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Recent Economic Impacts

OC Go Sales Tax Revenue Forecast

The Orange County Transportation Authority (OCTA) contracts with expert economists to provide short-and long-term projections of the OC Go sales tax revenue. OC Go is a ½ cent sales tax that currently generates approximately $300 million dollars per year and funds the OC Go Transportation Investment Plan program. These forecasts are updated annually for OCTA's use in planning OC Go improvements by year and through the 30-year life (2041) of the sales tax measure.

Lower Sales Tax Revenues Creates Challenge

OCTA has been challenged with delivering the OC Go promise to the voters with less revenues than projected. When the OC Go Transportation Investment Plan was initially developed in 2005, forecasts projected OC Go sales tax revenue available for projects and programs at $24.3 billion. In between voter approval of the plan (November 2006) and the start of the revenue flow in 2011, a significant recession took place. The Great Recession of 2008 combined with changes in consumer spending habits*, resulted in the sales tax revenue forecast dropping by $11.2 billion. As of September 2018, the OC Go sales tax revenue forecast, projects the program to generate $13.1 billion through 2041.

* Online sales and changes in Orange County demographics have affected sales tax revenue collection.

2018 M2 Sales Tax Revenue Forecast

While this reduction in sales tax revenue affects the OC Go Transportation Investment Plan as a whole, most OC Go programs can be scaled to available revenues. Due to defined scopes of work and the promise of delivery, the OC Go freeway program could not be delivered as promised to the voters without a funding fix. To address the changing forecasts, the OCTA Board of Directors (Board) adopted early delivery plans and the current Next 10 Plan to ensure the entire 30-year plan can be delivered.

This funding gap is addressed by:

  • Capitalizing on a competitive construction market and transportation infrastructure funding provided during the Great Recession
  • Making OC Go projects a priority for state and federal grants (currently incorporates $1.6 billion in secured state and federal funding)
  • Utilizing net excess 91 Express Lanes revenues to pay for two OC Go State Route 91 projects (currently incorporates $741 million)
  • Collaborating with our transportation partners to seek cost effective measures on delivery of the Next 10 Plan of projects and programs

OCTA continues to monitor and track key indicators related to uncertainties in the construction market to provide early warning on changes to risk factors. Additionally, to prevent overcommitting funds during market cost fluctuations, a program level line item is included in the OC Go cash flow for economic uncertainties to safeguard the OC Go freeway program.

OCTA regularly compares actual sales tax receipts with the forecast and provides updates to the Board quarterly. Current OC Go sales tax actuals are trending higher than the forecast for the first time in years. OCTA will be receiving an updated forecast in September of this year.

OC Go Sales Tax Revenue Forecast Methodology
OCTA's OC Go sales tax forecasting methodology utilizes MuniServices, LLC for a short-term, five-year annual growth rate forecast and an average annual growth rate from three universities for the remaining years through 2041. The current, blended forecast is $13.1 billion for the life of OC Go.

OCTA has historically used universities to provide an independent taxable sales forecasts to support OCTA's financial planning efforts. The primary source for taxable sales growth rate forecasting during the first transportation sales tax Measure M (M1) period (1990-2011) was Chapman University. During the life of M1, the annual forecasts were relatively consistent with actuals and ended on target. However, during the development of the OC Go Program in 2005, for greater assurance, the Board directed staff to contract with two additional universities. The three universities used are Chapman University, University of California, Los Angeles (UCLA), and California State University, Fullerton (CSUF). The three independently developed forecasts were averaged resulting in forecasted annual growth rates which OCTA used for programming and planning purposes.

The accuracy of the forecasted growth rates versus actual growth rates for Local Transportation Authority (LTA) sales taxes has varied. None of the universities accurately predicted the timing or the magnitude of the 2008 Great Recession, which impacted sales tax receipts from FY 2008 through FY 2010 or the impact of changes in consumer spending habits. Beginning in FY 2014, the forecasted growth rates continued to be less accurate, which resulted in the Board adopting an even more conservative methodology for sales tax forecasting. In March of 2016, MuniServices, LLC was added as a fourth component to the sales tax forecasting process.

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