The Overheated MVET Debate
If reduced MVET revenues impact project delivery, suburban parking projects are first in line to be delayed
Last night, the Washington House of Representatives approved HB 2201. The bill effectively resets the valuation schedule for the 0.8% ST3 portion of the MVET to the lower of the 1999 and 2006 schedules. The outcome is lower taxes for owners of cars less than 10 years old, and a refund for those who have already paid their 2017 car tabs.
Reversing voter-approved taxes, barely five months after the ballot, isn't a great look. But it is within the Legislature's authority (second-guessing of initiatives is not new). Democrats have responded to sincere voter anger. The MVET increase was greater than many expected even if voters who carefully read the ballot ought to have understood. Owners of newer cars are taxed against a scheduled valuation higher than their vehicle resale values. Even though Sound Transit has used the same schedule for twenty years, and never presented it otherwise, it just seems unfair.
If HB 2201 becomes law, Democrats expect it to correct the anomalous MVET valuations while delivering ST3 projects on schedule.
The bill creates a credit for taxpayers offsetting the difference in valuation schedules. Crafted this way, HB 2201 doesn't interfere with Sound Transit's bond program and doesn't require defeasement of Sound Move bonds. It means the 0.3% Sound Move MVET, pledged against bond repayments on the now obsolete 1999 schedule, is not prematurely repealed and can remain in place until the bonds are paid off in 2028. Unlike some Republican proposals to simply switch schedules across the board, HB 2201's credit does not increase taxes for owners of older cars.
The vote was 64-33, with all Democrats in favor. Republican reaction was mixed. Some are willing to accept any tax reduction; others decried that the bill didn't meet their more ambitious goals. The bill moves to the Senate today where Republicans may make a play for larger tax cuts.
The revenue impact is modest. $780 million in revenues is 1.4% of the $54 billion program over 25 years, albeit front-loaded so the real impact is higher than the year-of-expenditure (YOE) calculation. The credits only run through 2028, after which the Sound Move 0.3% MVET expires and the ST3 MVET switches to the 'lower' valuation schedule.
The revenue reduction, if offset by bonding, would add interest costs. Advocates suggest a total impact of $2.3 billion. That implies interest expense of $1.52 billion. That's equivalent to 30 year bonds with a conservatively high 6.5% interest rate. If issued over the same time frame as the missing MVET revenue, the last payment would be in 2058.
The MVET costs were appropriately disclosed, and not difficult to calculate. Several calculators were available, one of them provided by the No campaign. Very clearly, however, the costs were not thoroughly understood by voters. How else to understand the breadth of voter anger?
A schedule with values higher than car resale prices has been difficult to defend. Using the same schedule for the Sound Move and ST3 MVETs is simple and apparently transparent. But many intuited that the tax would be levied against the actual value of the car. The 1999 MVET schedule wasn't designed or billed as an accurate measure of resale prices, particularly not in 1999 when cars depreciated more quickly than today. It seems unfair, even if claims Sound Transit intended to deceive are overwrought.
It creates a volatile political environment for legislators. Anti-transit Republicans have happily run with the issue, pushing aggressive bills that would dramatically impair the delivery of voter-approved projects. The issue appeared likely to play well for Republicans in this November's 45th District special election.
The bill is crafted to not over-stress Sound Transit's promised timeline. The ST3 financial plan is sensibly conservative and unlikely to be derailed by the revenue reduction. There are unavoidable uncertainties in any 25-year plan and some projects could be delayed if the financial plan turns out to be stretched thin. Proposed reductions in federal support for transit elevate those risks, though we don't yet know if Congress will follow through on the Trump administration's recommendations.
If projects are delayed, the bill appropriately cuts parking first, putting the impact back on (some of) the drivers who benefit from reduced taxes.
One Republican legislator observed during last night's debate that there are 48 members of the House representing parts of the RTA, and only 20 of these represent areas that supported the measure. Suburban support for ST3 is thin, and has only gotten thinner since car tab bills have begun arriving in the mail. (This, despite the very suburban nature of the regional rail plan).
It's prudent to be nervous about this process. The Senate may pass a bill that is worse, though it would then have to be reconciled with the House version. It is, in any case, unlikely to end the debate. But HB 2201 is a sensible and measured response to voter concerns about unexpectedly high taxes. A failure to compromise is dangerous to voter support of transit projects.