Sound Transit is prospecting for ways to borrow billions more dollars, as it battles an enormous budget shortfall and looks for ways for light rail to reach the promised destinations of West Seattle, Tacoma, Everett, Ballard and Issaquah.
From 2037 to 2045, Sound Transit expects to carry $25 billion to $30 billion debt, as money goes to pay contractors across Snohomish, King and Pierce counties, during the most feverish part of expanding the regional network.
That takes cash flow.
Spending that much dough with a credit card, so to speak, may sound risky. But financial advisers encourage the transit board to loosen its belt, yet borrow in a calculated manner that keeps Sound Transit's pristine AAA credit rating intact.
The board is scheduled to approve new financial policies Nov. 19, that finance consultants figure might support $500 million to $3.5 billion in projects.
The search to solve Sound Transit's money crunch follows what Chair Dave Somers and CEO Dow Constantine have said all year: Their Enterprise Initiative" to close a $35 billion gap —and reach Ballard, for instance, by 2042 instead of 2060 — isn't only about cuts and delays, but a holistic effort to manage money, design leaner stations, and control operating costs.
"We have trade-offs," Chief Financial Officer Hughey Newsome said last month in committee. "We need to maximize our financing capacity, but at the same time be responsible in how much debt we issue."
Here's an early look at four ideas:
Legislation to allow 75-year borrowing, a favorite idea with Constantine and transit advocate groups, will be considered again in Olympia next year.
Bond investors are normally repaid within 25 to 30 years. But if the Legislature lifts its 40-year bond-term limit, Sound Transit would sell some bonds lasting longer, in sync with 75-year, low-interest federal infrastructure loans devised by the Biden administration. Total finance costs would be higher, but also stretched out longer, and are therefore lower per year.
Heavier borrowing foists debt onto future generations, but politicians on the 18-member board and citizen commenters seem willing to do it, so people in this generation can enjoy better transit during their own lifetimes.
Sound Transit already took out $4 billion in cheap, 1.9% interest federal loans that helped fund Bellevue, Lynnwood and Federal Way lines this decade.
Ideally, the agency will refinance higher-interest debt, "very similar to paying off your credit cards before you pay your mortgage, said Richard Schober of Piper Sandler, a financial consultant to Sound Transit.
Selling bonds that are repaid by fare income is a new concept suggested this month by Schober.
For now, it's pure conjecture, as fare evasion hovers near 35%, and fares generated only $75 million last year or 2.3% of the whole $3.4 billion budget.
But if Sound Transit follows through on adding fare gates by 2030, that would increase the yearly pot to $130 million or more.
Bonds repaid by fares wouldn't count against the Legislature's statutory limit of how much money Sound Transit can borrow backed by local taxes, Schober explained.
Adapt to borrowing limits, or raise them. When creating the transit authority in the 1990s, the Legislature capped its bonding at 1.5% of total property value within the three-county taxing district, even if Sound Transit could find brokers and investors willing to go higher. In theory, a cap is designed to keep light rail bonds from crowding out the public's ability to pay for a multitude of other needs within Washington state.
The cap amounts to $26.4 billion, unless a supermajority of voters someday approves more.
Transit supporters sometimes chafe at being restrained. But for now, the agency has not officially asked lawmakers to dissolve the debt ceiling, in a statement of legislative priorities the board votes on Nov. 19.
In the meantime, Schober portrayed fare-backed bonds as one way to add resources, outside of the state cap.
Ease some internal cash flow policies. They're historically conservative, a legacy of the 1990s when light rail faced fiercer opposition and voters worried more about taxes and spending.
The board's policies require the yearly budgets to have twice as many dollars (after operating costs) as debt on average, and 1.5 times during the leanest year. Sound Transit is considering dropping this ratio to 1.35 in the leanest year, which advisers said wouldn't hurt its credit.
All of these finance dreams rely upon engineering and construction to likewise succeed, so new lines can be mostly paid off by the 2040s, and cash flow gets richer again after that.
A worst-case scenario would happen if tax and fare revenue crater in a recession, or the early-2020s project hyperinflation returns. Bond debts would have first claim on Sound Transit's tax dollars, creating pressure to spend less on first-class operations, replacing old railcars, or keeping tracks in good shape.
For now, residents and businesses pay $2.4 billion a year in sales, property and car-tab taxes, or $700 per capita.
There's plenty of money now to run the current 58 miles of light rail and no proposal to raise taxes. In fact, car-tab taxes will decrease somewhat, by $30 per $10,000 of vehicle value, after an old set of bonds gets paid off in 2028.
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