Of the crucial decisions that directors overseeing Sonoma-Marin Area Rail Transit have faced since voters in the two counties approved commuter rail service in 2008, perhaps none has been so controversial as the fares established for riders last month.
In a 9-2 vote at the end of a three-hour meeting June 1 at SMART’s Petaluma headquarters, the agency’s directors authorized base and zone fares that add up to a $9.50 one-way trip from Santa Rosa to San Rafael, or $19 round-trip.
Discounts will offer lower fares for youth, seniors, veterans, college students and disabled riders, as well as commuters who get their tickets in bulk through employers. And SMART officials say the largest share of their estimated 3,000 daily riders will make short trips, resulting in lower overall tolls.
Still, in the days after the decision, rail officials have faced considerable backlash from North Bay residents concerned the fares are too high. The decision, critics say, came with little public input.
“Clearly, we made a number of people very unhappy,” said Jake Mackenzie, a SMART director and vice mayor of Rohnert Park who voted with the board majority.
Mackenzie and fellow board members who voted for the fares, along with SMART staff, say the fares are affordable and fair. They argue the fares will protect the rail agency’s reserves that could aid in the event of unforeseen costs, such as rail accidents.
“We have to be very careful,” said Carol Russell, a SMART director and Cloverdale city councilwoman. “We have to look at the worst-case scenario and what most likely will be our costs.”
But critics say the fares are too expensive and won’t entice the North Bay commuters who drive solo — SMART’s primary targeted customer base. Some also argue the charges are an affront to the financial sacrifices taxpayers in the two counties have made, and will continue to make, through the quarter-cent sales tax that supports the rail line through at least 2029.
“We failed miserably,” said SMART director Shirlee Zane, who joined fellow Sonoma County Supervisor David Rabbitt in voting against the approved fares. “What we’ve done, in effect — and I want to be clear, I didn’t vote for this — by approving these very high fares, the public has said, ‘We’ve been paying for this train for eight years. It’s public transportation, and now you’re going to turn around and charge us these really outrageous fares?’?”
At stake in the decision is the initial public reception of a passenger rail line years in the making at a cost of more than $428 million. For vocal supporters, SMART is championed as a prime alternative to often-gridlocked Highway 101, but to detractors — including those who tried to stop the line in a failed 2012 referendum that never made it to the ballot — the rail line still smacks as a potential transit boondoggle.
For those overseeing the agency, the fare dilemma presents the stark challenge of setting rates high enough to generate revenue needed to support the rail line, but not so high that people stay away. Set fares too low, and the agency could forgo potential revenue or face the prospect of abruptly raising rates or reducing service.
SMART officials insist they have come about as close as they can, given financial projections that rely heavily on educated assumptions about ridership, to locating the sweet spot. A dollar or less separates the fares advocated by Rabbitt and Zane and what the majority on the board ultimately approved.
“Nine board members, with one absent, thought this was the fair thing to do,” said Judy Arnold, chairwoman of the 12-member SMART board and a Marin County supervisor.
The fare debate has stretched nearly a decade, but in recent weeks gathered steam as the rail line prepares to debut passenger service in December. SMART has conducted polling to gather public feedback on fares and, on May 18, directors held a three-hour workshop on the fares during their regularly scheduled meeting in Petaluma. Two weeks later, they formally adopted the pay structure. Still, the June 1 vote took many by surprise.
At that meeting SMART officials presented more than 50 different fare combinations ranging from as little as $1 in base and zone fares, to a high of $6 for base fares and $3 for each additional zone. The option adopted by the board majority — a $3.50 base fare and $2 charge for each zone line crossed — equates to an average overall fare of $5.25 with discounts factored in. Without discounts, the average fare is $7.50.
The rate structure is projected to generate initial annual revenue of $3.9 million, about 13 percent of the agency’s operating budget. Currently, about 85 percent of that $30 million operating budget is covered by sales tax from Measure Q, the voter-approved rail initiative passed by voters in 2008.
The agency’s 2014 strategic plan projects revenue from fares rising through at least 2020.
SMART’s annual overall budget of $103 million includes $64 million in capital costs, $14 million in debt service and $18 million in salaries and benefits.
SMART officials say the rate structure is prudent for a rail agency just starting to deliver passenger service.
“The board was very much aware that they don’t want to kick the can down the road, make a popular decision and then five years from now have us have to look to borrow money,” said Farhad Mansourian, SMART’s general manager.
But the initial fares seemed to shock many residents in the North Bay who are keenly awaiting the commuter service.
“I don’t think there was a real genuine public process,” said Lori Houston, of Santa Rosa.
Houston, who works for the Sonoma County Department of Health Services, said she “can hardly wait” for the arrival of passenger rail, which she plans to use to visit a daughter in San Francisco and to see friends in Healdsburg, when and if the line is extended there. But she said she may have to scale back those plans because of the fare cost. In her estimation, paying $10 — as opposed to $19 — to travel round-trip from Santa Rosa to San Rafael sounds reasonable.
“It’s not just about me and what I can afford,” she said. “The whole point of public transportation is the public. What can everybody afford?”
Setting fares presents a thorny challenge, in particular for a new rail line launching operations in a region that hasn’t had passenger service in more than 50 years. SMART’s startup plan calls for its two-car trains to pick up and drop off passengers at 10 stations along the initial 43-mile line from Santa Rosa to San Rafael. A 2.2-mile link from San Rafael to the Larkspur ferry terminal is set to open in 2018. Beyond, the line would extend north to Cloverdale, where a new station sits unused.
The three principles used by SMART’s board to guide its decision on fares called for charges that provide financial stability for the rail agency, are “reasonably affordable” to the public and spur the business community and other institutions to make the rail line their transit choice. Also factoring into the calculations were what other Bay Area transit systems charge and revenue targets based upon assumptions of a daily ridership of 3,070 and about 300 on each weekend day.
“You do have a challenge there,” said Art Guzzetti, vice president of policy for the American Public Transportation Association. “You have to pay your bills, you have to fund your transit service and you typically have to determine a number or way the user should be expected to pay some of the cost.”
In an interview at a Santa Rosa coffee shop, Mansourian made the case that more people will embrace the fare structure once they understand it better.
He said the $9.50 fare to ride SMART from Santa Rosa to San Rafael that has sparked the loudest public outcry has drawn outsized attention, given SMART’s projections that only 12 percent of riders will travel that far or incur those costs.
He pointed to estimates showing that the bulk of SMART riders — 61 percent — will travel through two or three of the system’s five zones, which will cost them $5.50 or $7.50, respectively, for a one-way ticket. Seniors, youth, passengers with disabilities and veterans will travel for half those amounts.
Mansourian also characterized the fares as a “planning guide,” one he said is subject to change.
“We’re learning,” he said. “We’re opening a system together, we’ve made certain assumptions. They’re good, educated assumptions, but we’re still going to monitor all this.”
SMART’s directors voted June 1 to revisit the fare structure a year after the start of passenger service. The agency said the action doesn’t prevent directors from weighing in earlier, but any changes to fares will take time to implement because of technical issues related to the Clipper card, the exclusive payment method for SMART.
Deb Fudge, a SMART director and Windsor town councilwoman, advocated for fares higher than what directors approved June 1, saying at that meeting that if fares were set too low, “we’re as good as a cable company. The rate doubles in six months. It makes people angry.”
In an interview two weeks after the decision, Fudge argued that SMART fares cannot be on par with a bus because buses cost much less than a train to operate.
“It doesn’t mean I don’t wish we could charge a dollar a day to ride, but then I would be running the train into the ground and people would be hanging me by my fingernails,” Fudge said.
Fudge, who had argued for a base fare of $4 and $2 per zone charge, ultimately voted with the majority for lower fares.
“I was willing to come down on a hope and prayer we’ll get ridership,” she said. “But I’m not willing to run us into a deficit situation just to become a popular politician.”
Arnold, as chairwoman, strongly supported the board’s decision. But she said she might feel differently about it once passenger service starts and ridership becomes more apparent.
“I might have a thought or two on it when the train has been operating six months,” she said.
Rabbitt is sticking to his stance that SMART should dip further into reserves to subsidize lower fares. He has questioned SMART’s ridership assumptions, saying they amount to supposition. He also argues the fare discussion has focused too much on comparisons with other transit services, and not enough on the fact SMART is a brand-new service and has to entice people into trying it out.
“It should be about who are we really trying to attract,” he said. “What do they pay now versus what we would charge, and what do we have to offer? For me, I looked close to home at what my wife pays on a monthly basis in a van pool 35 miles to San Francisco. I came to a number where I could see someone backing out of this — the bridge tolls, the parking issues.”
SMART is betting that it can offset such concerns and fill trains by offering discounts for certain riders. Employees of companies that participate in SMART’s “EcoPass” program will receive discounts at a rate tied to the number of annual passes purchased by the companies in advance.
“You basically provide discounted pricing in an attempt to get more riders,” said Robert Eyler, director of Sonoma State University’s Regional Center for Economic Analysis. He has worked as a paid consultant for the rail agency.
SMART is projecting operating reserves of $18.9 million this fiscal year, an amount equal to 44 percent of the entire operations and administration budget, including debt service. That’s well above the national standard for public transit systems, which on average set aside roughly a third of their operating budgets in reserves, according to the American Public Transportation Association.
BART seeks to set aside up to 15 percent of its annual operating budget for reserves, according to Herhold. That amount, which would represent roughly $90 million of the agency’s total budget of $1.8 billion, would be enough to operate the system for about a month without any other source of revenue, she said.
Some industry experts said it is wise for SMART to protect reserves given it’s a brand-new service.
“When you have a new system, you’re not going to know what it’s going to bring in, at least, not initially,” said Guzzetti, the American Public Transportation Association official. “It may take time to bring ridership. The standard would be the reserves would be a little higher for that kind of thing.”
Both Fudge and Mackenzie referenced their experiences grappling with city budgets as factoring into their votes.
“I’ve been through fiscal crises in Rohnert Park where we have been running without any operating reserves. It’s a very uncomfortable position to be in, believe me,” said Mackenzie, who also serves on the Metropolitan Transportation Commission.
But he acknowledged having doubts about the fares he supported.
“Am I concerned fares will limit ridership? I think it’s a possibility,” he said. “But, on the other hand, am I going to agree to set fares where we use up more of our reserves, and set them so low that when we come to the end of our 12 months we find we have to raise them considerably?
“I don’t know the answer to that question,” he said. “We don’t know what our ridership is going to be. We’ve gotten estimates the best way we can, and we’ve been told that if we want to set an appropriate budget and raise $5 million we have to set the fares.”
SMART director Carol Russell, a Cloverdale city councilwoman who voted with the board majority on fares, characterized SMART as a new business and with all of the unknowns that come with such an enterprise. For that reason she wants to be extra careful with the rail agency’s finances in the first year of operation.
“I want to make sure that we live up to our fiduciary responsibility, which is a long way of saying that this is tax money we’re playing with,” she said. “I’m pleased with how sensitive and how smart everyone has been with that.”
However, both Zane and Rabbitt said the process felt rushed and did not give the public ample opportunity to weigh in on fares.
“Setting a workshop at a meeting in the middle of the week, in the middle of the day, in Petaluma is not letting the public weigh in,” Zane said.
Zane referred to fares as the “single most important thing the SMART agency has done to either invite or discourage public trust” since voters approved Measure Q in 2008.
“This was a bit rushed, to be honest,” Rabbitt said. “I mean, it’s not like we didn’t know we were going to set fares at some point. But with that being said, they (SMART staff) are doing the best they can under the circumstances. They don’t have a lot of data.”
Zane said directors “were up against a wall” after being told they had a deadline of June 15 to decide on fares to meet Clipper’s deadline for getting the amounts programmed in and equipment tested prior to passenger service starting.
Mansourian, however, called the process “adequate.”
“Everything we’ve done in SMART has been with a goal in mind, to start service at the end of 2016,” he said. “And all of these decision points are connected one to another — ordering the vehicles, issuing contracts, doing software, ordering the machines, programming the machines, picking out fares. All of these things are tied together.”
Kelly Bass Seibel, vice president of public policy for the Santa Rosa Chamber of Commerce, expressed concerns similar to Rabbitt’s and Zane’s, saying SMART did not reach out to the business community for input prior to the final decision on fares.
“We weren’t invited to have that conversation,” she said.
She said several of the region’s largest employers have been waiting anxiously for fares to be announced to help them determine whether they should participate in the subsidized fare program for their employees or to offer shuttle service. She said the companies include Keysight Technologies, Medtronic, Kaiser Permanente and Sutter Health.
Seibel said many in the business community feel the fares SMART directors settled upon are too high.
“It’s incredibly disconcerting with employers who are already grappling with all of the other factors in determining whether their employees are going to take SMART to work,” she said.
Similarly, Jack Swearingen, chairman of Friends of SMART, said the public process with regard to fares “was not as robust as it could have been.”
SMART conducted polling in 2014 to gather feedback on fares. The surveys asked people what would be the maximum amount they’d be willing to pay for a one-way trip on SMART. Of the 4,861 people who responded, 57 percent pegged that amount at $5. It wasn’t clear from that survey what a one-way trip represented.
Following the May 18 workshop, SMART staff conducted more public outreach at the direction of the board, reaching nearly 3,000 people via online and social media surveys. These surveys identified one-way trips as going from Santa Rosa to San Rafael, Petaluma to San Rafael and Novato to San Rafael.
Respondents were given only three fare options to select from, which for the Santa Rosa to San Rafael one-way trip ranged from $10 to $11. The overwhelming majority — 85 percent — selected the lowest option, which was 50 cents more than what directors ultimately approved June 1.
Similarly, the vast majority of survey respondents selected the lowest fare option for the Petaluma to San Rafael trip ($8) and the Novato to San Rafael option ($6). Under the fares approved by SMART directors, those one-way trips will cost $7.50 and $5.50, respectively.
Seibel, with the Santa Rosa Chamber, said that’s still too high for her. She said it costs her a tank of gas, or about $35 a week, to drive from her home in Petaluma to her office in downtown Santa Rosa. She estimated the cost to ride SMART on a weekly basis would be $55 in fares alone, not counting costs to drive to the Petaluma station and for parking.
“I don’t know that I would choose that over the cost of one tank of gas, despite the convenience factor,” she said.
Advocates of the fares said people should also keep in mind the non-monetary benefits of riding a train. These include reducing carbon emissions and easing traffic congestion. There’s also value, they say, in the creature comforts of riding a train versus idling in traffic on Highway 101.
Swearingen said most people choose transit options based on their out-of-pocket costs, and not on more the more esoteric impacts of those choices on, say, climate change.
For that reason, he felt directors should have set fares “incredibly low at the outset.”
“You have a new offering in the market that’s very different from what the market has been using. How do you attract people to your product?” he said. “You can tout it on billboards and loudspeakers, but until people try it and say good things about it, it’s not going to be embraced. What is the price that will get people to switch to SMART?”
“My gut feeling is that $19 round-trip is too high, but as a senior, I won’t have to pay that much,” he continued. “Neither will students, veterans or employees of a large company. Many of the riders will be paying less.”
SMART’s 2014 strategic plan, which to a large degree is the basis upon which current financial decisions are being made, established the goal of generating an average of $5 million annually in fare revenue over the next 20 years to help sustain the rail service. The same document stated that fares should be “heavily discounted in the first two years of operations to account for a buildup of ridership during that time.”
Mansourian said the $5 million target represents the projected gap in future years between operating expenses and revenues, and what the rail agency will need to cover to avoid dipping into reserves or scaling back service.
The fares directors approved will generate $3.9 million over a fiscal year based on current ridership projections. That will leave a shortfall in the 2016-17 fiscal year of $4.2 million that will have to be made up through reserves.
The 2014 strategic plan did not project SMART hitting the $5 million fare revenue target until 2024. The same report stated that the average overall fare at the start of service in late 2016 would be $5.07.
Erin McGrath, SMART’s chief financial officer, said it’s better that SMART reach the fare revenue target “sooner rather than later” because “you don’t want to have to go back and raise fares too soon.”
“Having a fare system that is reasonable, and that will be able to successfully sustain our passenger service is the fiscally prudent thing to do, and that is our goal,” she added.
But Rabbitt questioned whether the financial model drove the decision on fares and prevented directors from considering lower charges.
“I’m not so sure what was golden about reaching the $5 million (fare revenue target),” he said. “For me, the initial operating period is to get people out of their cars and into the train and have them enjoy the experience and want to stay there.”
Rabbitt and Zane have been criticized by some of their fellow board members who feel their dissident views don’t match their actions at the June 1 meeting when fares were decided.
According to the minutes of the June 1 meeting, Zane said her first choice would be a $3.50 base fare and $1 per zone charge. Her second preferred option would be a $3.50 base fare and $2 added zone charge, which is what was approved. Rabbitt advocated for a $3 base fare, 50 cents lower than what directors settled upon.
But Zane said the assertion she was not that far off from what the board majority approved is not true. She said the board was only presented with certain fare options.
“When we went around to each individual board member, there were at least three of us that didn’t think a round-trip between Santa Rosa and San Rafael should be beyond $10,” she said. “That was never a choice we were given.”
For some longtime members of the board, the debate and criticism are nothing new. Mackenzie said he’s witnessed SMART’s evolution from a rickety railroad with no rolling stock into a modern railroad that’s going to begin operating in a few months. He said over time SMART has been criticized as the “train to nowhere,” to now being viewed by some as an elitist operation.
“Frankly, I think we have to start running the railroad and see what happens, who utilizes it and what we have to offer,” he said. “Undoubtedly, we have to make adjustments, but I don’t know what those adjustments are going to be.”
©2016 The Press Democrat (Santa Rosa, Calif.) Distributed by Tribune Content Agency, LLC.
