that any funding mechanism would need buy-in from other Middle Tennessee cities and counties and the state legislature.

Here’s more on the seven transit funding proposals that Moving Forward recommends exploring, as presented in the Moving Forward report:

A special local sales tax

Sales taxes are the most frequently dedicated local funding source in the U.S., according to consultant for the chamber, accounting for 38 percent of capital spending on transit and 27 percent of operating expenses.

Tennessee has a 7 percent sales tax with counties having the option to levy up to an additional 2.75 percent. Davidson County, home of Nashville, has room to increase its local sales tax option by 0.5 percent. Half of any county local option sales tax must be dedicated to public education, which would limit the amount that could go to transit.

How much revenue? Amount a half-cent increase would have generated in 2015: $143 million, with $67.7 million coming from Davidson County

Advantages: Distributes tax burden widely, including to non-residents; significant revenue potential.

Disadvantages: Supports no other objectives; sales tax is considered regressive tax, hitting lower-income residents harder.

Property taxes

Property taxes are the primary revenue stream for local governments in Tennessee.

In Davidson County, Nashville residents in the Urban Services District pay $4.516 per $100 of assessed value in property taxes, compared to $3.924 per $100 of assessed value in the General Services District.

Because of a Metro Charter referendum approved by Nashville voters in 2006, any increase in the property tax rate above $4.69 would require approval of a public referendum.

How much revenue? The 10-county region that includes parts of the nMotion plan generates $2.3 billion in property tax revenue each year, according to the chamber’s report. A one-cent property tax hike across Middle Tennessee would generate an additional $5.2 million, around $2 million of which would come from Nashville.  

Advantages: Widely applied, distributes burden widely, produces significant revenue, according to the report.

Disadvantages: Supports no other objectives; considered regressive, according to the report.

Wheel tax

A wheel tax is an additional fee for registering vehicles in a region, which in Tennessee is known as a privilege tax on motor vehicles. Revenues generated by a wheel tax can be used for any specified purpose.

Across the 10-county region — which as 1.3 million registered vehicles — $63.5 million is currently generated annually by the vehicle privilege tax. The average rate of each of the 10 counties is $45.85.

How much revenue? Each dollar of additional vehicle taxes would generate approximately $1.3 million, rising to $2 million across Middle Tennessee by 2040, according to the report.

Advantages: Charges motorists for costs; easily implemented; would not require new state legislation.

Disadvantages: Considered regressive; becomes less stable as fuel efficiency increase; not paid for by visitors.

Tourist services taxes (hotel-motel tax)

This is a special tax on tourist-related goods — namely lodging and vehicle rentals — to help finance tourist-related services and programs.

Tennessee law allows Davidson County to levy a hotel occupancy privilege tax up to 6 percent plus an additional $2.50 per-night fee. Surrounding counties can authorize a similar tax of up to 4 percent or 5 percent.

Metro Nashville is currently using dollars from its hotel-motel taxes to pay off debt on the city’s $623 million downtown Music City Center convention center.

How much revenue? In Nashville, it generated $75.5 million during the 2015-16 fiscal year, but the majority is going toward the Music City Center debt.

Advantages: Primarily absorbed by non-residents; it is already being collected.

Disadvantages: If excessive, it could hurt tourism, according to the report.

Parking taxes

A parking tax would work as a special sales tax on commercial parking transactions in a county. 

How much revenue? Low to moderate, according to the report

Advantages: Is applied in other cities.

Disadvantages: Could discourage parking pricing and downtown development.

Local gasoline taxes

Tennessee has a tax of 21.4 cents per gallon on gas and 18.4 cents on diesel fuel, generating revenue that goes toward roads and other transportation infrastructure. Tennessee allows counties to assess another one cent per gallon to fund public transit, according to the report, but none currently do.

State legislation in Tennessee has also been introduced in recent years that would allow a local gas tax option for counties, but it has not advanced.

During recent legislative sessions, Gov. Bill Haslam has talked about perhaps increasing the gas tax but has not amid sharp resistance from the Republican state legislature.

How much revenue? Each additional one cent per-gallon tax would generate approximately $10 million in additional revenue in the 10-county region, according to the report.

Advantages: Widely applied; reduces vehicle traffic and fuel use.

Disadvantages: Is considered regressive; becomes less stable as fuel efficiency increases.

Land value capture taxes

The strategy of capturing land values would call for a special tax on property in designated areas around transit infrastructure that is to benefit future transit expansion. The idea is to capture the added value from investments in transit.

The chamber report says that two approaches include special assessment districts and tax increment financing.

How much revenue? In the long-term, investments could be moderate. The value of land would need time to appreciate following the initial transit investment.

Advantages: Large potential; charges businesses and other that benefit from transit, according to the report.

Disadvantages: Could be costly to implement.

Reach Joey Garrison at 615-259-8236 and on Twitter @joeygarrison.