Sound Transit staff presented a financial analysis at Friday’s workshop in support of ST3 planning. Perhaps in response to Seattle Subway’s ST Complete proposal, or the general desire to fund more projects than the new revenue authority allows in 15 years, the analysis explores breaking the rule of thumb (from the 2007 and 2008 votes) that 15-year packages are more politically palatable.*
As someone interested in the ultimate shape of ST3, there are three things you should take away from this analysis:
1) Don’t confuse different types of dollars. This is probably the most boring of the points but also the most important. This mistake will result in lots of unworkable projects and lots of misleading talking points for the no campaign.
All of the corridor study cost estimates are in 2014 dollars. All revenue figures are in Year of Expenditure (YOE) dollars.
We all know what 2014 dollars are. A YOE dollar’s true value varies over time, and is worth less than a current one. Thus a $15 billion revenue package sums up numbers in different units, and doesn’t actually communicate much. But it’s much easier to compute for the boffins, because fewer assumptions are built into the model.
So how we turn 2014 dollars into YOE? The short answer is, you can’t. You’d have to understand the phasing of various projects, how cash flow varies over those phases, and then apply the correct inflation rate over those years. Last year, I very roughly took some historical ST1 phasing information, and made a guess that $3 in YOE dollars buys you about $2 in 2014 dollars. That’s a bit better than a wild guess, and in any case only valid for a 15-year time frame. ST will have to do some detailed staff work to work out the translation.
2) 20 years buys a bit more, 25 years a lot more.
The headline figure in the legislature last session was $15 billion. That figure referred to total (YOE) collections over 15 years. Because ST will also sell bonds, apply for federal grants, collect fares, and so on, any amount of collection enables a larger amount of capital spending. A 15-year revenue cycle using all three taxes (sales, MVET, property) provides about $26 billion (YOE) for projects, which may involve tough choices and/or some value engineering.
Another five years, as one might expect, gets you 33% more taxes. But due to bonding limitations and so forth, the total budget goes up to only $30 billion (YOE), which may be about enough to build the Board’s apparent highest priorities. But give it another 5 years (through 2041) and ST1 and ST2 bonds start retiring, restoring ST’s bonding capacity and raising the total budget to as much as $48 billion (YOE). Of course, that far out the actual purchasing power of those dollars is likely quite a bit diminished from today. That should be enough to build everything the Board seems to prioritize, and a several additional projects (Ballard-UW, anyone?) to boot.
3) Subarea Equity may not mean what we think it means.
Most observers probably learned something when ST CFO Brian McCartan explained the true origins of the policy that taxes collected in one subarea must (roughly speaking) be spent in that subarea. As it turns out, the statute only requires that the proposition ”identifies the degree to which revenues generated within each county will benefit the residents of that county.” The restrictions on spending are a matter of board policy, and the board can change it.
Josh Feit’s report quotes several board members expressing sentiments that a project’s physical location has little to do with who really benefits. That’s a good thing, as subarea accounting is a futile exercise only necessary due to excessive parochialism.
In Sound Transit 1, Subarea Equity was generally understood to advantage the suburbs over Seattle. Around the time of Sound Transit 2, I was one of the people arguing that Link reaching the city line meant the valence had reversed. Today, I’m not sure what to believe. Mayor Murray certainly believes the case for Seattle projects is convincing.
Moreover, the corridor studies suggest that the most productive system would involve shipping at least some dollars from East King County to Snohomish County, leaving the traditional Seattle/suburb rivalry entirely out of it. As always, the board will have to balance regionwide merit against electoral feasibility, and the outcome is unclear.
* It is debatable, to say the least, that package length had any impact on differing outcomes in those years.