Link Light Rail (Image: Lizz Giordano)

The Sound Transit Board had its first opportunity to review the results of I-976 at Thursday’s meeting. While expressing confidence they would not be forced to reduce the MVET, and also outlining the litigation strategy they intend to pursue, the Board also heard how an immediate stop to MVET revenues would result in a five year delay to future projects.

I-976 appears to have been rejected by about 53% of voters within the Sound Transit district. That’s close to the 54% yes vote on ST3, although it conceals a widening gap in voter preferences within the district. That gap was on display yesterday too, with Pierce County Executive Bruce Dammeier arguing Sound Transit should accept the will of statewide voters including two-thirds of those in Pierce County. Nevertheless, it’s enough for most Board members who are ready to recognize a mandate of voters in the Sound Transit area to push ahead with projects and continue collecting the MVET if possible.

If I-976 took effect in full, Sound Transit would be required to retire or defease all bonds secured by MVET revenues and then eliminate the MVET. If the bonds could not be defeased, MVET authority would be reduced from the current 0.8% to just 0.2%. (The Sound Move 0.3% was repealed by an earlier initiative and the taxes survive only as long as some earlier bonds are outstanding. Whatever the outcome of I-976 litigation, Sound Transit has no authorization to collect the Sound Move 0.3% MVET past 2028).

Sound Transit’s interpretation, supported by the voter pamphlet language, is that the reduction in future authority applies only to future voter-approved MVETs. The current MVETs remain fully in place as long as bonds secured by those revenues are outstanding. If that view prevails, the only impact of I-976 to Sound Transit would be to curb the available revenue options for an ST4 or subsequent initiatives.

Sound Transit doesn’t intend to sue for now pending the outcome of the coalition lawsuit filed by Seattle, King County and others. If they are successful, I-976 might be thrown out entirely. A preliminary injunction delaying I-976 from taking effect until that litigation is resolved seems likely.

If that litigation fails, Sound Transit says their bond contracts still allow them to continue collecting the MVET, unlike the Seattle TBD or state multimodal account which are without similar protection. Sound Transit sold bonds secured by the MVET in 2016 that are repayable through 2046, and also entered a credit agreement with the FTA tied to ST3 taxes the same year.

That position was amplified in a statement last night by Board Chair John Marchione:

The initiative and the Attorney General’s voter pamphlet summary both make clear that state law requires the MVET to be collected until Sound Transit’s bonds are repaid. We intend to continue fulfilling our obligation to advance critical voter-approved projects and services while we monitor litigation and closely review legal issues surrounding this initiative. No action by the Board is needed or prudent at this time.

Sound Transit believes they can not be forced to defease or retire existing debt. General Counsel Desmond Brown also observed that the initiative lacks a deadline for Sound Transit to defease existing bonds, arguably suggesting the Board has discretion about when to end MVET collections if other pathways fail.

Defeasance is a process roughly equivalent to repaying bonds for the debtor. Instead of paying off the bond debt, Sound Transit would set aside cash or assets in an escrow account sufficient to meet the future repayment schedule. Typically, that means purchasing bonds with a yield that covers repayments on the bonds they have sold. Bond holders would then receive payments from that account on their original schedule. Because the bond liability and escrow assets offset each other, the debt need not be recorded, and the bonds would effectively be wiped from Sound Transit’s books and would no longer protect against I-976 MVET reductions. But defeasance is a more costly and complex financial engineering exercise than simply paying the debt down on schedule. Indeed, part of Sound Transit’s position is that they cannot be required to enter into more expensive debt to defease existing debt.

The meeting also heard about the impact to Sound Transit’s financial position if the MVET is repealed. I-976 would also eliminate the small rental car tax, but that’s a small part of overall revenues at less than $4 million annually. Repeal of both would reduce revenues by up to $7.2 billion through 2041, depending on when MVET collections end. Defeasing the $2.3 billion of debt backed by the MVET would mean another $521 million of direct costs and new debt issuance of $2.6 billion.

After proceeding with current projects, the agency would run out of financial capacity as early as 2029. Without MVET and rental car revenues, the delay to future Link and Sounder extensions would be about five years. (That’s about in line with our analysis after election day).

In nominal terms, the delays add about $6 billion in capital costs due to inflation. There would be $16 billion in additional interest through 2061, partly due to the increased capital costs, and partly because the agency’s debt position would be paid down more slowly after completing projects because of lower revenues. The mix of real costs and nominal changes due to inflation wasn’t clear, but a portion is real because capital costs increase faster than general inflation and because Sound Transit expects their cost of borrowing to exceed inflation also.

Lower taxes today also mean higher taxes later as the program is stretched out to meet all spending commitments. The planned rollback of some taxes in the mid-2040s would be delayed 12 years. Taxpayers would end up paying about $25 billion more in total, though again those are nominal dollars rather than real.

41 Replies to “Sound Transit maps next steps after I-976”

  1. “ If that litigation fails, Sound Transit says their bond contracts still allow them to continue collecting the MVET, unlike the Seattle TBD or state multimodal account which are without similar protection.”

    The impact of 976 on transit operations is imminent and critical. ST3 is cushioned a little bit in its schedule but transit operations are not. It’s important to discuss issues about 976 and ST3, but it’s nowhere near as dire as transit operations subsidies are.

    1. Nope.

      At this point, ST4 is just something that we transit nerds daydream about here online, so legal issues aside, it’s not plausible. The ST3 drafting process took multiple years with the support of political elites. Without some consensus for dealing with the inter-subarea strains in Sound Transit that has the backing of city/county politicians and majority support in the State Legislature, we’re even further from drafting an ST4 package than we were from drafting an ST3 package at the beginning of the decade.

    2. ST4 would at minimum require a year-long process to identify potential projects and decide which ones to include. It hasn’t done the corridor studies ST3 funded to plan for ST4, because that wasn’t expected until the late 2020s or 2030s at the earliest. Normally the process would start with updating the long-range plan, which was last done just in 2014. It would require identifying a large chunk of new funding, which doesn’t exist. The legislature caps the tax rate and ST is almost at the maximum. (It isn’t exercising a couple minor sources that are unpopular and wouldn’t bring in much, like the head tax.) ST3 was 25 years instead of the historical 15, so it already includes a lot of what was previously expected to be in ST4. It’s also the highest transit taxes ST or any agency in the state has ever collected. And we haven’t even finished the ST2 projects yet! So the likelyhood of a large ST4 package in the next year is zero.

    3. There’s also an ongoing debate about whether ST4 would have as much public support as ST1/2/3 after ST3 was so large. Maybe not until the 2040s or 2050s. And the subareas’ interests are increasingly diverging as the spine gets completely outside King County. Seattle still wants more lines. Snohomish and Pierce haven’t identified anything they want after the spine reaches Everett CC and Tacoma Mall, which they assert are the final termini. South King thinks it’s too poor to afford projects; the next in line WSJ-Burien-Renton may have less support than it used to after its ridership study came out; and Renton-Bellevue is unlikely even in ST4. East King is a question mark. Maybe something Kirkland, but what, and how much will the rest of the subarea support it?

    4. Sorry, I meant ST3, have we already bonded for Ballard, etc? If not they better get bonding on the outside chance the lawsuit doesn’t succeed. I was curious if they could bond things before the court rules for the future Ballard/Everett/West Seattle extension.

      1. That’s exactly what ST did in late 2016 when they issued the $400M Series 2016-S1 (“Green Bonds”), for proceeds of $477M. Of course, CEO Rogoff was less than forthright about any pledging of the recently passed ST3 taxes when he was questioned by a board member in a meeting a few months later. (IIRC, that board member was Kent Keel, University Place Pro Tem Mayor at the time.) I guess those bonds slipped his mind.

  2. Mr. Dammeier said he would be fine with keeping the 590 and 594 but eliminating Link to Tacoma. Maybe that’s enough.

    Keep Tacoma and Lakewood if it chooses in the ST District and run Sounder as a commuter-only service without stopping at Sumner or Puyallup That plus the bus service might absorb all the sales tax revenue that Tacoma and Lakewood can generate.

    Let Southeast Pierce form its own district to fund commuter runs into King County.

    1. 90% of Link’s reason for going to Tacoma is to connect Tacoma to SeaTac airport. Back in the pre-ST2 days that’s all I heard from Tacoma’s politicians: “If we want to attract business and convention goers to this city we need light rail to SeaTac”. They aren’t entirely wrong. I think very few people will use Link to commute all the way to Seattle, the ride will be significantly longer than Sounder.

      1. Right – all day Link will buttress peak-oriented Sounder. For Tacoma to Seattle, most will take Sounder, with Link the best option when Sounder isn’t running.

      2. I could see a lot of people using link to commute to Seattle from Tacoma if it gets it: The population would potentially grow immensely from people moving there from Seattle to take advantage of the lower housing prices, and many of those people would use link to commute to their jobs in Seattle where it’s likely the bulk of the jobs will still be circa 2030 assuming Tacoma does get the expected boost in industry from link. It would be similar to people who live in Long Island and New Jersey taking the L.I.R.R and NJ Transit respectively to NYC for work.

      3. The LIRR and New Jersey commuter lines are just that — commuter lines. They move relatively fast between New York and surrounding suburbs (or cities that act as suburbs in this case). But even with the fast speeds, they carry relatively few people. The Long Island Railroad — the busiest commuter rail system in North America, with hundreds of miles of track and 124 stations — still has less than 10% of the ridership of the New York City subway. It seems like a lot because New York is so big. There are people who routinely commute for well over an hour — it is just the nature of such a big city.

        The Puget Sound Area isn’t that big. Relatively few will move to Tacoma if they work in Seattle because the commute will still be bad. Folks will spend around an hour on the train. They will likely spend around a half hour getting to and from the train. As charming as Tacoma is, there just aren’t that many people who are willing to spend that much time commuting.

      4. Sine recent numbers have been boding well for Tacoma Link justification. I’m sure these numbers will be compounded by time segment is completed.

        1) Tacoma-S. Federal Way needs access to SeaTac. The Tacoma-Lakewood-S. FW population is well over 900,000

        2) From 2014 to 2016 the 12-mile Tacoma – FW commute increased 6 minutes.

        3)The Dome and Fife area experienced increased delays of about 13 percent and 84 percent, respectively, equaling up to 5 minutes of added travel time

        4) FW – Fife has population of over 100,000. “From July 2017 to July 2018, Tacoma-Lakewood had the largest over-the-year percentage increase in employment in the nation — 4.9 percent.”

    2. You could just revert Pierce back to ST2 tax levels. Plenty of O&M to fund between STX, the Tacoma streetcar, and Sounder. Sounders also needs some major capital investments to add capacity, but you can do that with a fraction of the ST3 funds.

    3. The problem with above proposals to allow Pierce back on ST2 tax levels is that the tax rate has to be uniform across the entire district. We really need to get the state legislature to allow different tax rates for each subarea.

    4. All of you who replied are correct from a transit best practices point of view. However, the Pierce County Executive says “We don’t want it; give us Express Bus in Lanes Managed to Privilege the Buses”. If that’s what they want, that’s what they should have. It would make the whole tax thing enormously easier for everyone.

      1. But what do Tacoma’s mayor and city council want?

        If Tacoma were saying the same thing then sure, but I don’t know that it is.

  3. the several transportation benefit districts levy flat vehicle license fees; ST levies the motor vehicle license fee based roughly on value; the valuation system was at issue. the initiative sought to take them both to a flat $30.

    the post implies uncertainty about the MVET revenue stream, defeasing, and the ST capital program.

    1. Sound Transit’s portion is a tax and not a fee. And because it’s based on valuation of the relevant vehicle it is deductible for tax reporting purposes.

  4. Seems to me there’s still considerable litigation to be gone through before Sound Transit has to make any changes at all. Quick “read”, for instance, leaves me skeptical Big Time! that 976 has only one title.

    While it’s always good practice to prepare for the worst, in same lifetime as 695, I don’t want to see my enemies awarded a victory that the State Supreme Court denied them.

    Mark Dublin

    1. Yeah, I agree. It is quite likely that 976 will be struck down. It is like watching a football game, and your opponent catches the ball in the end zone with one foot clearly out of bounds. It is scary, but chances are, the people in charge will rule that it isn’t a touchdown.

      My apologies to those who don’t like sports analogies, but since Thanksgiving is coming up, I figure it is appropriate.

  5. I’m not sure how ST can simply declare that they aren’t bound by I-976.

    In any case, I also don’t understand how the legislature can’t simply pass a law negating I-976 and tell Eyman to suck wind.

    1. ST is assuming that I-976 will be thrown out. That is a reasonable assumption, in my opinion. If it proves to be wrong, then they will deal with it appropriately, by delaying projects. They won’t be the ones that would be hurt most by the initiative (if it becomes law). The folks that will be hammered are the municipalities that are largely pay as you go.

      1. “ST is assuming that I-976 will be thrown out. That is a reasonable assumption, in my opinion.”

        I’m in agreement with that opinion for the reasons I’ve stated on this blog previously.

        Now in regard to the temporary injunction being granted, I could see that going either way. I say that because, if my memory serves me right, back in the Amalgamated case involving I-695 the trial court did not grant such relief while the case was pending. Of course, that was almost 20 years ago now and that initiative did not have such a quick turn-around, i.e., effective implementation date.

      2. I think the odds of a temporary injunction are better than it being thrown out, but that is based on what I would do. I don’t see any harm in delaying the implementation of this law, whereas I think there would be harm in applying it, and then overturning it.

      3. Of course. Maintaining the status quo is prudent in this case imo as well. We’ll just have to wait to see what the trial court actually does.

    2. The legislature isn’t passing any law to negate 976, it’s potentially already an unlawful initiative just like MANY other Eyman initiatives in the past.

    1. It looks like a sound brief to me. They’re actually defending the Initiative pretty strongly.

    2. The attorney general probably has a duty to defend initiatives that have passed. When the feds joined the lawsuit to overturn Obamacare many considered it improper because they’re supposed to defend the laws that exist.

      That doesn’t excuse the misleading summary about being able to reinstate things. I read the longer summary and was still unclear on this both before and after the vote and kept seeing contradictory answers. I’ve never had such a fundamental uncertainty about any other initiative, not being able to tell when I voted whether we could reinstate the TBD or not.

      1. I read the AG’s brief and I’m even more confused about what I-976 does. This appears to be the AG’s argument:

        [There is apparently a difference between “vehicle fees” and “vehicle license fees”. Vehicle license fees includes the “flat” portion of car tabs while vehicle fees include the variable portion – Sound Transit’s 0.8% MVET.

        In section 2 of I-976, it’s only the “license fees” that voters could re-establish in the future. “Vehicle fees” themselves aren’t mentioned.

        So what I-976 accomplishes, and is accurately described by the subject is A) MVETs are gone forever and B) flat license fees drop to $30, but could potentially be increased by voters in the future.]

        Is that a sound argument? It’s certainly a very nuanced argument. I doubt that most Washington voters would have been able to articulate the difference between “vehicle fees” and “vehicle license fees”. I consider myself a reasonably smart guy, but I did not understand this level of detail. But to me at least, it sounds like the AG’s argument is reasonable – especially if there’s legal precedent that I-776 was constitutional with respect to the single subject rule.

      2. Also, if we’re counting WA supreme court votes. 5 of the current members of the Supreme Court were involved in the I-776 legislation.

        Justice Wu was the King County Superior Court judge who ruled comprehensively against I-776.

        Justices Fairhurst, Johnson, Madsen, and Owens all voted in favor of I-776.

        Now any of those people could change their mind. But it does seem to bode poorly for I-976 being overturned.

  6. While I hope they are right, I don’t see how lacking an explicit deadline holds up. Are they saying they ditch the bonds in 20 years and still fulfill the requirements because it just they had to, but not when? I read it as requiring them to try to get rid of the bonds ASAP because there’s a statement about other sections taking effect March 31, 2020 if the bonds haven’t been defeased, i.e. it is expected that they do it relatively immediately. Is the statement about no deadline just that separately from whether they are actually required to retire the bonds, there being no hard deadline means they have flexibility to wait on other legislation?

  7. Now I’ve seen the Trump of Washington State. What’s next, slasing sales tax to 5%, damn the consequences? What would Eyman do as governor? Probably pass a law to require a 2/3 legislative vote for any tax increases; he tried to do that before. That would send all our services and well-being in a downward spiral. Try to get a constitutional amendment to preclude any future carbon tax? What else would he do?

  8. “And despite local leaders’ warnings about transit cuts due to the initiative, the filing notes the earliest those would arrive is March.” – AG filing, via Seattle Times.

    Metro can operate on reserves until March to avoid making cuts outside its twice-annual service changes. But there would be a growing hole in its assets, which means if there’s no injunction in December but then the initiative is thrown out in March, the hole would remain, and would come in the form of deferred expansions or slight cuts. That’s an ongoing harm, even if most of the public doesn’t realize it because it’s not dramatic cuts all at once.

  9. Sound Transit should not fight this. I welcome sensible service cuts. Our service levels are overly aggressive- too many empty buses and trains. We can easily absorb a modest ten percent service cuts.

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