The Consequences of Adopting a Risky Plan

If Moody’s more pessimistic  assumptions are used, Orange County will not have enough transit tax revenue to cover commitments.

The updated Orange County Transit Plan adds nearly $2 billion for the light rail project between UNC and Durham but does not add needed funds for bus service or bus rapid transit. As a result, bus hours have been cut by over 20% and the planned Bus Rapid Transit system from Eubanks to Southern Village along MLK, Columbia and 15-501 is not adequately funded and may not get built. The current transit plan adds nearly a billion dollars in debt and over $900 million in interest to build the project, and most recently additional debt was added for maintenance after being omitted.

If the Commissioners were to adopt the current proposal, they would assume that Orange County’s sales taxes will grow compounded and uninterrupted by recession at 3-6% every year for the next 45 years. Yet the county’s consultant told the commissioners on April 4th that the plan is very, very risky for Orange County.

If there’s an overage due to construction costs or interest rates, or if there’s a funding shortfall in sales tax, then the county will need to make up the difference, most likely via the general fund (which is used for schools and essential services). The current estimated portion of project cost for Orange County is about $300 million. No amount of County Board reassurance on this point has helped because the scenarios of increasing revenues every year with no recessions is unrealistic and foolish. We know the County budgets or property tax will take the hit for the revenue shortfalls.

April 20th County Board work session. No public comment allowed. To our surprise county staff and Davenport did not present the requested realistic scenario (intentionally labeled) “Moodys Pessimistic” that they had requested on April 4th. The graph above illustrates this scenario  and shows what will happen to Orange County cash reserves using these more realistic assumptions. This is not good news for Orange County because even the Moodys Pessimistic forecast is well above Orange County’s historical sales tax growth rate from 1996 to 2016.

It’s discouraging to observe that in the well attended April 4th public session the Commissioners expressed great concern about the risky revenue assumptions. None of this concern was evident at the April 20th work session and no one asked what would happen if the sales taxes don’t grow as expected.  It is also discouraging that Commissioners Mark Dorosin, Mia Burroughs, Mark Marcoplos, and Penny Rich found the more favorable and unrealistic scenarios presented at the work session “workable”.

Commissioner Barry Jacobs made an impassioned call for fiscal responsibility and for the Board to sign an agreement that will protect the County from undue risk.  That’s a position the entire Board needs to take.  So far only Commissioner Earl Mckee and Renee Price have found this plan to be fiscally irresponsible.

Consequences of a Risky Plan.  In addition to the revenue and cost risks, knowledgeable government officials are saying that the chances of federal and state monies needed to fund the project are diminished.

  • In 2019 the NC legislature will decide whether to fund any portion of the project (not more than 10%). Without any state support the total local share will go to x %.  The shortfall is likely to be financed through additional loans.
  • In 2020, Orange County will learn if the project is funded.  If it is not funded, the County will lose the entire 100M + investment.
  • On April 20th Assistant Orange County Manager Travis Myren said that the project will be impossible to build without Federal funds and difficult without state funds.
The Trump administration just rejected an overhaul of a major transit line in California where thousands of riders are moved each day.
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2 responses to “The Consequences of Adopting a Risky Plan

  1. Heather Brutz

    What is the source for the chart?

    • Released by Orange County staff. Orange County Commissioners asked their expert consultant to look into other (more realistic) scenarios.