Back in January 2015, Sound Transit announced a $1.3B federal loan for East Link, the largest single disbursement in the history of the “TIFIA” program. Taking advantage of the continuing low cost of capital in the wake of the 2008-2009 recession, the loan provided favorable repayment terms and a rock-bottom interest rate (2.38%).
Well, here comes Round 2. At Tuesday’s Sound Transit Board meeting, the Board will vote on a TIFIA Master Credit Agreement for another $2B in low-interest (3%) loans for remaining ST2 projects. Northgate Link would get $615m, Lynnwood $658m (this after getting a $1B grant), and $629m for Federal Way. As Mike Lindblom reports, the Federal Transit Administration (FTA) notified Sound Transit of the offer the day after the election, with the FTA apparently impressed by ST3’s passage and the assurance of stable tax income.
Sound Transit’s financial modeling has consistently been conservative, assuming above-market interest rates for both ST2 and ST3. Positive financial surprises like this have tangible benefits for taxpayers and transit riders. Compared to traditional bonding, East Link’s TIFIA loan opened up $200-300m in agency capacity, and Sound Transit expects these new loans to do the same:
The TIFIA loans are expected to generate between $200-$400 million of additional financial capacity for Sound Transit compared to current assumptions for traditional fixed-rate tax exempt bonds at the current market rate. The current TIFIA borrowing rate is approximately 2.98% vs. the 5.25% rate assumed for the ST2 program.
But before you bust out the napkins and pens to armchair plan how to spend the windfall, Sound Transit cautions that the expected savings are in year of expenditure (YOE) dollars and would accrue gradually throughout the 25-year ST3 timeframe. But greater financial capacity is still great news, and with luck this is a harbinger of things to come for ST3. After all, with conservative planning you’re more likely to be pleasantly surprised than disappointed.