Potential ST3 Revenue Sources
Revenue Options for a “Large” ST3 package

Sound Transit held a board workshop on Thursday to begin considering financing options for ST3, the draft update to its Long Range Plan (LRP), and the timeline to a potential ST3 vote in 2016. This article covers the funding aspect (slides here) and timeline because that’s where most of the new information was. The LRP will follow in a later post. The 3 1/2 hour workshop consisted of the ST board and staff who did all the talking, and some forty observers including people from Metro and your reporter.

ST’s current state-granted taxing authority is 0.9% sales tax, 0.8% rental car tax, 0.8% restricted MVET (Motor-Vehicle Excise Tax), and an employer tax ($2.5000/ employee / month). Of these ST is currently maxed out on the sales tax and rental car tax. The MVET can only be used to pay existing bonds and expires in 2028. ST has never collected the employer tax so it’s an unused capacity. When ST2 construction ends in 2023 it will free up $1 billion, mostly in the Pierce and Snohomish subareas.

The staff presented three potential levels for ST3. The lowest level (“ST2a”) stays within the existing taxing authority and could complete planning and engineering of the “Spine” (meaning the Everett, Tacoma, and Redmond Link extensions) — but not construction. The middle level (“Incremental”) would require more taxing authority from the legislature and could construct one or two of the “best-performing” light rail segments (which ones were left unspecified). The highest level (“Large”) would be a similar size as ST1 and ST2 and require $15 billion in new taxes.

The board seems to be leaning toward the Large option. One board member cited deep public hunger in both Seattle and the suburbs for high-capacity transit (HCT). Another said a larger package would have a better chance of being approved by the legislature and by voters. A third said the board’s consensus seems to be for a “bold” legislative proposal, “more than we need”. The staff are assuming a Large proposal for planning, and the board can scale it back if it decides to go smaller. Mayor Murray emphasized the importance of clarifying their legislative ask and making sure any ST3 package goes big.

The presentation listed ten revenue sources used by other North American transit agencies: sales tax, rental car tax, payroll tax, MVET, car sales tax, car fuel tax, parking tax, utility bill levy, toll revenue, or property tax. Staff chose three of these for comparison and presented tax rates based on the use of one, two or all three sources. The three slides above show the results of this analysis. Of course these could be mixed and matched to balance the revenue among two or three sources.

Staff identified reliance on a single revenue source as potentially problematic because it would increase sales tax above 10% or hit constitutional property tax limits in King County. Property tax is also harder to bond against. Staff also noted that property tax is the least objectionable revenue source, as determined by rider surveys. Using this as guidance, Sound Transit staff will be developing a legislative agenda including adequate revenue capacity for any of these scenarios.

One board member suggested the staff consider additional funding sources such as LIDs (local improvement districts), the TIF model (taxing the added real-estate value of being near HCT), partnerships with companies benefiting from the service, and federal and state grants.

The potential timeline for a 2016 vote and subsequent ST3 construction is as follows:

* November 2014: The board considers amendments to the Long-Range Plan.
* December 2014: The board moves to accept the LRP update and to begin System Planning for ST3.
* January-April 2015: First legislative session.
* March 2015: Develop evaluation methodology and criteria for alternatives.
* May 2015: Choose expansion alternatives to analyze.
* June 2015-February 2016: Test and analyze the alternatives.
* January-March 2016: Second legislative session.
* March 2015: Identify a Draft System Plan.
* April-May 2016: The Puget Sound Regional Council (PSRC) issues a finding on whether ST3 conforms to growth-management policies and is cost effective. An Expert Review Panel (ERP) issues a finding on ST’s methodology, alternatives, testing, and evaluation.
* June 2016: The board moves to adopt the System Plan and ballot measure.
* November 2016: Public vote on ST3.

If the vote is yes then:

* 2016-2021: Project planning.
* 2021-2031: Construction.

That’s based on past experience with ST1 and ST2, which both required five years of project planning and a 15-year capital program. The specific pre-vote process is required by state guidelines for regional transit authorities, which
are stricter and more detailed in Washington than in other states.

Adam B. Parast also contributed to this report.

62 Replies to “ST3 Funding Options”

  1. Any chance the Seattle Times could just link to this instead of their piece? I read the ST piece three times this morning and couldn’t figure out what it all meant. I read this article once and understood what the announcement was all about.

      1. Do you think anything has radically changed between 2008 and 2015 that would make ST3 fail?

        If anything traffic is much worse. There seems to be a major meltdown every few weeks now.

      2. My worry is that even though the suburbs supposedly want better HCT, when push comes to taxation for expanded transit plans, they vote them down.

      1. Yeah, the problem is getting the right package out to voters. There is so much support in Seattle for this we might be able to pull the region along with us (but we won’t have to as long as there are good projects in the other subareas too.)

      2. Any sense on what is likely to excite voters in the other sub-areas?

        With Lynnwood-Everett likely in the package bringing Snohomish County along shouldn’t be too hard.

        Traditionally East King has helped carry past ST measures. Both Pierce and South King have generally voted no.

  2. Nice write up Mike.

    A mix of funding sources would definitely be best. To be clear – EACH of the funding sources listed jn that top section would be massive. All three of those top line sources together and we could build all of the things

    1. As popular as property taxes are with the voters I suspect ST would get major pushback from elected officials in King County as hitting the constitutional cap would affect the ability of other taxing districts to raise funds.

      On the other hand extending MVET authority is going to have a hard time in Olympia and is not popular with voters. The sales tax is also problematic as crossing the 10% barrier is going to be a hard sell at the ballot box.

      Another question I have is how each of the tax sources would balance between the sub-areas. I suspect the MVET would favor the suburbs slightly while the property tax would favor East King and Seattle.

      1. From what I can tell, people seem to complain about sales tax then still vote for it. Remember King Co prop 1’s detractors barely mentioned the sales tax – they were gunning for the $60 tabs. Even though I know ST’s polling says property tax is more popular, I think that discounts voter psychology a bit. Do you have any clue what you paid to ST last year? I know I don’t.

        MVET is problematic. People get a single big bill once a year and they remember how much it is.

        Property tax will get push back from the usual major landowner suspects and local pols unless they get tricky with it (like the parks did.)

        So… sales tax is regressive, MVET is unlovable, Property Tax has political bugs.

        How to counter? Do a mix of all three. :)

      2. “All of the above” is not a bad option. Though I worry the legislature may not make the MVET available.

  3. Very good reporting. I’ve been waiting for this information. It was clear and concise; to the point. I won’t bother with the Seattle Times. Thanks for sharing.

  4. “an employer tax ($2.50 / employee / month)” – They can only go up to $2.00 per month.

    RCW 81.104.150

    Cities that operate transit systems, county transportation authorities, metropolitan municipal corporations, public transportation benefit areas, high capacity transportation corridor areas, and regional transit authorities may submit an authorizing proposition to the voters and if approved may impose an excise tax of up to two dollars per month per employee on all employers located within the applicable jurisdiction, measured by the number of full-time equivalent employees, solely for the purpose of providing high capacity transportation service.

      1. I didn’t see an estimate from ST, but here’s a good guess.

        The feds estimate the employed labor force in the Seattle metro area (Seattle-Tacoma-Bellevue, WA Metropolitan Statistical Area) at 1,830,145. If all of those jobs were in the RTID and you could collect 100% of it, it would be $44 million gross. You wouldn’t collect all of it, and not all jobs are in the RTID (though most are), so the actual number would be less.

      2. That’s $44mil per year, or $660mil over the 15 year planning/construction timeline, and over $1bil with a 25 year financing plan.

  5. Are you saying that the 5 year project planning window could be shorter? I think that’s one of the key frustrations of the voters: paying for something and then waiting around before anyone puts a shovel in the ground.

    1. I would hope that for things like the East Link extension to Redmond and South Link extensions which have already had some planning done, it wouldn’t take five years to publish and approve an SEIS and finish the PE.

      1. To some extent the problem isn’t so much that Sound Transit needs 5 years to take a project through all of the planning required before construction can start, but that they need to wait for tax revenue to come in. I believe the financial plans have 50% of project cost paid for directly and 50% bonded.

    2. Each extension or route has its own window, so some would probably be finished years earlier. ST2 Link is opening in phases in 2016, 2021, and 2023. The timeline is just saying that overall planning would finish in five years and the last line would open in fifteen years. Of course, specific decisions later could affect things heavily. Surface and elevated segments can go up quickly while tunneling adds a few years, so it depends on how much tunneling there will be.

  6. Tax efficiency suggests broadening the tax base is better than raising rates, but ST unfortunately doesn’t have that authority. Narrowly-focused, high rate taxes (like our rental car tax) punish certain industries and consumers severely.

    Vehicle ownership is likely to stagnate, if not decrease, over the next 25 years. That’s not good for a MVET. Retail sales taxes miss a large and increasing share of consumer’s wallets. Rent/mortgage payments have risen dramatically faster than wages; that has to crowd out other spending which is more likely to be taxable (entertainment, clothing, dining, electronics, etc.). Add in other untaxed consumption like grocery food, gasoline, all types of insurance, tax avoidance/evasion, and also a higher personal savings rate (Americans are close to 5% now) and sales tax doesn’t look so hot.

    I’d prefer property taxes first. They are less distorting to the market (no matter what, you can’t make more land), hard to evade, reasonably progressive, and the outlook for property values is pretty good.

    A sales tax on gasoline would solve a lot of problems, but unfortunately it has precisely 0% chance of happening.

    1. As a property owner, I’m 100% behind a property tax and would push vigorously for the bulk of the cost to be paid via a property tax. I am strongly in favor of it for a few reasons beyond being more progressive: 1) Our property tax rates here are quite low, even compared to other states that offer fewer services; 2) property owners directly benefit from transit; 3) property taxes are deductible at the federal level and have a much longer history of being deductible versus the sales tax.

      1. Sales taxes are also deductible at the federal level. You don’t even need to save receipts; they let you figure an average deduction based upon your income and local tax rates.

        (Though I favor a property tax too, as a method of spreading out the burden.)

      2. samuel, I disagree. The property tax rate in Shoreline is 1.48% of assessed value. That’s about 60% lower than the rate I paid on a house in Texas. Seattle is 1.059%, so, yes, Shoreline is more than Seattle but still very low on a national scale.

        William, I address that in my third point. Both are deductible but when the federal government comes looking for deductions to trim, property tax is far less likely to be one of them. The sales tax deduction has to be renewed every year or two.

  7. I worry about these sources. Voters have shown that they hate the MVET (which I don’t understand, particularly since for me personally, that would have the smallest tax bite of the three). The sales tax has a psychological barrier at 10% total. That leaves property taxes–but the most reliable users of transit are less likely to own homes, so you have a political mismatch there between who pays and who benefits.

    I think there needs to be a shift to taxes such as LIDs. A carbon tax would be good, too. But where’s the will in the Legislature to give authority for that? It looks like we are stuck with bad sources.

    So split the difference between sales tax and property tax, so that you don’t hit the 10% threshold anywhere (nothing in the area is above 9.5%, I don’t think), and you make the individual hit from each source and constituency smaller. And obviously go for the biggest package. I think you could go even higher on the total amount of targeted revenue so long as you balanced the sources and kept sales tax below 10%.

    1. I think ST should do the MVET if it proves a viable option. I think balancing between the MVET, sales tax, and property tax is the wisest course of action.

  8. Also, I really wish we could speed up the timetable on these. I’ve been voting for this system since 1988, my first general election when I was 18 years old, and as projected, I’ll be 61 years old if this passes and is built on time. I feel like we’ll just be getting started even when all of this is built, and that will represent the bulk of my entire working adult life.

    1. I voted yes on rail transit in a couple of my first elections 1968 and 1970 and had to wait 39 years until Link opened 5+ years ago. I’d love to see a “comprehensive”system mostly complete by the time I turn 100 in 30+ years! Bur, remember, it isn’t necessarily all about us living now; we’re building for the next century or so.

  9. What is the allergy to the employment tax? It might not be a good idea for Seattle to do it alone, because mobile businesses might move out of the city to the suburbs. But region-wide? Microsoft is not going to move because it has to pay $2/month for its employees who generate $150K/year.

    It would be tough on fast-food restaurants because they’re labor-intensive, so they’d probably raise prices a nickel on some items. Remember, it’s only $2/month. If you raise the cost of a soda $0.05 per serving (not a bad thing to do for peoples’ health, but not likely to make much difference) it only requires 40 sodas per month per employee.

    And, it would be a little incentive for employers to give part-time workers more shifts, because somebody who works ten hours per week “costs” the same extra as someone working thirty.

    As Crossrip ceaselessly posts, Tri-Met has a percentage of compensation fee of .7237% (for 2014) on gross compensation for work within the taxing district. Now that’s clearly more “progressive” than ST’s allowable $2/employee, but it’s also quite a bit steeper. A full-time employee making $9.50 per hour costs $11.76 per month.

    What is keeping SoundTransit from using its capacity? It would trigger much less criticism from the public about “unfair” taxation.

    1. I suspect the small amount of money collected vs the cost of collecting it ($44 million/year max for all 3 counties). Employers are VERY opposed to the head tax for some reason which could cause problems.

      I ignore crossrip because he cherry picks his numbers to make Metro and ST look especially bad. The mix of funding for transit varies widely from state to state. ST and Metro are simply using the tools given to them by the legislature.

      The details of ST’s bond financing including the contracts aren’t significantly different from other agencies.

      While ST’s cost per mile for light rail is higher than most other US systems there is a distinct lack of nice flat available ROW here, especially in Seattle. Also given the amount of grade separation Link is closer to heavy rail than it is to light rail as practiced in much of the rest of the country. Furthermore while crossrip likes to cite how much federal funding other agencies (especially Tri-Met) have received he ignores the fact that federal funding has been decreasing over time as a percentage of total project cost.

      Similarly Metro’s cost per platform hour is on the high side compared to peer agencies. However we’ve got a pretty good idea what drives those costs at this point.

      Finally crossrio ignores that all taxes collected by Sound Transit and Metro were approved by voters at some point in time. He implies that somehow Metro and ST staff are sitting in some dark smoke-filled room twirling their metaphorical mustaches, plotting to steal money from the hard-working taxpayers so they can use the money for hookers and blow,

    2. My guess is that ST is avoiding it because the total revenue potential is limited (at most $44MM/year estimated by Jason Shindler above) and because it is easier to add rate to established taxes.

      A head tax like that creates a new paperwork burden for small business, hits low-wage jobs harder, and gives Boeing another argument to keep moving jobs to South Carolina, where they barely pay any taxes.

      1. Boeing–that reminds me. They got a $9 billion tax break that could have paid for half the system. And we complain about the cost per mile of building light rail?

  10. 2031, for real? The tax breakdown makes this look pretty good at the ballot box, and Seattle wants transit – I think it will pass. I will certainly be voting for. But 2031 makes for some seriously delayed gratification.

  11. Staff also noted that property tax is the least objectionable revenue source, as determined by rider surveys.

    I wonder how many of those are renters and favor it because they don’t have pay that directly.

  12. I’m a property owner and I favor property taxes. The capital improvements to regional infrastructure improve the value of my property: I so I view them the same way I view paying for a new roof.

    1. This is a good selling point, as is the fact that more public transit means less crowded roads for those who don’t like to ride it and insist on driving.

  13. Are TIFs even constitutional? I can’t imagine ST would be able to collect taxes from one until after a lengthy and expensive court fight. Nor do I believe there’s a prayer of getting the uniform taxation provisions amended away.

  14. Today, ST carries about 10 percent of all King County daily transit boardings. By 2025, ST will be carrying about a third of all King County boardings. If ST3 is implemented and funded with a big package, ST will probably overtake King County Metro as the transit operator that has the most daily boardings. It’s easy to get giddy about new cars, stations and tracks — but will the taxpayer subsidies for King County Metro drop?

    1. Metro won’t need as much money when it’s not running as many 60′ articulateds through major traffic choke points at 5mph but instead running small feeders on uncongested neighborhood streets.

    2. I also wonder whether part of this money is going to have to pay for expanded operations. It can be more expensive to operate surface light rail than to merely build it. Has this been taken into account?

  15. Let the immigrants build the train; utilize the EB-5 Immigrant Investment Pilot Program. Basic summary is a minimum hassle Green Card in exchange for a $1,000,000 minimum investment in a job-creating project. Sound Transit can group together multiple investments with the establishment of a Regional Center per Section 6 of Public Law 102-395 (Oct. 6th, 1992). With all the Chinese real estate investments in the Seattle Metropolitan area, I’m sure we wouldn’t have a problem finding some investors for ST-3. Every little bit helps right?!

    http://www.uscis.gov/sites/default/files/USCIS/Resources/Resources%20for%20Congress/Congressional%20Reports/EB-5%20Investor%20Pilot%20Program.pdf

  16. Why does ST need to keep increasing tax revenue every time it proposes new projects? Won’t there be free revenue after completing the ST2 projects, that it can continue to use for more things?

    1. The money will be free once the bonds are paid off, which will be in the 2030s or 2040s. New taxes are the only way to get more projects done in this half of the century.

    2. Most of the tax revenue for ten years after ST2 is completed will be going to debt service and operations.

  17. Since the feds have refused to pay for the Northgate pededestrian bridge, is there any chance ST3 could fund it? My understanding is that project is already planned and shovel-ready, so if ST 3 passes and funds it, it could conceivably be finished in time for the 2021 opening of Northgate Station.

    1. It would take away funds from other North King projects. I get the impression that most people here want lots of expensive projects in North King.

    2. As to why, and why it should be a high priority, it will add hundreds of riders, so it’s effectively the same thing as adding a fraction of a station. Why should these riders have it when riders somewhere not on Link don’t? You can turn it around and ask, why shouldn’t they have it: the other people are not higher priority than these people, and this entrance happens to be much cheaper than any other station.

      “Hundreds of riders” doesn’t necessarily mean all of them will be new transit riders, because some of them may be taking the bus around (like my roommate did earlier this year). But the bridge it makes it convenient for them to walk to the train, and to me that’s worthwhile in itself.

  18. This proposal is DOA. The property tax proposal boosts many owner’s taxes by 10%. Some of us, due to job loss(es), are barely getting by. As pointed out, the sales tax option takes us over 10%, and with the other transit agencies chomping at the bit for the authority to tax in that same pool, that big a bite won’t fly for somebody – or multiple somebodies. MVET, surprisingly, seems to be the voter’s favorite, though it’s a great disincentive to not replace a car. Meanwhile, one of these days, the legislature will pass a transportation package, that tacking on about 12 cents per gallon of gas for long-overdue preservation & maintenance, including earthquake preparedness for major roadways (see PSRC report: http://blog.psrc.org/2014/10/quake-vulnerable-structures-in-region-face-funding-cuts/?utm_source=rss&utm_medium=rss&utm_campaign=quake-vulnerable-structures-in-region-face-funding-cuts).

    Apparently, the policy makers – and maybe many of you – haven’t personally experienced the Great Recession, but many of us still are.

    However, one obvious taxing source is missing: expanding ST’s taxing district. The result of advancing rail north is to encourage urban sprawl. However, those who benefit from that rail go beyond Everett, to places such as Marysville, Arlington, and Snohomish, all outside of ST’s current taxing district. A lesser case could be made for expanding the map eastward from Issaquah and east of Renton/Kent (e.g., Maple Valley).

    A better proposal for the current taxing district would be a balanced program with scaled-back rail (I’d have to see the cost estimates on the options, many of which I like) and finish/fix all direct access ramps, such as the missing northbound Ash Way ramp, the non-existent Mariner ramp, the non-existent Brickyard Park & Ride direct access, technology to inform motorists of spaces available (apps, road signs), etc. A second proposal would be with an expanded Sound Transit taxing district, but only with that expansion.

    1. Expanding the district won’t add much money. The property, the retail, and the cars are all mostly inside the district already. Besides the portion of the ST district that needs the most money has nowhere to expand to (North King).

      While you may not personally like the property tax it was the most popular option polled. MVET tends to be unpopular with voters but with the right mix of projects it could get enough votes to pass.

      My personal take is to go with the “pick 3” option as it keeps all of the various taxes fairly reasonable.

      For a legislative solution I’d love to see the sales tax exemption removed on gasoline and used for transit and other transportation uses the current gas tax can’t be used for.

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