November 9, 2016

Nashville Business Journal
by Meg Garner

Nashville business leaders today rolled out the first picture of just how much Middle Tennesseans could pay to build the region’s $6 billion transit overhaul, with a new report detailing seven potential local taxes and fees.

At the Cumberland Region Tomorrow’s Power of Ten Summit, which brings together city officials and business leaders from across the country, state and region, members of Moving Forward presented the findings from a commissioned report by the Victoria Transport Policy Institute. The report puts seven options on the table for how the 10-county region could pay for its transit expansion.

You can read the full study here.

Moving Forward is a coalition of business leaders funded by the Nashville Area Chamber of Commerce that has been at the forefront of the area’s transit debate. In June, the group publicly threw its support behind the $6 billion expansion plan, the most ambitious of three proposed plans.

The chamber group has continued to be a vocal proponent of transit, lobbying the Metropolitan Nashville Transit Authority, the Regional Transit Authority and Nashville Mayor Megan Barry and putting both time and resources behind the issue. Chamber spokesman Mark Drury declined to comment on how much the chamber spent to conduct this most recent study. The study was also paid for in part by the Greater Nashville Association of Realtors.

The seven options include everything from direct taxes on residents to fees that impact the area’s growing tourism industry, but the one similarity among each of the suggestions is that eventually Middle Tennessee voters will have to decide how willing they are to open their pocketbooks to pay for transit.

“They’re new taxes, and we get it, nobody likes new taxes,” said Don Abel, co-chairman of Moving Forward’s finance committee and the former Tennessee president and CEO for Fifth Third Bank. “But we have to do something.”

Like many business leaders, Abel said if the area’s traffic problems continue to worsen, it will hurt the region’s ability to recruit and retain businesses.

To be sure, the chamber’s findings are proposals to city officials. Any funding packages that will impact residents’ pocketbooks will originate from the 10-county region’s elected officials. In Nashville, Barry has previously said she would release her own funding proposal for the transit expansion plan by the end of the year.

Mary Cavarra, co-chairwoman of Moving Forward’s finance committee alongside Abel, said the group will now conduct further research on the seven funding options, with the hopes of providing additional findings to local elected officials. Moving Forward hopes to have its additional research completed in the first half of 2017.

In September, both the RTA and MTA unanimously approved a $6 billion transit overhaul for Middle Tennessee called nMotion. The plan — if fully funded and built during the next two dozen years — would extend transit service within a half-mile of 1.55 million jobs in Middle Tennessee, which is more than triple the reach of the region’s existing system. The plan also includes extending operating hours, expanded services and light rail.

The funding options are based off an estimate that half of the plan’s $6 billion will need to come from local sources. Moving Forward officials say the remaining $3 billion would come through federal dollars and potentially some state funding, though Tennessee Department of Transportation Commissioner John Schroer has said local officials shouldn’t expect funding from the state for local mass-transit projects.

And while the report does not directly address how much officials might ask from the state Legislature, there are several options that would require the General Assembly to expand local officials’ current power to levy and raise taxes.

Here are the seven funding options that the chamber is proposing for further study:

  • Sales tax: Sales taxes are the largest local source of transit agency capital spending, according to the Federal Transit Administration’s National Transit Database. For this reason, the report argues increasing the region’s sales taxes is a clear solution to providing stable revenue in the coming years, particularly since these types of taxes impact both residents and visitors. But some counties in the Nashville region already charge the maximum 2.75 percent allowed by the General Assembly.
  • Property tax: Property taxes already are the primary source for local government funding in Tennessee, so increasing the area’s property taxes would not be difficult to administer, according to the report. But increasing residents’ property taxes is often a controversial move despite the steady and quick inflow of cash they could bring in. The report argues raising property taxes in the 10-county region would bring in approximately $5.2 million annually.
  • Wheel tax: A wheel tax is an additional fee charged to register a vehicle within a region. If Middle Tennessee added another $50 fee, the region could bring in an additional $65 million in revenue, according to the report.
  • Tourist services taxes: From hotel occupancy privilege taxes to per-night surtaxes, state laws already allow for certain counties and cities within the region to charge additional fees to tourists. The Metro Nashville $2.50 surtax and 6 percent hotel occupancy privilege tax brought in $75.5 million during the past budget year, according to the report. Increasing rental car fees are another option under this umbrella. Increasing tourist taxes, however, could discourage tourism.
  • Parking tax: Currently, 1 to 2 percent of the region’s non-residential parking activity is priced. The reports suggests metering unpriced on-street parking spaces in urban spaces in addition to charging for off-street parking at public offices, schools and parks. If the amount of paid parking were to double, the region could have an additional $40 to $80 per capita annually, according to the report.
  • Local gasoline tax: The state of Tennessee already has a set 21.4 cents per gallon tax on gasoline, so taxing gasoline within the state is not impossible. Furthermore, the state gives each county the option to add their own 1 cent per gallon tax on gasoline to fund public transit, but no county currently does, according to the report. If all 10 counties were to implement their 1 cent per gallon tax, the region could have an additional $10 million in revenue, based off the region’s current gasoline consumption. Gasoline taxes are often unpopular, and implementing a 1 cent per gallon tax would require a public vote.
  • Land value capture taxes: Land value capture taxes center on transit-orientated development through two means: special assessment districts and tax-increment financing (TIF). Special assessment districts would have an additional tax, often a property tax, in a specific geographic region, in which all revenue goes to the expansion of transit. Implementing a TIF strategy would direct future property tax revenue over the initial amount to paying for transit. Both options would rely on properties’ land value increasing as the region’s transit system expands. Furthermore, the real financial upside of this option would not been seen immediately.