Charity to help power Red Line rapid bus system
When the bus rapid transit Red Line hits the streets of Indianapolis in the next couple of years, it will run partly on charity.
In a first-of-its-kind arrangement that's either visionary or stealth taxation, IndyGo is required to fund 10 percent of the line through donations to a nonprofit foundation it must register, build and maintain. If the foundation doesn't reach the goal, the cost is passed on to the transit agency and taxpayers.
“It would definitely be a first,” said Art Guzzetti, vice president of policy for the American Public Transportation Association in Washington, D.C. “I’m not going to try to judge a local plan. The idea of trying is not a bad idea. I've just never seen it before.”
The foundation provision was a last-minute addition to the 2014 state law that gave Marion County and surrounding jurisdictions the ability to raise income taxes to operate the Red Line. The business community widely supported the expanded service but objected when legislators proposed a 10 percent corporate income tax to help run it, so it was replaced with the foundation requirement.
State Sen. Jim Merritt, R-Indianapolis, said the switch was a chance for businesses to show with their checkbooks how much they support transit. Business favors the Red Line and improved rapid transit because it makes it easier for employees to get to work.
“The overriding thought was the business community ought to have skin in the game if they support this plan,” said Merritt, a co-author of the bill. “It can be a good model. Corporations can get a tax write-off. It could raise even more money than IndyGo might have gotten otherwise.”
The amount of money the charity will need to contribute to operations each year dwarfs that of some long-established local charities for city parks, libraries and schools — at least $5.6 million. And the transit nonprofit likely would be going after the same pool of donors.
“Oh, my goodness, that sounds like a lot of money to me," said Shawn Collinsworth, president of the Washington Township Schools Foundation, the second-largest schools foundation in the city, which raises $750,000 a year for scholarships and programs.
“It’s very competitive out there, and that is a hefty sum they will need,” said Lori Hazlett, president of the Indianapolis Parks Foundation. “Raising money is a full-time job. It seems like a difficult sell.”
The parks foundation has five full-time employees and spends $400,000 a year raising about $1.4 million. It uses two big special events to cover its administrative costs and relies on grants from corporations and private donors for the rest.
Other charities with which the transit foundation will have to compete for dollars are the Indianapolis Public Library Foundation, which collected $2.9 million in 2014, Black Expo, which raised $4.7 million, and the Indiana Repertory Theatre, which raised $6.3 million.
Sen. Patricia Miller, R-Indianapolis, said that after the corporate tax hike was dropped from the bill, legislators did the best they could to get a financial commitment from the corporations that lobbied hardest for the mass transit bill.
"It seemed that those who supported transit the most did not want to put any money into it," said Miller, a co-author. "That was a big concern for us. This was a chance to underwrite it (the transit project)."
The Marion transit charity likely would need to tap businesses and larger, umbrella charities such as United Way for donations and grants, as well as hold fundraisers to pay for its own operational expenses. Generally, about one-third of the money raised by a charity is used for administrative costs, so the transit foundation would need to collect about $9 million annually to cover the $5.6 million required for IndyGo.
The dollars to operate the 13.6-mile first leg of the Red Line and other IndyGo system improvements would come from a proposed 0.25 percent income tax hike that is on the Nov. 8 election ballot as a referendum in Marion County. If approved, it would generate $56 million a year for operations. Ten percent of that would be $5.6 million.
Though the Indy Chamber plans to launch a publicity campaign to urge passage of the tax hike — which would cost a worker making $50,000 a year about $125 annually — chamber members have so far taken no action on forming a foundation. Chamber Vice President Mark Fisher said he couldn’t identify any companies that have pledged to contribute and said businesses are leaving the details to IndyGo.
“We are certainly supportive of greater mass transit,” Fisher said. “But I would look to IndyGo for how they are going to raise revenue through the foundation and what their plan is.”
IndyGo spokesman Bryan Luellen said company officials have not discussed the foundation. Completion of the Red Line is at least two full years away, he said.
Selling the $56 million transit tax hike
It's not just IndyGo that would need a foundation if the Red Line is to expand.
Other counties, notably Johnson and Hamilton, would need to set up their own to cover 10 percent of their operating costs if the Red Line extends there, as planned. They also would need to raise income taxes if approved via a referendum vote.
The tax would generate $10 million a year in Hamilton County and $1 million in Johnson County, so their foundations would need to raise $1 million and $100,000 a year, respectively.
Officials in Hamilton and Johnson counties decided against putting the referendum on the ballot this year, but they can still do so in 2018.
The foundation requirement is one of several funding hurdles IndyGo must clear as it seeks to get an all-electric bus rapid transit system and improved systemwide service running.
IndyGo already is relying on largesse to build the BRT stations. It is awaiting congressional approval of a $75 million U.S. Department of Transportation grant that would require a $20 million local match. The grant would pay for the first of three parts of the Red Line, which is only the first of at least three BRT routes planned for the city. Federal dollars will be needed for each section of each line, a time-consuming and uncertain process.
Red Line funding no sure thing for Indianapolis
In addition, fares will be required to cover 25 percent of the Red Line costs. Fares currently account for only 17 percent of revenues.
Stephen Davis, a spokesman for Transportation for America in Washington, D.C., said the funding demands demonstrate how low a priority public transit is compared with highway building.
“It seems like an extra burden,” Davis said of the foundation requirement on IndyGo. “It is a huge step to raise taxes for transportation to begin with. Now, they have to get donations as well.
“We don’t ask that our roads are funded like this,” Davis said. “We don’t say you can have a new highway only if you get a foundation.”
Guzzetti, of the APTA, agreed.
“Why do we need to look 1,000 places for something so fundamental?” he asked. “Infrastructure is a basic part of government.”
But Leslie Lenkowsky, an expert on philanthropy at Indiana University, said passionate advocates taking funding into their own hands for particular services is a regular practice in cash-strapped cities.
“The foundations come when demand for services outstrips the willingness of the people to be taxed,” Lenkowsky said. “As long as the public wants services, politicians will find ingenious ways to do it. It beats using bonds (borrowing) to fund operations.”
Experts could cite only a couple of examples that even come close to what IndyGo will be doing. One is in Cincinnati, where the Carol Ann and Ralph V. Haile Jr./U.S. Bank Foundation will temporarily help fund a portion of a 3.6-mile streetcar route.
In Central Indiana, Amazon is contributing $180,000 over three years to a shuttle service in Whitestown. The service collects commuters at the Traders Point stop for IndyGo routes 37 and 86 and takes them to the Anson Development for jobs at Amazon, Express Scripts, GNC and Weaver Popcorn.
Merritt said the foundation requirement is an iteration of recent public-private partnerships between governments and private investors.
As examples, he cited the operation of Amtrak’s Hoosier State line, in which cities along the route help pay for operations, and the Indiana State Fair Foundation, which since 2011 has raised money for programs and building repairs at the State Fairgrounds, including rehab of the Indiana Farmers Coliseum.
Which Red Line station design do you prefer?
Call IndyStar reporter John Tuohy at (317) 444-6418. Follow him on Twitter: @john_tuohy.