DART needs far more than 2.5%
Over the last few weeks, the Des Moines Area Regional Transit Authority (DART) has been in the news quite a bit. It began with the alarming headline that the largest public transit system in Iowa will need to cut 40% of its services due to budget concerns. Virtually every news outlet in the area carried this story, which was provided almost wholly by DART’s own press release and media information, and the gist of it was that the city of Des Moines needs to cough up more money to pay its fair share for DART services. This money, it was explained, should come from a 2.5% increase in the franchise fee imposed by the city on gas and electric bills, and if the city council does not approve that increase in January, then DART will be forced to reduce services in Des Moines. Yet, a closer look at the issue reveals that the problems are actually much deeper, and DART needs far more than this 2.5%.
The problem
By all accounts, the problem is complex. DART provides 3.2 million rides per year (i.e., 8,800 rides per day) to some of the most vulnerable people in Des Moines. The majority of DART patrons do not have a valid drivers license and/or own a vehicle, and they are utterly dependent upon public transportation to arrive at work or school. In short, DART provides an essential service that both residents and businesses need to survive.
On the other hand, an estimated 86% of DART’s $45-million budget comes from non-operating revenues, with well over half of that coming from property taxes. In fact, property taxes account for more than $22 million, or nearly half of the agency’s total income. This bill is divided between the various participating communities based upon the services they receive from DART, and since Des Moines receives the most DART services, the city of Des Moines is responsible for a growing portion of that bill. This becomes problematic because the state of Iowa limits the amount of property taxes that can be used for public transit (i.e., the transit levy) to $.95 per $1,000 valuation, and Des Moines’ obligation has already blown well past that cap.
According to both DART and city manager Scott Sanders, Des Moines has used alternative revenue streams to make up the difference between the transit levy cap and the obligation, but that funding will not be available in the future. Therefore, DART and the city are compelled to find another solution.
DART’s options
One possible solution, identified and advocated by DART, would have the city of Des Moines increase the franchise fee it charges on all electric and gas bills. Currently, the city’s franchise fee stands at 5%, but a new Iowa law exclusively allows the city of Des Moines to increase that fee to 7.5%. If the city council would approve this increase and divert all of the difference to DART, it would actually enable to city to pay its obligation and have room to spare under the property tax transit levy cap.
The city’s response
For its part, several members of the Des Moines city council have indicated that they are dubious about this solution. They point out that the funding gap is the result of a new funding formula adopted by DART in 2021. This new formula, being phased in over 7 years, calls for each participating community to pay a rate based on the services provided by DART. The effect is that Des Moines’ share of the DART budget pie is increasing at a rate of approximately 1.3% per year.
This change is remarkable for a couple of reasons. First, Des Moines’ share is moving faster than any of the other communities. Second, Des Moines is one of only two cities with an increasing share of the pie. Every other community is seeing their share remain steady or decrease. In fact, the only other community seeing their share increase is West Des Moines, and their rate will increase only .07%. Third, the decision by Grimes to opt out of DART entirely will almost certainly affect all of these numbers.
Des Moines city council members are rightly concerned about the return on their investment in DART. The city will be paying much more and getting little to nothing in return. They are rightly concerned about DART’s efforts to strongarm the city for more money. To date, DART’s public meetings have been thinly veiled efforts to stir up patrons and supporters of public transit to pressure council members to implement DART’s solution.
The gotcha
DART’s solution, however, has a fatal gotcha. While increasing the franchise fee will temporarily reduce the portion of property taxes required to keep the buses running in Des Moines, DART’s own budget projections show that by FY2029, the city will once again be hitting the transit levy cap. In other words, in just five years, the Des Moines city council will once again be compelled to find additional funding for DART just to maintain the current level of services, and the council will conceivably have to go hunting for more money every year thereafter.
The way forward
In short, DART’s proposal to increase the franchise fee from 5% to 7.5% is at best a stopgap solution. Without some dramatic shifts, the agency is not sustainable. This is problematic because, as we have already seen, there are thousands of people and businesses in Des Moines that rely upon our public transportation system. Therefore, we must ask ourselves how we might solve this problem so that DART is able to serve our community both today and in the future. In reality, though, there are really only three options.
The first option is to further diversify DART’s non-operational revenue streams. Non-operational revenues are the various subsidies and such that are not received in return for goods and services. Historically, the agency has advocated at the statehouse for the right to use sales tax and/or a hotel/motel tax instead of relying so heavily upon property taxes. This has the benefit of spreading the burden to everyone who shops or stays in Des Moines. However, it remains problematic because so many popular shopping and lodging options are actually in adjacent suburbs. Also, this option is largely contingent upon the local governments and the state legislature passing laws to authorize such funding.
The second option is to streamline expenses. As one would expect, the DART budget includes many expenses that are unavoidable. For instance, buses need fuel, tires, and repairs. However, even these expenses should be analyzed to identify potential savings. Other expenses should be carefully scrutinized, and DART officials should get creative to save money wherever possible. For instance, do we need to operate a full-sized bus on a route that sees only five riders, or is there a more cost-effective option? Can DART save money by switching insurance providers? Are there employees as productive as possible, or are we paying extraneous people?
Third, DART could increase operational revenues. Operational revenues are funds received in exchange for services including fares, advertising, and various contracts. In short, these are directly related to the number of riders who use DART, and the best way to increase them is to grow DART ridership. DART officials should therefore consider new rideshare locations, more aggressively pursue corporate partnerships, and work to identify and remove the things that keep people from riding. For instance, do routes go where and when people need them to go? Does it take too long to arrive at the destination? Is a ride cost effective? Are there corporations downtown that could save money by not having to lease or own parking garage space for employees?
Additionally, it may behoove the DART board to reconsider its new funding formula. Suburban leaders understandably complain about shouldering an unfair portion of the budget, but there are numerous amenities that Des Moines pays for and suburban residents just enjoy. Moreover, the suburbs do not have nearly as many DART patrons largely because the services they need are available only in Des Moines. Perhaps we could find a way to build a more cohesive metro mindset where every community works together to meet the challenges of public transit, even if that means covering more than an individual community’s fair share based on ridership.
In reality, the solution is going to be a combination of all of the above. Costs cannot be streamlined enough to avoid service cuts. Operational revenues cannot be increased quickly enough to solve the looming budget crisis. It is not feasible to rely on ever-increasing public subsidy.
DART and all of the various government, corporate, and private entities that have a stake in a thriving public transit system (hint: that’s all of us) must come together to find solutions for both the immediate problem and the longer-term concern of sustainability. Our metro area needs a public transit system. Hard stop. But Des Moines cannot afford what Des Moines cannot afford, and if the single largest contributor to DART’s budget were to back out, the whole system would collapse. This would be devastating for DART employees, Des Moines Public Schools, families who do not have cars or drivers licenses, businesses that depend on workers who depend on running buses, and so much more. We must work together to fix this for today and tomorrow.