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Portland Struggles to Remain a Leader in Public Transit

Reduced revenue and federal funding, combined with unsustainable employee costs, are making it difficult for the Oregon city to stay on top.

David Kidd
When Peter Rogoff, the head of the Federal Transit Administration, visited Portland, Ore., earlier this year, local leaders and transit officials were abuzz. The city’s identity has long been tied to its reputation as a transit leader, and hosting the highest transit official in the land helped bolster those credentials.

Rogoff, in town as part of a conference on streetcars that drew local leaders from across the country, took time to praise the region while visiting the nearly completed Southwest Moody Avenue renovation. The $51 million project, which includes new traffic lanes, a bike and pedestrian path, and links to light rail and streetcar lines, is key to the region’s efforts to expand its transit system. But it means more than that to the city. It’s also touted as a way to encourage millions in redevelopment of the nearby waterfront.

The city and regional transit agency, Rogoff said in a press release, “have hit a home run with this project and demonstrate the enormous economic benefits transit can deliver to a community.” Rogoff’s presence at the site was a fitting capstone, since U.S. Department of Transportation Secretary Ray LaHood had been on hand for its groundbreaking a year earlier.

But the timing of the Rogoff visit could have been better: About 36 hours earlier, the suburban community of Lake Oswego, some seven miles south of downtown Portland, withdrew its support for a proposed new transit line that would have vastly expanded the Portland streetcar system. The withdrawal was due in part to questions about costs, which were initially pegged at $458 million. The decision was front page news in the local newspaper -- and a bad omen for Portland. Despite Rogoff’s celebratory remarks, the decision makes the future of the new line unclear.

The Tri-County Metropolitan Transportation District of Oregon (TriMet), the regional transit agency that runs buses, commuter rail and light rail, faces a budget shortfall of up to $17 million next fiscal year. The Portland Bureau of Transportation, which manages the streetcar, faces a $16 million gap. Local officials are still crafting those budgets, but it’s virtually certain that leaders of a region long known for a commitment to multimodal transportation will have to increase fares and reduce service to balance budgets in 2013. Especially significant will be the likely end of the Free Rail Zone, an innovative program that provides no-cost rides in the center of the city and has come to symbolize the region’s commitment to easily accessible transit service. What’s less clear is how significant Portland’s transit challenges are in the long term. Most government leaders here say they are temporary setbacks that won’t change the region’s future priorities. But some critics say that’s exactly what needs to happen.

Transit systems nationwide are facing budget shortfalls similar to those of Portland -- and in some cases vastly larger. Yet Portland occupies a unique space in the eyes of transit observers. Despite a population of less than 600,000, it’s considered one of the most influential voices -- if not the model -- for American transit. “Has there even been a case in American history of a city as relatively small as Portland having the same sort of pervasive impact on the policy and the built environment of America?” wrote urban affairs analyst Aaron Renn in The Oregonian in 2010. “It is truly remarkable, shocking even, and something I dare to suggest will likely never happen again.”

Neil McFarlane, general manager of TriMet, puts it more succinctly. “We outbox our weight class.”

From the window in his office, McFarlane can survey the agency’s fleet of buses and, more important, get a sense of how many of them are stuck at their central parking lot and how many are busy ferrying residents across the greater Portland region. Sporting a purple V-neck sweater and round spectacles, McFarlane has both the demeanor and look of a tenured college professor as he discusses the agency’s monumental budget struggles calmly while acknowledging their significance. “There are high expectations and lots of demand for our service, frankly, above and beyond what our financial capability is in the long term,” McFarlane says.

When he was named head of the agency two years ago in the midst of the economic downturn, he faced big challenges -- namely a massive budget hole. Today, things aren’t much different. That’s due to several factors. One is the payroll tax, a unique feature that funds half the agency’s operations with a tax paid by local businesses based on employees’ gross wages. With employment down as a result of the recession, that revenue is about $3 million shy of where agency officials expected it to be. Another challenge is an estimated $4 million the agency expects to lose from a belt-tightening federal government. But most challenging, says McFarlane, are the unsustainable health benefits TriMet employees and retirees are receiving.

Right now, a TriMet employee with 10 years on the job can retire at age 55 and get full lifetime medical benefits with no deductible, no employee contribution and a co-pay of just $5, he says. TriMet’s own financial analysis illustrates just how costly such a generous package has become. In 2000, the cost of active and retiree health benefits accounted for about 12 percent of the agency’s payroll tax revenue. By 2014, it will gobble up more than a third of that revenue, and by 2020, it will account for more than half of it. “They promised themselves into a catastrophe, and riders are going to pay for it unless there’s a healthy fight,” says Michael Andersen, publisher of Portland Afoot, a monthly newsmagazine that covers transit in the region.

The recession has helped pull back the veneer on the agency’s business model, McFarlane says, and it’s clear that it’s broken. A state board recently rejected some cost savings tied to worker benefits that the agency hoped to achieve this year. That puts the budget another $5 million to $10 million in the hole, depending on how the battle between the agency and union plays out this spring. And this year isn’t an aberration for TriMet. Since the Great Recession began, the agency has absorbed approximately $60 million in revenue reductions and has been cutting service, increasing fares and shedding positions. Now, McFarlane says, “there’s no low-hanging fruit left.”

To solve the problem next year, TriMet has proposed fare increases -- by nearly 20 percent in some cases -- as well as eliminating the Free Rail Zone program, cutting bus service and reducing the frequency of light rail trains. When you take any of those steps, McFarlane acknowledges, “You’re messing with people’s lives.” (Earlier this year, riders could use TriMet’s website to vote on which remedies the agency should pursue using what The Oregonian calls “the most depressing interactive survey you’ve ever taken.”) If the agency makes service too spotty or fares too expensive, riders may switch to other means of transportation. And if those passengers are driven away for too long, it will be a challenge to get them back -- even once revenue rebounds.

At the same time it works its way through seemingly intractable budget problems, TriMet is pursuing a massive expansion: A seven-mile, $1.5 billion light rail line to the suburb Milwaukie is scheduled to come online in 2015. That’s caused some observers to scratch their heads, wondering how the agency can have enough money for new projects but not enough to keep up existing operations. “They’re closing their eyes and jumping,” says Andersen. “They’re running on faith. And hopefully their faith is justified -- it always has been in the past. I hope they’re right. I fear they’re wrong.”

Others have a less nuanced outlook. “Why do people think TriMet is a model for the rest of the country?” John Charles, president and CEO of the Cascade Policy Institute, asks from his office in a small business park just outside the Portland city limits. “Because they don’t know this,” he answers, referring to the agency’s structural budget problems. TriMet’s generous commitments to its workers have put it on a path that can’t be reversed, he argues, and he believes the agency isn’t being fully candid about just how bad the situation has become. McFarlane fully acknowledges that one-time concessions from the union won’t do his agency much good in the long term and emphasizes that big changes are necessary.

There are those who claim the region has focused so much on transit -- specifically rail, which has high capital costs -- that its officials are blind to the risks they’re taking. Charles and many other skeptics believe the current push is driven largely by local leaders’ desire to continue receiving national accolades for their commitment to rail. Indeed, when U.S. News & World Report ranked Portland the No. 1 city in America for transit last year, TriMet tooted its horn by plastering ads highlighting the ranking on its vehicles. (The agency had to pull them when the publication revised its rankings due to problems with its methodology.)

Charles says the rail-first approach is fundamentally wrong. The region could serve more people who really need transit for less money if it instead focused on buses. In a case of politics making strange bedfellows, that’s the same point that one local liberal group, OPAL Environmental Justice Oregon, continues to make. Jonathan Ostar, executive director of OPAL, has taken up the cause of low-income residents and argues that the region’s focus on rail is causing service cuts and fare hikes that create an undue burden on those who rely on transit the most: bus riders who don’t live on rail lines. “We’re in a region that invests in public transit but doesn’t necessarily invest in the modes of transit that speak to the needs of the most transit-dependent,” Ostar says. “If we’re building out the system with rail, why are we cutting the system with the bus? That sends a very clear message about who the system is for and who we want the system to be for.”

In 2010, voters in Multnomah, Clackamas and Washington counties rejected a bond that would have generated $125 million in revenue that TriMet could have used to replace older buses (and indirectly would have freed up millions in general fund revenue). The tab would have been $20 a year for a homeowner with a house worth $250,000. For Ostar, that’s a sign that bus service is an afterthought in otherwise progressive Portland. Transit-dependent riders represent only about 16 percent of TriMet customers. A recent city auditor’s survey found that transit is the primary form of transportation for only about 7 percent of residents.

McFarlane, for his part, says it’s an issue of costs. The agency is investing heavily in rail since its higher capacity means lower operation costs per-rider compared to buses. And TriMet’s contribution to the capital costs of the Milwaukie extension is $47.4 million -- less than 5 percent of the total. Bonded out over a 25-year period, its annual impact isn’t nearly as costly as it would appear at first glance. But it’s still significant. Starting in 2016, debt service and operations on the new line will add $7 million in costs to an agency that has yet to balance its 2013 budget. But McFarlane says TriMet can’t afford to stay idle. With a million new residents projected for the region by 2035, neglecting expansion would be irresponsible, he argues.

Portland is a city that actually has two rail-based transit systems that are integrated -- the light rail and a streetcar. In some ways, the challenges facing the streetcar may be the more significant, says Chris Smith, who serves on the streetcar system’s board. A new $150 million extension is scheduled to open later this year and will nearly double the level of service. TriMet and the city have each kicked in about $1.3 million for the new operations costs, but another $1 million per year is still needed -- over and above the approximate $1 million that will be generated if free rides on the streetcar are eliminated. Another project known as “closing the loop” -- connecting the new streetcar line to the new light rail line -- only has about half of its funding nailed down, though officials have a few years to figure out that one. “We’re looking under every seat cushion and rock to find spare change,” Smith says. New revenue sources may be necessary. One idea that’s been pitched is a local gas tax. Another is something called a street utility fee, which would be something like a property tax. But getting citizens to accept either could be difficult.

The streetcar plays an atypical role in the transit system in that it explicitly is not intended to move large numbers of people long distances in a short period of time. With long waits and stops that are sometimes just a couple of blocks apart, it does not have commuters in mind. Instead, it caters to university students, tourists, shoppers, diners and bar-hoppers -- namely people who aren’t in a rush -- who want a simple way to move around town once they’re already there. Critics of the approach say it’s a project that fills a need that doesn’t really exist. But supporters say its primary purpose isn’t as a people mover; it’s to encourage development, which it has.

The Portland Bureau of Transportation, which runs the streetcar, is still looking to fill its $16 million hole. The agency is funded largely by the city’s portion of the state gas tax revenue, which itself is becoming less reliable, given the growing efficiency of vehicles, says Tom Miller, the city’s transportation director. Portland has also committed itself to non-revenue-generating projects like a major bridge rehabilitation. “Structural funding deficiencies plague our budget,” Miller says. But that same agency’s budget covers much of the new operational costs associated with the streetcar extension. The situation is so tight that, as a way to help solve the crunch, Miller has pitched the idea of calling a halt to road repaving for five years.

Yet streetcar supporters say the slow mode of transportation plays a vital role. Portland Mayor Sam Adams argues that it would be foolish to give up on it, given the federal money available (half the streetcar extension was funded by the feds), the billions in redevelopment it’s prompted (which even critics acknowledge) and the support it’s given to the modern streetcar industry (United Streetcar, based in suburban Portland, is taking orders from transit agencies across the country). “The critics here have to confront the reality -- the positive reality -- that transit has had,” Adams says.

Ethan Seltzer, a professor at Portland State University, is an unabashed supporter of transit. A former land-use supervisor for the metro government, he’s intimately familiar with where Portland has come from, and how far it is has progressed. Much of that success he attributes to a transit system that has fundamentally changed people’s lifestyles and neighborhoods.

From his office just steps from a streetcar stop, he emphasizes that both the light rail and transit systems are important components of an urban lifestyle to which Portlanders are committed. He questions why, while transit agencies nationwide are struggling, Portland has come under the microscope. “We’re not here to save the world,” he says. “We’re here to save one part of the world. We do these things because we think they make Portland a better place.”

For better or for worse, those expectations were cultivated by the region’s leaders, who have embraced and even promoted their role as a national example. Transit agencies and observers monitored the system’s successes during its halcyon times, and they’re likely to give it an even closer eye now that it’s struggling. Will Transit City USA have to pull back on its commitments? Seltzer doesn’t think so. “Good things take time,” he argues. “The fact of the matter is, what cities become is the legacy of generations, not the legacy of a budget.”

Tina Trenkner is the Deputy Editor for She edits the Technology and Health newsletters.
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