(Sonoma County) Grand jury report faults SMART oversight

July 5, 2014

The Press Democrat

By Matt Brown

The Sonoma-Marin Area Rail Transit authority board of directors lacks the attention needed to navigate a complicated funding and regulatory process and deliver the commuter rail service that voters approved in 2008, the Sonoma County Grand Jury concluded in its latest report.

At the outset of the economic recession, the rail agency failed to be inform voters about risks to its tax revenue projections, the grand jury found. Subsequently, SMART’s board of directors failed to mitigate the effects of the recession on the project, the grand jury stated, citing the large drop in tax revenue and subsequent funding gap that have caused SMART to downscale it is initial project, postpone the start of rail service and curtail other infrastructure promised to voters.

While the grand jury gave agency management credit for “resourcefulness” during construction of the project and “prudent control of finances,” the panel said oversight by SMART’s board of directors has fallen short.

“A more active role with stronger oversight by SMART’s Board of Directors could create a more proactive culture, reducing the risks from unpredictable future events,” the grand jury stated.

The eight-page report, titled “The Train Has Left the Station: Five Years Later – The Outlook for SMART,” was released Monday.

It urges SMART’s board to make better use of its own advisory committees to improve oversight of the 73-mile project. The 12-member board includes elected city and county officials as well as representatives of the Golden Gate Bridge Transportation District.

SMART officials, including board members and Farhad Mansourian, the agency’s general manager since 2011, declined to comment on the grand jury findings or recommendations, saying they had yet to discuss the report in public. Board members are set to meet in September to draft a response, Mansourian said.

“The appropriate place to consider the report and deliberate is in public,” he said.

The grand jury report summarizes many of the fiscal challenges the commuter rail project has faced since it was given the go-ahead by voters in Sonoma and Marin counties almost six years ago. The report also puts forward some of the strongest points raised by SMART opponents and critics, who have charged the agency and its officials with misleading the public over the extent of the project’s funding shortfall and other fiscal risks they say are inherent in the effort.

Specifically, the grand jury found that SMART failed to inform voters in 2008 — after the onset of the economic crisis — of how its tax revenue projections would suffer in such a downturn.

Rail advocates that year succeeded in getting voters to pass Measure Q, the quarter-cent sales tax that funds the two-county commuter rail service. But it soon became clear that the slumping sales tax revenue would not be enough to fund the planned 73-mile Cloverdale-to-Larkspur rail network and an accompanying bike path promised to voters.

As a result, in 2011, the SMART board elected to shelve construction plans for large segments of the rail line at the north and south end and push back by two years its initial launch of service.

A 43-mile, $428-million segment from Airport Boulevard north of Santa Rosa to San Rafael, is now set to open in late 2016. The rest of the project, including most of the bike path, is $230 million short.

“In 2009-2010, SMART had not adequately foreseen and was forced to react to funding shortfalls, cost increases and changes in the bond market,” the grand jury stated. “SMART should keep this in mind and be especially vigilant as it develops new forecasts” for 2014.

The agency has sought to fill parts of its shortfall in construction money through government transportation grants. SMART aims to use such awards to extend its initial operating line, currently on the south end, toward Larkspur.

But going forward, tax revenue will remain the agency’s main source of income, and the grand jury called on SMART to improve its forecasts of such funding by hiring an outside economist. The agency also needs to quantify future operating costs for the commuter train, a step the grand jury said it had yet to do.

The grand jury report on SMART was one of nine separate government operations or issues investigated by panel members during the 2013-2014 calendar, which ended last week.

The report was based on interviews with SMART staff and board members as well as analysis of financial documents.

Some of its conclusions echoed findings by the Marin County Grand Jury, which in April released its report detailing what it said was a lack of board oversight for the rail project.

Martin Jones, foreman of newly empaneled Sonoma County Grand Jury and a member of the group of jurors that produced the SMART report, stressed that SMART needs to do more to plan for operating costs. As the rail service looks toward the date it will be carrying passengers, the unpredictability of operations and maintenance expenses is a big financial risk for taxpayers, he said.

“No forecasting has been done to speak of on the operating side,” Jones said. “They really need to get down and do detailed forecasts of operating costs.”

Fares and other subsidies are expected to cover 20 to 30 percent of the operating budget, the report said, with the rest being made up by sales tax revenues.

Critics have leveled similar claims against SMART, saying officials have focused too much attention on building the project and not enough on how rail service will operate into the future. They contend SMART has not budgeted for a future recession that could hit when the trains are running.

“Both grand juries have found that the board has paid insufficient attention to SMART’s future finances and how it will get through the next recession without major cuts in service or higher fares,” said Mike Arnold, a Novato resident who backed the unsuccessful effort to repeal SMART’s sales tax in 2011. “It is now time for the board to follow the grand juries’ recommendations, represent the taxpayers and develop contingency plans for future operations when sales tax revenues and ridership are less than hoped or operating expenses are more than assumed.”

(You can reach Staff Writer Matt Brown at 521-5206 or matt.brown@pressdemocrat.com.)