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Folks, if there’s any truth in this Washington Policy Center op-ed, I think we need to discuss a potential option if we do not get ST3.  Most of us here are not too keen on extending the spine to Everett with an expensive Paine Field detour of questionable value when a better bus network & a vastly improved marketing campaign would work wonders.  Almost all of us here are of the view that Ballard needs a light rail spur.

So when I came across these Washington Policy Center allegations, I had to share so we could discuss this:

Sound Transit officials may not need any tax increase to build more light rail.  How?  Because of the revenue that is hidden in the way Sound Transit officials calculate their future borrowing costs.

Sound Transit officials’ most recently adopted financial plan through 2023 assumes they will borrow $7.3 billion at a 5.75% interest rate, paid off over 30 years.  Their interest rate cost assumption is high, especially since they are actually issuing debt now at far-lower interest rates.

In 2012 Sound Transit officials borrowed $216 million at a rate of only 2.62%, less than half of what they assume as their future interest rate cost.  Just a few months ago, they borrowed $1.3 billion as a federal TIFIA loan at a 2.38% interest rate.  The TIFIA loan can be paid off over 40 years, and the first payment isn’t due until 2028!  Today, Sound Transit could borrow money for 30 years at fixed interest rates between 2% to 3% (or at lower variable rates), about half of its current budget assumption.

So what does this mean?

If Sound Transit officials simply changed their financial plan to assume a more-realistic 3% interest rate, they could borrow an additional $2.2 billion without raising regressive taxes and keep their debt payments the same.   That is enough public money to build light rail to downtown Redmond (approximately $800 million) and build much of the line from Ballard to U.W. (approximately $1.7 billion) without raising regressive tax rates at all.

Sound Transit’s financial report shows the agency thinks it can only borrow $7.3 billion at current tax rates, when they may actually be able to borrow closer to $9.4 billion without raising taxes.  This is not fair to the taxpayers.

We agree with using conservative estimates and careful budgeting by public agencies, but in this case, the interest rate estimates Sound Transit officials are using are extreme, and come at the expense of the taxpayers.

I am of the view we do need these projects as a state.  I am also of the view we need to force Snohomish County to come to reality about their transit situation.  I am finally unqualified to speak of transit needs between Tacoma & Seattle – I will leave that to the comment threads.  But this is something we in the STB community need to discuss and have a no-new-taxes contingency plan ready to unite behind and present to Sound Transit’s Board if necessary either if the legislature nips ST3 in the bud or the voters reject ST3.

One last thing: If you have evidence the above WPC op-ed is untrue, present it.  Otherwise…

29 Replies to “WPC: “Sound Transit officials may not need any tax increase to build more light rail””

  1. they could borrow an additional $2.2 billion without raising regressive taxes and keep their debt payments the same. That is enough public money to build light rail to downtown Redmond (approximately $800 million) and build much of the line from Ballard to U.W. (approximately $1.7 billion)

    No, it’s not enough. Not with subarea equity. Sadly.

    Though it’d go a long way toward these things…

    1. But if Sound Transit didn’t have to increase taxes… would Sound Transit still have subarea equity problems?

      1. They’d still be paying the debt back from existing taxes raised from the subareas, so yes it would.

      2. Raise taxes. ;)

        Or if we can’t, and we’re limited to the $2.2 billion… Based on this financial division, North King would get $200 million, and everyone else would get less. That can’t pay for anything except bus hours and bus improvements. With that choice, I’d reluctantly go for bus infrastructure improvements and some exclusive mostly-surface ROW, so we’d see at least some sustained benefit.

      3. Well put William C., that’s the kind of thinking we need right now – be ready to have a fallback plan.

      4. A better fallback plan: Combine the $200 million for North King with the monorail authority. I haven’t heard any dollar figures on that, so I can’t be much more specific.

      5. William,

        How do you get $200 million as North King’s subarea proportion of $2.2 billion? Show your work, please.

        One billion two hundred million I can see, but not 200 million.

      6. Actually, $1.2 billion is obviously too much. The ratio of the “ST2 Sized” package was $7.9 billion non-North King to $3.1 billion, or roughly 8:3. Three elevenths of 2.2 billion is $600 million, not $200 million.

      7. Anandakos, you’re exactly right: $620 million. I don’t know what I was thinking.

        Unfortunately, that doesn’t make any appreciable difference. From the same link I gave earlier, the cheapest North King project – the WSTT – comes in at $1.1 billion. (And, for comparison, Ballard-UW is $1.7 billion.) Even if Seattle clawed back every dollar that went to East Link, that’d still only add $110 million. We’d need the monorail district or something else to get any good subway miles out of this.

      8. Which might be what you have to do. Start thinking of contingencies….

      9. Subarea equity applies to all Sound Transit operations, planning, construction, and operations.

  2. This sounds like FUD: Fear, Uncertainty, Doubt. The anti-transit groups know that ST3 will likely be popular, but this is just a way to gain NO votes by raising uncertainty and doubt in the minds of the voters about the issue. If ST finances the bonds at an interest rate lower than projected, they will be able to pay off the debt sooner and save taxpayer money or build more service.

    1. GuyOnBeaconHill,

      Well to be honest it’s no secret the Washington Policy Center likes alternatives to tax increases.

      I just think we need a backup contingency plan… the legislature is gridlocked, our streets are gridlocked and so on.

  3. Hi everyone,

    This is Bob Pishue. I posted this blog today on our website, but I originally sent it on Monday to Sound Transit officials asking for their feedback. I will be out of town, but with their permission I will post their response.

    The main point is that maximum leverage of taxpayer dollars is important. Any consumer would make the same decision. The point here is that Sound Transit appears to be ULTRA conservative, which is OK, but it comes at a real cost to the taxpayer. Taxpayers are receiving $7.3 billion worth of rail when they could receive $9.4 to $9.5 billion by my estimates, without threatening their debt service coverage ratio.

    Yes, their overall debt would climb, but planning for a lower interest rate keeps their payment the same (think housing = for a mortgage payment of $2k a month, one could afford a $350k house at 5.75%, or a $470k house at 3%, with the exact same $2k payment.) Sound Transit does have a debt cap of 1.5% of assessed value, but that can be raised up to 5% with a 60% vote within the district.

    As I said, this is a way to build more without raising taxes, and not threatening sound financial practices. I will post ST’s response, but had to post this prior to be away from the office.


    1. Sorry, one thing to add. The Senate and the House are off by $4 billion. this gap, by my calcs, is bridgeable through the above method and by raising the debt cap 0.5% to 2.0% of assessed value. ST is “somewhat” flirting with their debt cap in 2023 (they probably have about $1 billion left in capacity) but property values would need to continue an upward trend. It’s seen great jumps in the last 24 months, so the climb would not be tough, but any recession would obviously play into it.


      1. Thanks Bob for clearing that up.

        I just want some of us in the STB community and our friends like you to have backup plans ready to go. It’s about strategy to creating the best transit net possible with limited resources.

        When I saw your post, I just felt the STB community might just find a way to throw a liferaft to our Ballard friends…

      2. I’m really not sure how anyone can win at the ballot by saying *maybe* we can fund certain projects if the Fed and the market don’t raise interest rates to historically reasonable levels. But then again, this is coming from the organization pushing vanpools as the best public transit solution and trying to subterfuge transit ballot measures with regressive taxation arguments while opposing progressive taxes.

      3. James, in recent years, WPC has also championed bus service improvements not just vanpools. Call it a change in tack we all should welcome.

    2. Bob, speaking of financial practices, what do other quasi-governmental agencies assume they will be paying in interest on bonds in the year 2023? Speaking as a car owner, should I plan on spending $3/gallon on gas in 2023 when I make my next vehicle purchase? The implication that ST should plan around historically low interest rates seems like it would be a disastrous blow to public resources and destroy whatever credibility the supposedly conservative WPC currently enjoys.

      1. Actually, WPC has a TON of credibility with the average voter. It’s WPC that’s the independent group that gets on TV to discuss transit tax measures – sometimes the only one and that’s gotta change.

    3. Mr. Pishue,

      Your editorial is based on the assumption that interest rates will continue at their historic lows for the entire time that Sound Transit will need to sell bonds OR that they sell them all now when indeed they could be sold at the low rates you project.

      The first assumption is extremely likely to be wrong; the dollar is beginning to slide against other currencies, indicating that the “carry trade” based on ridiculously low US interest rates is waning. The Middle East is falling apart rapidly, and low oil prices may not be around for long. In any case, toward the end of this year the downward fall in them will fall out of YOY inflation computations, leading to sharply higher (but still not “high”, fortunately) inflation figures.

      The second scenario isn’t all gravy, either. It assumes that Sound Transit should sell bonds now — and incur the interest encumbrance now — for construction it will need to pay for in the 2020’s. Only if interest rates rise much more rapidly than currently expected would that be a good strategy.

      That said, I’m somewhat in favor of the second scenario; “Sell bonds while the sun shines!” as the old saw goes. The “smart money” folks who are buying 30 year bonds at 3 or 4 percent are likely to be sorely disappointed soon.

  4. Without having studied ST’s bond structure, the most obvious hole in this argument is that it implicitly assumes they can refinance the current debt at the best rates they’ve ever gotten.

    Whatever debt is out there almost surely has rates locked in at the time it was borrowed. Rates have been falling since the onset of the Great Recession, but that doesn’t mean they can refi whatever they spent on Central Link.

    In other words, there’s not necessarily any contradiction between a 5.75% average rate, and a 2.6% rate on new debt.

    If we really are able to borrow at 2.6% going forward indefinitely, we should be building more, not less. As many who don’t work at WPC have noted, the cost of financing new infrastructure has never been cheaper. In a more rational world, we’d be taking advantage of that.

    1. “If we really are able to borrow at 2.6% going forward indefinitely…”

      Well that’s the ridiculous assumption made by Bob Pishue at what Joe refers to as “our friends” the WPC, which to my knowledge have not ever been public transit supporters. The simple fact is that no reasonable & knowledgeable person, including Bob’s bosses at Washington Policy Center, would promise their own money based on these low future interest rates. If Bob was in such a hurry to put out this provacative headline, my only conclusion is that WPC wants to use that mendacious proposition to completely derail ST3 revenue authority in the state legislature. And since Bob is going on vacation or something, we can expect him not to respond.

      1. James;

        I said “our friends like you” to mean Bob, who is pro-bus and pro-taxpayer. As am I.

        I do think we need to start responding to Bob’s missives here. Not just me and not just in the comments. I have it on kinda good authority that my Olympia contacts pay very much attention to WPC op-eds.



    2. Dan,

      Most bonds are “callable”. If ST really wants to retire its current debt it very likely can do so.

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