Translink’s Fuel Tax Problem
I was going to put EXCLUSIVE in large capitals in the title – but I have no reason to want to claim this information as my own. It is, after all, public domain or ought to be.
Last week, when I attended the SFU evening lecture (“Kiwi Urbanism”) I talked to Bob Paddon who is now Executive Vice President, Strategic Planning & Public Affairs at Translink. He was there to do a brief introduction, as Translink had made the contribution that made the evening possible. I started making notes as he spoke to me before the proceedings started. The discussion was prompted by me asking if the Evergreen Line funding was indeed “locked in” as the province has been saying. He assured me that it was, but then he went on to say that Translink is noticing an increasing gap in its revenue expectations. There has been quite a lot of information recently about how people are driving less in general. Much of the supporting information that I have seen has come from US sources – where the economy is taking much longer to recover from the recession and unemployment remains stubbornly high. While Canada has been somewhat better off, people are getting increasingly anxious as their disposable income has been static or declining. Gas prices in Vancouver have been a very high levels – although much of the local impact was attributed to a fire at the Cherry Point refinery and that capacity has since been restored. Not only are people driving less, but they have been getting more fuel efficient vehicles. To some extent, the reduction in driving can also be attributed to the opening of the Canada Line. I would like to be able to point to other major transit service improvements: apparently ridership is at least holding up under the present circumstances.
Bob later sent me a presentation, that examines the data on fuel sales that Translink has been looking at. He said that he would also provide me with a contact in the planning department with whom I could discuss this document, but so far I have not been able to have that discussion. Since a week has passed since I heard about this issue, I have decided to publish anyway, and stick to my own interpretation of what is a somewhat complex issue.
First, some context. In very rough order of magnitude Translink gets about half its revenue from taxes – and about half of that has been coming from fuel tax. The last Annual Report put it this way
Fifteen cents per litre fuel tax is applied to gasoline and diesel fuel sales in the transportation service region, with gasoline sales being 83 per cent of total revenue. Revenues are $12.5 million (3.9 per cent) unfavourable to budget. Total sales volumes in TransLink’s region have declined from the previous year by 5.3 per cent.
Over the last year the monthly revenue received from the Province has shown significant volatility. As a result of the carbon tax legislation changes made in 2009, the taxation process for fuel tax revenue has changed, which makes it difficult to forecast and compare trends. Another significant challenge of the revised process is the timing and magnitude of credits/refunds, which could go back four years. Discussions are underway with Consumer Taxation to examine the revenue capture and reporting systems. Further analysis will continue in 2012.
TransLink region experienced a decrease of 5.9 percent in 2011 fuel sales volume. High prices of fuel and a strong Canadian dollar would have contributed to the decline in fuel sales volume, which likely migrated to Fraser Valley Regional District and Whatcom County.
You can easily check yourself what gas prices are like by going to Gasbuddy.com. That is where I got the following information – and of course the volatility of gas prices means that the actual amounts will be changing continually, but this morning while gas prices in Vancouver were around $1.27 per litre, in Abbotsford they were $1.25. Since gasoline there does not carry the 15c/l that it does in Vancouver, you can see that some retailers are doing very well. Just over the border the average price (converted to litres, and assuming the dollar is at par) is $1.05. Bellingham is slightly lower at $1.0435 and Point Roberts (just one report and a bit out of date) was at $1.1492.
There have been reports recently of increased border crossings due to new higher duty free allowances – but that of course applies to overnight and longer trips. A savings of 20c per litre is obviously attractive, and people with high consumption vehicles are finding it worthwhile to buy large gerry cans to fill up at the same time as they fill their tanks. (The story about someone filling up garbage bags with gasoline turns out to have been a misunderstanding).
The following graph is one I concocted from the 2011 Translink Annual Report
This is perhaps not very beautiful as a graphic, but then it is the first time I have had to do anything like this for a number of years. It does show that Translink did get additional revenue as a result of the increase in gas tax, but as a share of the total, gas tax has been declining. From around 30% in 2007 to 26% last year.
The information in presentation that Bob sent me attempts to understand this and project its impact forwards. You can download the whole thing (TL Fuel Research – Rev Mgmt Comm – July 31) if you wish. I am just cutting and pasting the graphics
This shows that while there has always been volatility in reported sales volumes this became much more pronounced when reporting requirements changed due to the introduction of the carbon tax.
This graph shows gasoline sales only (not diesel) and also indicates an increasing divergence between Ministry data and that of the industry (Kent is a consulting company that collects fuel sales data).
This year fuel sales have been declining generally
The “leakage” trend is not as clear – but note that there is no data for the cross border shoppers
Declining demand may be more prevalent this year (note that the data now refers to absolute volumes, not percentages as above)
The really big change is the decline in diesel sales
The presentation can only speculate about why this might have occurred.
- Reduction in trucking activity in Metro Vancouver?
- Purchases in the Fraser Valley?
- Fuel switch in heavy-duty vehicles?
For example, garbage trucks in Vancouver have recently been converted to use natural gas instead of diesel.
There will continue to be research into these trends. The last slide of the presentation shows the intended structure of the work
The problem, of course, is that extrapolating from previous trends is a bit like steering a ship by studying its wake. There is nothing in the presentation about mode share – nor does that appear in the annual report. The broader transportation survey that might help address that issue only happens once every five years, and of course the census data on journey to work – which was one of the few very good indicators – is no longer collected with the scrapping of the long form.
There is something happening here. People are not driving as much – some of that is due to better trip chaining, switching to walking and cycling, use of new media (no one goes to the video store any more now that they can download movies, most banking is done on line too). One of the drivers is not just that gas prices climbed but the expectation is that they are not going to get any cheaper. Cutting spending at the pump is one of the few areas where individuals can actually influence the outcome of their own personal budgeting. The decline in gas sales has been going on for a long time, as the reduction in the number of gas stations makes apparent. The decision to implement tougher corporate average fuel economy standards for vehicles also means that recent technological improvements have been directed more at fuel efficiency than performance.
There always has been some “leakage” across the border – and out into the valley. But the Gasbuddy information seems to support my own view that much of the difference between gas pricing on ether side of the Langley/Abbotsford line has been swallowed up by the gas companies. The decision to go to the US means that people are planning ahead to make a trip just to get gas and put up with sometimes long waits – and much engine idling. Clearly those who are going down are not just buying milk. I can clearly recall warnings that we used to issue when discussing the potential for greater gas revenue, that the wider the gap between gas prices in South Surrey and Blaine, the greater the revenue loss would be. Of course we had no real data then either – just lots of anecdotal “evidence”.
What Bob Paddon was saying to me last week was that this needs to be incorporated in future assessments of Translink’s finances: they are currently off $30m a year in their fuel revenue expectations. Which in a $1.2bn budget is not a disaster, but obviously has to be replaced somehow. In general the organization has done all it can to find efficiencies – as demanded by the Province and the Transit Commissioner – but as this trend seems likely to continue, future cuts will have to come at the expense of service, as there are no longer the opportunities for savings that have already been achieved.