In light of today’s P-I article, I want to talk about the total cost of Proposition 1 and how the “No” campaign is being misleading on this subject. I agree with an earlier blog entry in that this total cost figure isn’t completely meaningful to voters, while the $69 cost per year figure is. I also agree that this is not the most important fact to voters, and the more time we spend arguing about the cost is less we spend boosting the plan.
However, most of us are pretty wonky – so let’s destroy this $107b number that the “No” campaign parades about with the help of the P-I.
Background: YOE vs. Constant Dollars
Last year, the Seattle P-I published an article discussing the “real” cost of Roads & Transit, the failed 2007’s measure to expand light rail and build new roads. It cost $18 billion in 2006 dollars and $47 billion when you factor in inflation and interest on loans. The $18b number would be “constant” dollars and the $47b would be “year-of-expenditure” (YOE) dollars. $18b in 2006 dollars is the effectively the same as $47b in YOE dollars (note: I am glossing over debt servicing and loan interest, both of which can be thought of conceptually as inflation).
YOE dollars have a lot of problems. For us in the here and now, it is simply not possible for us to comprehend the meaning of $10 in 2057 dollars. Whereas we all know that $10 today is a few boxes of cereal, or three gallons of milks/gas, or an entire day of parking at a downtown mall, or one hour of work at McDonald’s. Using some online calculators, we can see that $10 today will probably be somewhere around $39.50 in 2057 — nearly quadruple the number, but the same purchasing power.
So, the fault with YOE dollars is that at the starting point, they give the public a false conception of the price. They give managers at your company a false sense of the actual value of something. Most engineering projects do not use YOE dollars internally, because it is meaningless.
“Constant” dollars have their own problems, however. After a project is completed, “constant” dollars nearly always give the sense to the public that a project was over-budget. This is, in fact, why mass transit projects are — across the country — considered to be risky investments that always go over-budget. (Locally, Sound Transit and the monorail solidified this idea on their own — don’t get me wrong.)
(Read on to see how the media and Proposition 1 change things…)
The Media Uses YOE Dollars
So, the local media last year made a decision that Roads & Transit didn’t like. Instead of using “constant” dollars like the campaign, Sound Transit, and RTID did, the media used YOE dollars. Every news report about R&T pegged the cost at $47b — which isn’t inaccurate, or wrong, per se, but a number that is not very meaningful to most readers since inflation is responsible for the dramatic difference and inflation is something we deal with over the span of decades.
But it was an argument that ST lost — the media decided the number to use and arguing the price caused confusion. This year, it’s different. Sound Transit and the campaign both talk about YOE dollars to prevent voter confusion and giving the “no” any leverage.
The cost of Proposition 1 is $17.8b in YOE dollars. The Seattle Times uses this number (well, $17.9b for some reason). The Seattle P-I continues to factor in debt servicing, bringing the total to $22.8b (YOE) — which is still less than half of the YOE cost of Roads & Transit. $17.8b (YOE).
Today’s Article About Prop. 1’s Cost
I imagine that using YOE dollars was an effort to prevent bad press about the cost. Yet, here we are, almost a year to the day that the earlier Seattle P-I piece was published discussing a new article regarding the cost of Proposition 1. This article was obviously written because the “No” campaign is doing an excellent job in repeating ridiculous numbers and creating confusion. The “No” campaign’s tactics did the job last year, but I’m not sure it’ll work again.
The P-I article is the most in-depth look at the incredulous accounting methods the “No” campaign uses. While the P-I piece doesn’t draw any solid conclusions, it presents the reasoned arguments from ST staff as to why the “No” campaign’s math isn’t worthwhile. Unfortunately, the piece is very lengthy and wonky, so someone thumbing through the newspaper or website may be slightly overwhelmed.
To summarize for our readers, the biggest differences between ST’s numbers and the “No” campaign’s numbers center on:
The length of taxation: “[The ‘No’ campaign’s] figures assume the expansion tax will continue for 30 years after 2023 when construction is to end, while Sound Transit predicts it likely will stop 15 years earlier.”
Sound Transit is collecting taxes 15 years less than the “No” campaign is predicting. Indeed, 2038-2053 dollars are so vastly different than the value of today’s dollars this makes a large difference in cost. The “No” campaign is using these non-existent taxes combined with inflation blow up the price of Proposition 1.
Different accounting in how household costs are measured: “He said he divided […] sales taxes in the urban area by the estimated number of households, including those with very high incomes. ‘What’s wrong with including wealthy families in the average?’ he asked.
Well, the answer is that generally there are incredibly wealthy families that skew the average, which is why Sound Transit uses the median household income to predict the median expenedature on taxable items, which gives you impact of new sales taxes on the “average” family. In this case “average” means “typical,” not “sum divided by count” which unrealistically ties Bill Gates’ consumption to mine.
The “No” campaign adds Sound Move costs to the cost of Prop. 1: The Seattle P-I should have called out the “No” campaign for misleading voters. All over the “No” site you see one number: $107 billion. Over and over and over. Well, by their own admission in this very article their fuzzy math adds up to $55 billion for the expansion covered in Prop. 1.
While $55b already uses very debatable accounting and extends the tax for 15 years later than it will be — almost doubling that number by adding in Sound Move costs that will be paid regardless of Prop. 1 and calling that the total the cost is dishonest. Sound Move costs will be the same whether Prop. 1 passes or not. And that’s not even mention that the $52b cost for Sound Move is certainly just as misleading as their Prop. 1 costs.
Sound Transit doesn’t pass the sales tax on to consumers: “A Sound Transit memo said there’s been controversy over how much tax businesses pass through. Some assume they do ‘but local businesses must compete with outside businesses that have different or even no sales taxes,’ the memo says. ‘Every time China buys a Boeing 777, they help fund government services in our region, including mass transit expansions,’ [ST’s] Patrick said. ‘We have not tried to estimate this split — that would be a very difficult task — but it is very significant.'”
I personally find the Sound Transit argument convincing. The “No” campaign simply assumes that 92% of the sales tax increase is paid for by consumers.
Sound Transit includes households outside of its district: “One reason Sound Transit’s figures are lower is that it divided the tax bill by more households. The agency assumed a total of 1.3 million households throughout the three counties, including portions outside its urban-area district.”
Update: As The Stranger points out, this is actually an error in the article. Sound Transit’s figures aren’t divided by anything. Sound Transit uses the entire region’s household count to determine the median household income. In other words, this is likely more conservative than just using the ST district’s household statistics since those outside the district — the urban areas of Pierce, King, and Snohomish counties — likely have a lower income than those within the boundary. My previous reasoning, below, is irrelevant and inaccurate.
Why’s this? Doesn’t this seem questionable? No. A lot of folks who live outside of the boundaries of the ST district do shopping inside of the district where all the major stores are. Indeed, it’s likely that that population of the ST district swells during the day as people head to their jobs within the urban-growth area that the ST district aligns with.
The “No” campaign’s math is summarized as “divide the cost of the sales tax that ST is projected to make annually, by the amount of homes in the ST district” and that’s the cost per household.
Update: The reason this is wildly inaccurate is that very, very rich households are going to consume far more taxable items — so things other than food, rent, etc. Combined with the fact that they project ST to take in more revenue than reality or the measure allows, this created very misleading numbers especially in the future. The Stranger is responsible for this correction. My previous, below, logic is inaccurate.
But people who work in the ST district during the day or shop inside of it contribute to the tax base, and it is ridiculous to say that folks inside the district are paying a price for it. The “No” campaign uses a count of households which artificially increase tax costs by 15% annually.
Be sure to read the complex P-I article, which much like this blog entry attempts to summarize some very complex accounting weirdness. The P-I doesn’t call the “No” campaign out, so I will: The numbers are bull.
The $55 (YOE) billion number extends the Prop. 1 taxes 15 years longer than reality, lets high-income households skew the results (rather than normalizing for the typical family), assumes suppliers even from out of state will raise prices because of our sales tax, and uses other fuzzy math to distort reality. It’s bull.
The $107 (YOE/made up) billion number is simply a dishonest figure because it includes Sound Move costs that happen regardless of Prop. 1, and vastly inflates the cost of both Sound Move and Prop. 1. It’s worse than bull. They are saying that Prop. 1 costs $52 billion dollars even if it isn’t passed!
Proposition 1 costs $17.8 billion dollars (YOE). If you’re the Seattle P-I, you factor in debt servicing bringing up the cost to $22.8b (YOE). If you’re the Seattle Times, you round the number to $17.9b somehow (YOE). However you slice it, much cheaper than the opposition is making it out to be. What’s easy to digest is that Proposition 1 will cost $69 dollar per year for the average adult.
(I am far from unbiased on this matter. Besides being a blogger here and supporting mass transit growth in general, I am a volunteer for the Mass Transit Now campaign regarding Prop. 1.)