Sound Transit's looming money crunch prompts a request in Olympia

By Mike Lindblom | Seattle Times (TNS)

Sound Transit, short on money to reach promised destinations in West Seattle, Ballard and Everett, might eventually borrow billions of dollars that need not be fully repaid until the 22nd century.

The agency doesn't have a specific plan to issue bonds with a 75-year term. But a bill in the Legislature would give Sound Transit this unusual financing tool — an acknowledgment of a looming cash-flow crunch in coming decades.

Simply put, federal grants and the continual flow of sales tax revenues are not keeping pace with soaring construction costs.

Sound Transit has plenty of money for now and remains on track to open two Redmond stations May 10, along with a link between Bellevue and Seattle next winter and its Federal Way extension in spring 2026.

The longer term is a worry.

Despite its $150 billion spending forecast from 2017-46, to build and operate more than a dozen light rail, commuter train and bus lines, the agency hasn't published a new strategy to absorb rising West Seattle costs that stand at $6.7 billion.

Ballard's latest estimate was $11.4 billion two years ago, due for an increase. The Lynnwood- Everett line was projected at $6.2 billion — already $1.6 billion beyond original estimates, and delayed four years until 2041.

When voters passed the Sound Transit 3 plan for more taxes and projects in 2016, even its harshest critics thought the agency would never blow past its unprecedented $54 billion (2019 dollars in new work), 25-year forecast. But that's now likely to occur for several reasons: a tight local labor market, process delays to design and start projects, underestimating obstacles such as real estate prices or geological challenges, and civic leaders' propensity to add costly features like neighborhood tunnels. (After the 2016 election, Sound Transit combined its finance plan to encompass all past and future lines, now forecast at $150 billion.)

Pierce County Executive Ryan Mello, a new transit-board member, said that just-retired Sound Transit CEO Goran Sparrman briefed him about the 75-year bond concept, which Mello said requires careful analysis.

"We need many more tools," Mello said. "We cannot just rely on the tools of reducing ST3 or delaying projects."

A voter-approved line from Federal Way to Tacoma, where Mello lives, is aimed to open in 2035 for $4.4 billion. Mello said he doesn't know yet whether that's still affordable, or whether it might need new financing methods like 75-year bonds.

Senate Bill 5801, to allow 75-year bonds, passed the Senate 39-18 and is now with the House Transportation Committee.

Many public agencies and corporations sell bonds. A bond is a loan from investors, who are repaid after a certain number of years, plus interest in the meantime. Sound Transit, like other public entities, tends to sell 30-year bonds, much like a homeowner taking out a 30-year mortgage.

As with a mortgage, or even your credit card payments, a borrower like Sound Transit could pay less per year by stretching out the term. The downside is the cumulative amount is higher — and in this case, transit-district taxpayers would likely fork over more dollars in total interest.

Sound Transit currently owes $4.8 billion in loan and bond debts, while maintaining an excellent AAA bond rating.

Sound Transit Chair Dave Somers, the Snohomish County executive, is committed to completing the light rail "spine" parallel to I-5 between Everett and Tacoma. He publicly worries Ballard and West Seattle projects, including a second downtown tunnel, would deplete the agency's credit, to finance Everett's share.

New CEO Dow Constantine, the former King County executive, said recently that "everything with Sound Transit 3 is on the table," regarding which lines and stations are built what year.

As for the state legislation, Somers supports "more flexibility with the agency's ability to bond," a Snohomish County spokesperson said. "It doesn't mean Sound Transit will use the longer bonding capacity, but more flexibility is helpful."

State Sen. Marko Liias, D- Edmonds, a co-sponsor, said SB 5801 is modeled on the Biden administration's 2021 federal infrastructure act, which allows transit agencies to borrow from Uncle Sam for 75 years. One rationale is the expectation new transit lines will last many decades.

Up in Liias' area, where the extension to Lynnwood opened last year, the 1 Line from Lynnwood to Seattle and SeaTac serves 100,000 light rail riders on busy days. And neighborhoods north of Lynnwood are growing.

"We're very eager to get light rail to Paine Field and Everett, so if there are any tools that can get it up there on time, or sooner ... Sound Transit's success is my success," Liias said.

A precedent of sorts is the Bonneville Power Administration, which sells Northwest electricity from river dams and a nuclear plant, allowed by Congress to take on 50-year debt.

However, SB 5801 refers to local general obligation bonds, backed by Sound Transit's sales, car-tab and property taxes, so Puget Sound-area taxpayers answer to investors, rather than benefit from lenient terms of federal transportation loans.

Sound Transit is the nation's most prolific borrower of federal transportation loans, $4.2 billion for as little as 1.9% interest; and previously won $3.5 billion in grants for light rail.

The agency faces risks that the Trump administration might limit or freeze federal aid to transit extensions.

Storm clouds are gathering locally, too.

Sound Transit is on course to hit its Washington state debt limit by the mid-2040s — that its debt in any year may not exceed 1.5% of total property value in urban Snohomish, King and Pierce counties. Sound Transit may exceed that cap if 60% of voters approve. (Sound Transit is using one-third of its $15 billion cap space now, but could hit a projected $32 billion limit by 2043.)

The proposal before the Legislature would allow Sound Transit's governing board to approve 75-year bonds without voter approval.

Sen. Curtis King, R- Yakima, ranking Republican on the Senate Transportation Committee, said he was willing to allow 75-year debt because there's still the safeguard of a citizen vote, if officials want to exceed the 1.5% cap on yearly debt.

Meanwhile, Sound Transit Deputy CEO Terri Mestas is studying ways to slash red tape, and build cheaper trackways to potentially save hundreds of millions of dollars.

Mello expects the board will drill harder on affordability questions soon. "It's too early to tell whether it's in the financial interest of Sound Transit," he said about 75-year-bonds. "There needs to be a much more robust financial analysis."

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