New sales tax forecasting from Sound Transit has indicated that their $17.8 billion transit expansion project passed by voters last fall now faces a $2.1 billion funding gap because of the deepening recession. Sound Transit is funded by a 0.4% sales tax (increaseing to 0.9% on April 1st) and an MVET on car purchases. Consumer spending and car purchases fell significantly as America entered into its worst recession in recent memory.
Sound Transit says that it has been conservative in its budgeting and may be able to make up some money with a variety of tools “including cost and scope control, taking advantage of the lower borrowing costs, and a more positive bid environment for our construction projects.” Earlier this year a contract was awarded for light rail to the U District that fell 34% below ST’s estimates. The poor economy has also dampened the effects of inflation that had been built into ST cost estimates.
Sound Transit is not currently planning on any changes to the construction plans but awknowledged that if revenues continue to fall and the recession deepens they may have to “also look at budget reductions, schedule adjustments, and increased bonding.” Pete Rogness, an ST staff member briefing the Sound Transit Board Finance Committee, said that delaying construction or implementation of some of the projects was “very much a last resort.”
It’s a shame to see something we all worked so hard to pass immediately be affected by the recession, but it’s also not surprising. Every level of government that depends on taxing revenues is seeing major drops in their collections. The ST2 plan creates about 69,000 jobs across all sectors — which is reason enough to keep things on track. Thus, an increased federal role in transportation spending would be even more useful in an environment like this.
Sigh… And how long do you think it will take some sensationalistic reporter at the Seattle Times to turn this into another “ST over budget by 2.1 Billion before they even begin” story?
I smell a Tim Enyman initiative in the future about rolling back ST2… or giving more ammunition to the “governance” folks
This is awesome, I appreciate that you covered the 34% cheaper contract for U Link. There was another contract that came under in the last few weeks too, wasn’t there?
Yeah, the PI says that Montlake Freeway was 19% under.
Mountlake Terrace?
Yeah, oops.
I already see some folks comparing it the monorail and bringing up the tired old “It’s been late since ’96” canard
So in a way bad and good news. Revenue may be lower(hopefully temporarily), but the lower borrowing costs and construction companies needing the work might make the contract bids come in under estimate. Weird.
Definitely, but to be honest I think the lost revenue is going to exceed the more favorable aspects of the recession. Particularly because some things like contract bids will likely recover within the next few years but the revenue gap will remain through the project lifetime.
Here’s hoping increased federal transit funding makes up some or all of the gap.
I would point out that you mean revenue through sales taxes, which are very sensitive to economic conditions. If we had a state income tax that served as a major pillar of funding, these budget gaps would be minimal.
Indeed. But as long as the initiative process exists, we won’t get it.
The barrier to an income tax is not the initiative process but that an income tax is prohibited by the Washington State Constitution.
A constitutional amendment has to pass a super-majority of the legislature then pass a simple majority vote of the people.
Really, I thougtht the legislature passed one during the Great Depression, because people had a hard time paying other forms of taxes, and it was felt that a progressive income tax would be the most economically viable.
Trouble is, it wasn’t politically viable to the State Supreme Court, who promptly overturned the income tax. Scrambling for funds, the Legislature came up with the B&O tax…
So if my understanding is correct, the barrier is not that there is a specific clause in the Constitution which expressely forbids an income tax, but that the early ’30s Court interpreted the spirit of the Constitution as such. Another court-80 years later-might have a different take.
One thing to keep in mind is that a sales tax revenue source is automatically pegged to inflation. In inflationary times the sales tax is “golden”. Incomes tend to lag well behind the increased cost of living. With the feds pretty much forced to monetize the current debt (i.e. print money) inflation is undoubtedly going to follow close on the heals of any recovery. Also, non taxable items can be added (technically exclusions eliminated) to increase sales tax revenues without it being a “tax increase”. Of course some of those exclusions are in place to mitigate the regressive nature of a sales tax on everything.
Somehow I don’t think we’re going to start taxing food.
We changed the law to tax soda (soft drinks) and prepared foods. Certain candy and junk food has been added. There’s other things that can be added. Privatizing liquor sales would boost to State revenue including sales tax. Originally labor charges weren’t included in WA State sales tax. There are still services that are exempt. The big adder, and it would be a fight is gasoline. Oh, and the way they assign value to a used car sale now instead of accepting the price on the bill of sale (unless it’s higher) was a boost in sales tax revenue.
Considering the tax on food was eliminated by voter initiative back in the early 80’s I doubt it is coming back.
eBay is another example of how sales tax revenue has been boosted. If you sell and the winning bidder has a WA address checkout now automatically adds sales tax. Technically it has always been the law that you’re supposed to pay sales tax on used goods (like you do at Goodwill, Value Village, etc.) but how many people collect sales tax at a garage sale?.. or who would pay it! The push to collect sales tax from online sales from companies outside of Washington will eventually become law. Although that may only recover the portion lost as online sales become the norm. Of course sales tax approaching 10% drives a lot of the online shopping.
Bernie, you’re spot on. I hope ST’s finance people are positioning the organization well financially in light of the deflationary 2009-2011 period and inflationary 2012-….period. A 2011 turn is just my best guess based on when housing prices are likely to finally stabilize nationwide
I think there’s some pretty sharp finance people over at ST. The idea to bond more of the required funding now when interest rates are low may turn out to be golden a few years down the pike. Even if Washington goes to an income tax it’s likely ST would still have to rely on a sales tax because it’s a dedicated source that can be passed locally. I don’t see local authority for attaching a portion of peoples income (why yes, I do live in a PO Box in Hansville). The only local options I see are property tax (LID, Levies) or local sales taxes. There’s the Hotel/Motel tax but that’s pretty well tapped out and hard to generate enough for something like Link. The alternative is to go begging to the Legislature every two years to increase or maintain funding from the general fund. I don’t think ST wants to go down that road.
And even if they did, there’s no way Olympia would play along.
Problems like this seem to me to go to the heart of public funding for just about everything. Need far outstretches the ability of funding to keep up with it without breaking. I believe we need a serious discussion on how we fund local government. Either this, or when we vote on these things, we need different plans based on different revenue forecasting – from the best case scenario (we build everything) to the worst case (when we have to make choices that will still have some purpose. If we could then all vote on the basis of our enthusiasm for the worst case enthusiasm, we might then be pleasantly surprised when we can do more. We wouldn’t have to vote again because we already knew the best of the plan as well as the worst. I am exhausted with setting my sights on the best plan scenarios, only to have them repeatedly dashed as some new revenue forecast comes in. It all feeds into the thinking of our critics such as the reporters at the Seattle Times who will of course waste no time at all in mentioning this, and our nemesis, Tim Eyman who will waste no time in coming up with some stupid initiative to stop everything literally in its tracks.
I admit that voting on a ‘worst case’ scenario is defeatest, but with the State seemingly unable to resolve how to raise revenue and other agencies such as Sound Transit and Metro trapped into small funding bottles, how else are some of us supposed to feel.
OK, so lets get Light Rail to Overlake but perhaps not to Redmond, to Northgate but perhaps not any further and to SeaTac City with another airport stop close to the south terminal/International baggage claim rather than to Federal Way.
Tim
Tim, I think instead of limiting the scope of projects simply changing the schedule (i.e. delays) is much better policy. That way we don’t have to keep on voting on the same projects over and over. In this case, ST will continue collecting revenue until it has enough to finish all the projects. In my opinion, voters approved specific construction plans and not necessarily a precise schedule or exact budget.