Part of a $3 Bay Area toll increase that voters approved in 2018 for public transit and freeway improvements is effectively being used as a slush fund for bridge maintenance.
The Metropolitan Transportation Commission’s legally questionable diversion betrays promises made to voters. It affects the funding source for $4.5 billion of capital projects required by the nine-county ballot measure, known as Regional Measure 3.
Earlier this month, I reported that the agency had diverted about $73 million from RM3 to maintenance on the Bay Area’s seven state-owned bridges. Further interviews and new information from the agency show that the scheme was not just a one-time rerouting of money.
It’s much bigger. The scheme involves using bond issues to borrow more money than is needed, and for longer than necessary, to fund RM3 projects — and then divert the excess funds to other purposes.
The magnitude of the diversion is still impossible to determine because the agency comingles — and fails to separately account for — the different portions of the toll on state-owned bridges in the Bay Area.
RM3 provides $2 of the current $7 auto toll and, starting Jan. 1, $3 of the new $8 toll. The remaining portions are from separate authorizations for other purposes.
MTC’s comingling of these different portions affects both cash revenue from bridge tolls, expected to be more than $800 million this year, and liability for the $11 billion of borrowing through bonds the agency has issued since 2001, for which it still owes nearly $10 billion.
The comingling also makes it impossible to determine whether the diversion is limited to the RM3 portion of bridge toll revenues, or if other portions are also being misdirected or leveraged for excessive borrowing.
Another toll hike
Despite the opaque finances, the commission on Wednesday will consider raising tolls another $2.50 by 2030, bringing the total to $10.50. The proposed increase, which would involve 50-cent annual increases starting in 2026, is supposed to be for bridge maintenance and rehabilitation.
But without transparent bookkeeping, agency commissioners and the public cannot intelligently evaluate whether the additional $2.50 toll is needed.
The agency’s 18 voting commissioners, who are not directly elected to MTC, are almost all Bay Area elected county supervisors, mayors or city council members. Consequently, their focus is usually on their local jobs, which explains why MTC is a heavily staff-driven organization.
The commissioners should not prematurely ram through the toll increase, which would not begin for more than a year anyhow. They should instead demand an end to the comingling of funds and insist on proper accounting, including long-range projections of the available money and liabilities for each of the toll components. Only then could commissioners determine if the hike is justified.
MTC is supposed to dole out and oversee state and federal funding for Bay Area transportation projects. And it’s leading the effort for a 2026 tax increase to bail out BART and other Bay Area transit agencies.
But MTC will have little credibility if it can’t first clean up its own finances.
Toll history
Understanding the slush fund scheme begins with the history of tolls on the seven state-owned Bay Area bridges.
The first dollar, approved by voters in 1988, was designated for operating, maintaining and replacing the bridges, as well as improvements to BART, Caltrain and San Francisco Muni.
Another $3 — approved in $1 increments by the Legislature, in 1997 and 2007, and MTC, in 2010 — was supposed to help cover the cost of seismic retrofitting, including the replacement of the Bay Bridge’s eastern span.
In 2004 voters approved a $1 toll hike and in 2018, with RM3, another $3 to help fund transit service operations and freeway, transit, bicycle and pedestrian projects, including BART’s seismic retrofit, new rail cars, and extension to Warm Springs Station and San Jose; the Caldecott Tunnel fourth bore; and the eBART rail extension in eastern Contra Costa County.
Most of the information the agency has provided in recent weeks pertains to RM3. The $3 increase was to be phased in with $1 increases at the start of 2019, 2022 and 2025.
From those RM3 funds, the agency diverted the $73 million for bridge maintenance. To justify this, Rebecca Long, the agency’s director of legislation and public affairs, and Derek Hansel, the chief financial officer, say that state law allows the agency to use any toll money at any time for any bridge maintenance, construction and improvement projects.
What voters were told
Voters in 2018 were told a very different story. The ballot measure resulted from months of negotiations by state and local lawmakers, much of it centered on whether the East Bay would pay a disproportionately higher share of the toll hikes while the South Bay would receive a windfall.
But, despite the haggling, the purpose of the measure was clear: It would fund projects off the bridges to reduce congestion on the bridges and elsewhere.
For the official ballot booklet mailed to voters, MTC prepared a 22-page description of the measure. The only mention of RM3 money going toward bridge maintenance comes at the very end — and with restrictions MTC has not yet met.
Specifically, under the state law enabling MTC to put RM3 on the ballot, the $3 toll increase could be hiked further for inflation, but only after the $3 had been phased in completely, which won’t happen until Jan. 1. That inflation-adjustment portion could be used for bridge maintenance and rehabilitation, as well as additional funding for capital projects in RM3.
Nowhere in the ballot measure material is there mention of using portions of RM3 revenue beyond the inflation adjustment for bridge maintenance and rehabilitation.
Lawyers and judges might someday need to sort out whether the specific provisions of state law pertaining to RM3 supersede the other parts of the law that MTC is citing to justify the diversion of funds.
But let’s be clear: MTC’s use of RM3 money for bridge work, apart from a future inflation adjustment, is a dishonorable breach of faith with the voters.
The slush fund
It’s not only the diversion of the $73 million from RM3 funds that’s problematic. It’s also the slush fund that MTC has created using RM3 money.
Essentially, the agency is leveraging future RM3 revenues to borrow more money than it needs for the measure’s projects — and then diverting the excess elsewhere.
According to numbers provided by Hansel, the chief financial officer, the RM3 portion of the bridge toll, since it was first implemented in 2019, has raised about $866 million. After subtracting the 18% portion that is supposed to go for transit operations and administration, a net of about $710 million could be applied to the $4.5 billion in capital projects.
After Jan. 1, when RM3 reaches its full $3, the measure will bring in about $271 million annually that can be used for RM3 capital projects. Put another way, the RM3 portion of the toll will raise the money needed to fund the required capital projects in another 14 years.
MTC is just beginning to fund those RM3 capital projects with outlays of $234 million as of October. In other words, so far, they’re ahead by nearly $500 million. It suggests the program could be funded by cash on hand or, if there is a surge in the projects, some short-term borrowing to bridge a cashflow gap.
Instead, despite all the RM3 cash they have collected, MTC this year issued $211 million of bonds for RM3 projects — bonds to be repaid in 20 years. And they plan to consider issuing more in the future.
It’s ridiculous. Why issue long-term debt on a rolling basis that could extend decades into the future when the agency should have enough money to fund the entire set of required RM3 projects in just 14 years?
The answer is that allows them to create the slush fund — to free up more RM3 revenues for other purposes, specifically bridge maintenance and improvement projects, even though that’s not what voters were told RM3 money would be used for. With the $73 million diverted for bridge maintenance, MTC has already begun to use the extra money that way.
If the agency had created segregated funds, as public agencies often do for internal accounting, it might be appropriate to loan money from the RM3 fund to bridge maintenance with the proviso it would be recouped. But that’s not what’s happening.
Now what?
It’s taken weeks of back and forth to just begin to see the picture of what is going on with the money for RM3.
The melding of revenues from and debt liability attributable to the different portions of bridge toll revenue make it nearly impossible to ascertain whether other parts of the toll revenue are also not being spent as intended.
The problem is exacerbated because each component of the toll is permanent — there are no expiration dates — but the expenditures in many of the cases are for finite projects. That eventually leaves extra money.
Which raises the question: If MTC staff is correct that it can use any toll funds for bridge maintenance and rehabilitation expenditures, then does it really need to again permanently increase tolls, this time by another $2.50? Alternatively, if it raises tolls for bridge work, should it start phasing out other toll components for projects that have been completed?
Without annual projections of income, expenditures and debt liability for each of the toll components, commissioners cannot demonstrate that another toll increase is needed.
Until they can do that, they should table any talk of yet another toll hike.
