Sound Transit faces $8-12 billion revenue shortfall

Most savings will require extending the construction window over several more years than originally planned (slide: Sound Transit)

Over the lifetime of the ST3 program, Sound Transit now expects a revenue shortfall on the order of $8-12 billion. Without adjusting expenditures, the agency will run out of available debt capacity by 2028. On Wednesday afternoon, a Board workshop learned more about the depth of the financial crisis and began to review options for responding. On average, according to one board member, the financial outlook suggests a five-year delay to projects not already in construction.

Generally, staff are suggesting extended project timelines. (They were careful not to couch this as a recommendation). In this scenario, environmental and preliminary engineering (E/PE) work might begin on the original schedule, but detailed design and construction work would follow over a longer window than currently projected. E/PE work is relatively inexpensive, typically about 10% of project costs. Getting it done on schedule preserves flexibility in case new revenue or grant options present themselves.

A number of board members raised the possibility of asking voters to raise the debt limit. Similar to municipalities, Sound Transit can borrow up to 1.5% of the assessed value of properties within the RTA. That could be raised to 5% of assessed value with the approval of 60% of voters. There was interest too among some board members in raising taxes or changing the mix of taxes supporting the agency. For now it would be unsafe to rely on that. Any such ballot measure is further in the future than Sound Transit should wait before acting.

Illustrative example of how a 10-year project could be stretched over 15 years to conserve construction dollars (slide: Sound Transit, click to enlarge).

The sales tax funds 53% of the 25-year program, with fares contributing another 7%. The outlook for fare revenue is highly uncertain as it's difficult to predict when riders will return to transit or if there may be a permanent shift in travel preferences. Property and MVET revenues are more stable than sales taxes, even though MVET payments have recently lagged with fewer new car sales. Relative to the last pre-recession projection, sales tax revenues may come up 14-23% short all the way through 2041. The experience of the last recession is that the economy's growth trajectory ratchets downward and only returns very gradually to trend. Sales tax revenues would lag permanently below previous financial plans.

Fares could be increased. Sound Transit has been operating below its fare recovery targets. There is some small under-used rental car tax capacity. Costs could be lowered through reduced operations. Reducing the cost of debt would stretch revenues further. That might mean more TIFIA loans, where Sound Transit recently closed a $2 billion master agreement. But Sound Transit is already the largest beneficiary of the TIFIA program, and access to future loans may be hampered if unable to maintain excellent credit.

With reduced revenues (a lower red line), debt funds an outsized share of program expenditures until 2028 after which many currently planned expenditures are no longer affordable (slide: Sound Transit)

The heavy lifting must come through reductions or delays in the capital program. Projects will be scored against ST3 core principles (completing the spine, connecting designated regional centers, ridership potential, socio-economic equity, logical advances beyond the spine) and a long list of other project considerations. As this writer complained on Saturday, any outcome can be justified with some weighting of evaluation criteria.

There was gentle jousting among Board members at the end of the workshop whether they would see their projects scored against various criteria before deciding which criteria to advance for the realignment process. Staff reminded the board how projects must be affordable at both the system level and the subarea level.

The next step is an executive committee meeting next week (postponed from today) and a Board meeting on June 25 where criteria decisions are to be made. Direction on projects paused pending realignment will emerge over the summer.