History of the Link Light Rail
Initial Segment Full Funding Grant Agreement (FFGA)
The I-776 car license tabs tax cut voted in November
2002 does not apply to Sound Transit because of bonds issued in 1999. This
determination came after four years of litigation, ending in a December 7, 2006
ruling by the State Supreme Court. The decision protects $2 billion in Sound
Transit revenue.
by John Niles
CETA Technical Director
Sound Transit is consuming $500 million in Federal funds to build the 14 mile
Initial Segment of light rail. This money is governed by the terms of a
Full Funding Grant Agreement (FFGA).
The Initial Segment FFGA is not a grant in itself, but rather a
commitment by Sound Transit to build the first phase of the specifically described Link
light rail on schedule and on budget. (Download
this 35 page FFGA document, 2.7 megabyte pdf)
This FFGA is also a commitment by Federal Transit Administration (FTA) to continue
funding Link with a series of annual grants totaling $500 million. This half billion
dollar sum includes $91 million already appropriated by Congress prior to 2001 in
anticipation of the FFGA eventually being executed, as has now finally happened.
Following zero Federal funding in FY 2002 and FY 2003, Sound Transit
received a $75 million appropriation from Congress for FY 2004, and
approximately $80 million each year, FY 2005 to 2007. Continuation of this
funding for the remaining two years, FY 2008-9, is quite secure, as long as Sound Transit maintains
its committed local funding, schedule, and scope of work.
The FFGA for Sound Transit's Central Link Light Rail Initial Segment was
executed by both FTA and Sound Transit on October 24, 2003. Initial
Segment groundbreaking took place on November 8.
However, on October 30, 2003 the Washington State Supreme Court ruled
affirmatively on the constitutionality of the 2002 people's Initiative 776 that might
have
lead to a disruption of the local funding share of the Link Light Rail Initial
Segment construction project. Further background is here.
The FFGA for the Link Initial Segment includes by reference in Attachment 9 a seven page letter from
Sound Transit to FTA with statements and commitments describing how the agency would react
to a speculative "worst case" scenario of I-776 implementation and MVET reduction
to 0.1 percent. An even worse case would have been
the implementation of the intent of I-776, namely, zero MVET for Sound Transit.
A discussion of the arguments for and against zero MVET are presented in an
essay by Tom Heller posted here.
The potential MVET funding interruption was finally turned back on December
7th, 2006, when the Supreme Court ruled that Sound Transit could continue to
collect and spend all of the MVET revenue, because the MVET is part of the
security of some bonds issued by Sound Transit in 1999.
Sound Transit apparently
received some very astute financial counseling. Back in January 1999, with an
expectation that light rail would be under construction by the end of 2000,
Sound Transit issued $350 million in tax-exempt Sales Tax and Motor Vehicle
Excise Tax Bonds, ahead of actual financial need. The bonds are contractual
obligations of Sound Transit payable from and secured by a pledge of Sound Transit’s sales and use tax, motor
vehicle excise tax and rental car tax. Tim Eyman's pending threat to the
MVET via initiative process was already known to municipal bond finance
specialists in 1998 via press reports, and the issuance of these bonds was made,
according to a Sound Transit insider, as a pre-emptive maneuver to secure Sound Transit's MVET against repeal
by tying it to contractual bond payments.
A reverse chronology of significant events in the history of
Seattle light rail as impacted by MVET follows:
December 7, 2006: State Supreme Court rules 8 to 1 on
the I-776 case that Sound Transit can continue to collect the full amount of
authorized MVET tax through 2028. Texts of the
majority opinion and
Judge Sanders' dissent are posted.
August 4, 2006: Sound Transit filed papers with Federal
Transit Administration requesting authority to proceed with final design of the
University Link extension segment of light rail, 3.1 miles from the north end of
Initial Segment at Pine Street to Husky Stadium at the University of Washington.
The total cost is $1.7 billion, of which $750 million would be a second New
Starts grant to be awarded in 2008 if the project achieves U.S. DOT approval.
Full MVET collections are assumed in the project budget, amounting to a forecast
of $298 million in the period 2006-2021.
May 5, 2006: Accounting firm KPMG issues independent audit of
Sound Transit for year ending December 31, 2005. The audit notes the I-776
case as follows on page 35 as a note to financial statements: "Pierce County,
City of Tacoma, King County, Sound Transit, et al v. State of Washington, King
County Superior Court. The defendant/interveners contend that Sound Transit
is not a validly-formed government and is not entitled to impose the 0.3% motor
vehicle excise tax authorized and imposed pursuant to RCW 81.104.160 and that
Initiative 776 (I-776) repealed Sound Transit’s ability to collect the tax.
These claims were dismissed last year and are now pending appeal. In the event
the defendant/interveners are unsuccessful and Sound Transit is legally entitled
to continue to collect the tax through 2028 (because the Agency pledged to
collect the tax to repay outstanding 30-year bond debt sold before I-776 was
enacted), then the defendant/interveners alternatively seek a court order
defining what limits apply to Sound Transit’s ability to collect or use the tax.
In the appeal, the Washington attorney general supported Sound Transit’s
position that it is a validly-formed government and that the tax must continue
to be collected. But the attorney general asked that the Washington Supreme
Court limit the tax revenue to bond repayment. The Supreme Court is expected to
rule on the issues in the fall or winter of 2006."
January 24, 2006: After agreeing to direct review, the
Supreme Court listened to oral arguments in the I-776 case, with a streaming
video recording of the one hour
proceeding available on the web from TVW.
March 2, 2005: In an interview transcript in
The Olympian, Attorney General Rob McKenna had this to say about the
I-776 case: "I am urging the state supreme court to accept on direct
review an appeal of the King County Superior Court's decision that allows Sound
Transit to continue collecting the Motor Vehicle Excise Tax not just for bond
retirement, but for new bonds. Sound Transit should not be allowed to spend MVET
revenue until those bonds are retired. Once those are paid off, they are not
allowed to continue collecting that tax."
March 2, 2005: Sound Transit Board votes its second bond
issuance, $423 million backed only by the sales tax and car-rental tax, not the challenged MVET.
Jane Hadley's story in the Post Intelligencer reports:
Both bond-rating agencies took note of the legal
uncertainty surrounding the excise tax, and Moody's said it was a negative
factor in rating the bonds, saying the tax adds "diversity and stability to
the Authority's financial margins." If the state Supreme Court upholds the
collection of the tax, Sound Transit's credit rating could go even higher,
Moody's suggested.
February 22, 2005: Acting on behalf of clients, attorneys Bob
Rowley and Jim Klauser file with the State Supreme Court a
statement of the grounds for a
direct, accelerated review of the decision by Judge Yu that I-776 does not
apply to Sound Transit because of the $350 million in bonds sold in 1999.
February 3, 2005: The Washington State Supreme Court ruled
that the next phase of the I-776 appeal would go forward as a matter of right.
Over the next few months, various papers will be filed by all sides to this
case, including Sound Transit and the Washington State Attorney General.
January 11, 2005 Sound Transit financial staff issues a
draft document partially titled " A
RESOLUTION OF THE BOARD OF DIRECTORS OF THE CENTRAL PUGET SOUND REGIONAL TRANSIT
AUTHORITY AUTHORIZING THE ISSUANCE OF SALES TAX BONDS OF THE AUTHORITY IN THE
PRINCIPAL AMOUNT OF NOT TO EXCEED $500,000,000 TO FINANCE A PORTION OF THE
AUTHORITY'S REGIONAL TRANSIT SYSTEM PLAN." The document indicates that
Sound Transit's next bond issuance will be backed by the sales tax only, not the
MVET. As long as the I-776 case remains open, the MVET is restricted from being
used as collateral for the sale of bonds to finance light rail construction.
December 21, 2004: Judge Yu issued a brief order
denying the reconsideration and clarification. This ruling began a
countdown for appealing to the Supreme Court by January 21, 2005.
November 15, 2004: Lawyers defending I-776 file
for reconsideration and clarification of Judge Yu's November 5th decision (filing
in pdf).
November 5, 2004: King County Superior Court Judge Mary Yu
rules that Sound Transit can continue to collect and spend its MVET revenues
until bonds issued in 1999 are paid off, now scheduled for year 2028. In
the meantime, there are no restrictions on how Sound Transit spends the $40
million annual MVET revenue that does not go to paying off the existing bonds.
The decision from Judge Yu is posted at
http://www.metrokc.gov/kcsc/docs/crossi776.pdf .
June 24, 2004: Sound Transit releases the
independent 2003 financial audit by KPMG (short
pdf excerpt) in which the auditor offers an opinion on pending legal cases
that could impact Sound Transit's financial position. On whether the I-776
case will impact Sound Transit's MVET revenue, the auditors published this
judgment as of April 2004: "We are not able to make a judgment at this time
about the outcome of this matter."
March 29, 2004: The I-776 case is remanded by
the Supreme Court back to King County Superior Court for resolution of the
impact of this law on Sound Transit's 0.3% motor vehicle excise tax (MVET),
which I-776 states should be set to zero.
March 23, 2004: Attorneys Robert Rowley and
James Klauser, representing interveners in the State of Washington's defense of
I-776, declare in a court
filing (pdf) directed to the State Attorney General their determination to
eliminate Sound Transit's MVET in the ongoing legal case:
"We hereby inform you of our intent to defend I-776 and to preserve the
MVET being collected for eventual refund."
March 4, 2004: In the Sane
Transit vs. Sound Transit case, the Supreme Court rules that the Initial Segment
is being built according to a budget and schedule that are legal given the
flexibility provided to Sound Transit by voters in 1996.
February 24, 2004: Sound Transit executes a $128
million contract to begin construction of the Central Link light rail segment
serving the Rainier Valley.
January 16, 2004: Washington State
Representatives Anderson, Ericksen, and Roach introduce House Bill 2610, which
if passed into law would order Sound Transit to retire outstanding bonds and to
eliminate collection of MVET taxes repealed by Initiative 776 as soon as
possible. Bill did not advance to a vote.
January 15, 2004: The Sound Transit Citizen
Oversight Panel in its 2003 end of year report expressed concern over the
financial implications of the Supreme Court's October 30, 2003 decision on I-776
as follows: "The Washington State Supreme
Court decision on Initiative 776 left uncertainty about Sound Transit’s revenues
and further legal questions in its wake. COP members are concerned that Sound
Transit might yet lose its motor vehicle excise tax revenues and be forced to
use current revenues to repay outstanding bonds, leaving insufficient funds for
promised programs. We look forward to seeing the completed and updated 2004
Financial Plan soon, along with the effects of possible I-776-related legal
scenarios."
November 20, 2003: Sound Transit attorney
Desmond Brown transmits a letter to FTA Region 10 with "disclosures" about the
litigation faced by Sound Transit as of this date.
Letter in PDF along with the page from
the FFGA which the disclosure references.
November 13, 2003: Sound Transit Citizen
Oversight Panel writes to the ST Board Chairman on I-776 implementation: "[W]hile
the Supreme Court did not rule whether or at which level Sound Transit may
continue to collect the MVET, and referred that decision back to the lower
court, Sound Transit's reputation and trust with the public may be at stake.
We encourage you to keep public confidence in mind as you determine your course
of action on this matter in the coming weeks and months."
Full letter in PDF.
November 8, 2003: Sound Transit officially begins construction of
Central Link Initial Segment. All work up to October 30 was called
"pre-construction." Coverage by the Seattle Times on November
8 and November
9.
November 5, 2003: Former Supreme Court Justice Phil Talmadge, now a
candidate for Washington State Governor, chides Sound Transit for continuing to collect
and spend MVET taxes despite the I-776 ruling of constitutionality. Story from the
Seattle Post-Intelligencer (external link). Talmadge opposed I-776 being enacted by
Washington voters, but now it is state law.
October 30, 2003: Sound Transit attorney Desmond
Brown affirms to the Federal Government in the FFGA document that there is no
pending or imminent litigation that might adversely affect the full
implementation of the Link project. Page from the
FFGA document (PDF), along with a disclosure dated November 20 seemingly
contradicting the affirmation.
October 30, 2003: State Supreme Court rules 6 to 3 to uphold the
legality of I-776 Initiative that when implemented potentially reduces or
eliminates Sound Transit's MVET revenue in support of Link Light Rail and other projects.
(External
link to the Supreme Court opinion.) The author of the initiative, Tim Eyman,
intended for all of Sound Transit's MVET revenue to be eliminated. However, the $350
million in Sound Transit bonds issued in 1999 are said by some authorities to necessitate
continued collection of some of the MVET taxes.
Others say the existing Sound Transit bonds can be paid on schedule
with the other Sound Transit taxes, and all of this agency's MVET can be eliminated.
For example, shortly after I-776 was approved by voters, Tom Heller and John Niles
described how Sound Transit could stop collecting MVET completely while protecting those
investors who purchased bonds issued prior to I-776. Link here
to the November 21, 2002 op-ed by Heller and Niles that remains pertinent to the challenge
that Sound Transit presents.
Sound Transit reads the Supreme Court ruling and the law to mean
that all of the MVET revenue it now collects can continue to be collected, and
furthermore, additional bonds can be sold and covered by this MVET revenue. The resolution
of how much of Sound Transit's MVET revenues will be cut by I-776 implementation is now a
future decision for the courts, described above.
Statement from Coalition for Effective Transportation (CETA)
Co-Chair Maggie Fimia: "Sound Transit now faces the loss
of about $700 million of its funding. The Sound Transit Board passed a Resolution last
week stating that it will still have the funds to build light rail without breaking
sub-area equity (not taking from other sub-areas). CETA technical advisors are still
trying to determine how that is possible when major bonding is still assumed to complete
the light rail, but a significant revenue stream is reduced to pay off bonds."
Statement from Sound Transit Executive Director Joni Earl: "The legal precedents cited in the court's decision make it clear
that Sound Transit can and must uphold its contractual commitment to bondholders and
continue to collect MVET revenues to pay off the bonds issued for the construction and
operation of Sound Transit projects."
October 24-26, 2003: While Sound Transit celebrates FTA
"approval" of Central Link Light Rail prior to a pair of crucial judicial
rulings on this project by the State Supreme Court, newspapers statewide quote CETA
Co-Chairwoman Maggie Fimia's reasons why FTA should not authorize groundbreaking on the
Link Light Rail Initial Segment: "It costs too much, it does too little, it down
grades express-bus systems. It draws construction resources from worthier projects. It
breaks faith with taxpayers. It's dangerous." All of these concerns are
documented at the CETA Web Site, www.effectivetransportation.org,
and in this site as well.
Sound Transit reports in the FAQ, "We are still awaiting the ruling of the Supreme Court on I-776. The fact that
Chairman Istook is no longer looking at a favorable court ruling as a condition of
approving the FFGA supports our belief that I-776 would not effect our ability to collect
revenues. We continue to follow the direction of the state Attorney General's Office,
which has indicated in writing that that any funding limits imposed by I-776 would not
apply to Sound Transit's ability to pay for transit improvements because MVET funds were
pledged to repay bonds issued in 1999."
Available documents (pdf) issued by the State Attorney General's office and
distributed by Sound Transit bear on this question of whether the 1999 bond
obligations legally require MVET to continue to be paid by taxpayers. What Sound
Transit writes in the FAQ about the Attorney General's position is not supported
in the documents. In fact, there is an open legal case, still being litigated as
of early 2005.
Sound Transit affirms in the Resolution: "The Board hereby confirms its agreement to abide by the statements
and commitments set forth in the October 2, 2003, letter, attached hereto as Exhibit A,
relating to the potential loss motor-vehicle excise tax revenue, including the commitment
to adhere to the subarea equity protections and procedures established in the Sound Move
transit plan to address funding shortfalls. The financial plan upon which the financial
data in the letter is based will be updated annually to incorporate new or changed
financial information based on economic forecasts and agency financial policies. "
From Niles' testimony: "We note the irony in Sound Transit insisting that the $500 million Federal grant
is required to build the Link Initial Segment, while at the same time a $703 million
voter-approved reduction in funding from I-776 would not be a problem....We found,
surprisingly, that the stated contingency plan for I-776 incorporates subarea equity
violations."
October 2, 2003: Sound Transit
sends a detailed letter to FTA with their response to the questions of Representative Istook (pdf external link).
This letter is later incorporated by reference into the FFGA.
September 11, 2003: FTA announces that the FFGA for Link
Light Rail is on an indefinite hold until Rep. Istook's concerns are satisfied. (Seattle Times story, external link) Note: hold removed
on October 24, see above.
September 10, 2003: Rep. Ernest Istook writes a new letter
to FTA formally disapproving the Central Link Initial Segment FFGA. (PDF copy of letter) Note: approval of FFGA
is
granted, with conditions, on October 23, see above.
July 28, 2003: Congressional
Subcommittee Chairman Ernest Istook writes another letter to FTA's Jenna Dorn asking for
more specificity in Sound Transit contingency plans for the implementation of Initiative
776. (PDF copy of letter).
July 20, 2003: Sound Transit Board passes Resolution 2003-15
providing assurances to FTA about subarea equity (PDF
copy of resolution).
July 15, 2003: Congressional Subcommittee Chairman Ernest
Istook writes a letter back to FTA's Jenna Dorn that Congressional directives have not
been followed, and the Central Link FFGA is not yet ready to be reviewed by Congress (PDF copy of Letter).
July 11, 2003: FTA announces intent to execute an FFGA for
Central Link Initial Segment in 60 days (Sound
Transit Press Release, external link).
November 5, 2002: Washington State voters
approve Initiative 776, aimed at eliminating Sound Transit's MVET tax. Sound
Transit fights back with lawsuits, and continues to collect the tax pending
eventual resolution in the courts.
April 16, 2002: Peer Review
panel recommends that the renovation of the Downtown Seattle Transit Tunnel (DSTT,
or Bus Tunnel) to install train track be carried out well before 2007, as soon
as street improvements are installed to handle the buses that will be displaced
(Peer Review Observations document from
Sound Transit, PDF). This document is stamped "confidential" and not
revealed until February 2004 when a schedule change implementing this
recommendation is made by Sound Transit.
February and March, 2002:
Sound Transit conducts an Environmental Assessment for the Initial Segment, an
update to the full Environmental Impact Statement issued in 1999.
Some materials from this EA are here.
November 29, 2001: Sound Transit Board gives final approval
to a new light rail starter segment: Seattle
Times story.
October 15: FTA Region
10 writes to Sound Transit on Environmental Assessment requirements that come before
the starter segment is qualified for Federal funding.
September 27: Sound Transit Board votes to move forward on
the new starter segment, despite protests by critics
like Emory Bundy. Now called the Initial Segment, it
would run 14 miles from the north end of the Downtown Seattle Transit Tunnel to
a point two miles (by shuttle bus) north of Sea-Tac Airport. This vote and
the one on November 29
signaled a new push by Sound Transit to re-establish Federal grant funding for Central
Link light rail, which was achieved about two years later, on October 24, 2003.
June 28, 2001: Sound Transit Board directs the agency staff to
study new alignments for the starter segment of Link Light Rail: Seattle
Times story.
April 13: Link Light Rail Project no longer possible as
described in the second version of the FFGA: Seattle
Times story
April 5, 2001: Secretary of Transportation Mineta puts a hold on
Link's federal funding: Press Release
from USDOT
April 4: Inspector General issues interim report criticizing
Link Light Rail federal funding justification: OIG report page (click on April 4, 2001
Interim Report)
March 29: House Transportation Appropriations Subcommittee
Chairman Hal Rogers Criticizes FTA for signing the Link FFGA: Associated
Press
March 10: Seattle Light Rail characterized in DC as a
problem project: Seattle Times
February 10: Office of Inspector General is provided with full
day of testimony by critics: Seattle
Times
January 18: Congressman Hal Rogers of Kentucky and Washington State
Representative Jennifer Dunn issue calls for independent examination of Link Light Rail: Seattle Times
January 11: Sound Transit Board approves signing of a
revised $500 million Full Funding Grant Agreement: Seattle
Post-Intelligencer
January 7, 2001: Seattle Times editorial, "Stop now, Sound Transit isn't
ready"
Year 2000: Cost of Link Light Rail rises above
the voter-approved budget by more than one billion dollars.
Later in November 1999: Sound Transit's Board
unanimously approved the route and station locations for the Central Link light
rail system to serve Seattle, Tukwila, and SeaTac. In addition to selecting the
21-mile route from NE 45th Street in Seattle’s University District to South
200th Street south of Sea-Tac Airport, the board committed to pursuing federal
and state funding to continue the line an additional three miles north to
Northgate.
November 2, 1999: Washington state voters
approve I-695, repealing the state’s motor vehicle excise tax based on the value
of the vehicle and replacing it with a flat $30 annual fee. Sound Transit’s
voter-approved local MVET is not directly affected.
January 6, 1999: With an expectation
that light rail would be under construction by the end of 2000, Sound Transit
issued $350 million in tax-exempt Sales Tax and Motor Vehicle Excise Tax Bonds.
The average life of these bonds is 22.5 years with an average coupon rate of
4.88%. The bonds are special limited obligations of Sound Transit payable from
and secured solely by a pledge of Sound Transit’s sales and use tax, motor
vehicle excise tax and rental car tax. Tim Eyman's pending threat to the
MVET via initiative process was already known to municipal bond finance
specialists via press reports, and the issuance of these bonds may have been
designed as a pre-emptive attempt to secure Sound Transit's MVET against repeal
by tying it to contractual bond payments.
Additional detail:
The original light rail starter line approved in 1999, known as
University Link, was defined as a 7.2 mile twin track railroad mostly
underground between Lander Street south of downtown Seattle, and the University
District. The construction included a deep tunnel 4.5 miles long from downtown
Seattle to a point just north of the University of Washington. The estimated
cost of this project certified in September, 2000 by the FTA was to be $1.674
billion with operations to begin in 2007 or 2006. The revised budget estimate
announced December 12, 2000 was $2.240 billion with operations to begin in 2009.
Sound Transit had recanted in November 2000 on the original FFGA agreement
that FTA had approved September 2000 and submitted to Congress as ready to be signed.
The project budget and schedule were hastily expanded in late 2000, and the revised
version was approved by USDOT on the last day of the Clinton Administration.
However, as indicated in the chronology above, Congressman Hal Rogers of Kentucky stepped in to block the FFGA and requested an
Inspector General audit. The result of that audit was a "hold" on Sound
Transit's FFGA until the project could be replanned and rejustified, a process begun by
Sound Transit staff in spring 2001 and affirmed by the Autumn 2001 votes for a
considerably different project than before.
Following an additional audit by the Inspector General, FTA declared
the new Initial Segment project ready for an FFGA as of July 11, 2003, but House
Transportation Appropriations Subcommittee Chairman Ernest Istook wrote to FTA on July 15,
2003 that it wasn't ready because the Inspector General recommendations had not been
implemented yet. On October 23, Mr. Istook reported his concerns could be addressed
by changes and addition to the FFGA text that reflected Sound Transit's assurances
contained in a letter from Sound Transit to FTA on October 2, 2003. This has now
happened.
Link Light Rail was not included in President Bush's FY 2002 and FY 2003 budgets. He
included $75 million in his FY 2004, budget, but this amount was zeroed out by the House
Transportation Appropriations Subcommittee on July 11, 2003. Later, this
Subcommittee set a $15 million level, while the Senate Appropriation Subcommittee proposed
$75 million. The final number resolved in Conference came out at $75 million.
Even with the FFGA in place, the remaining Federal grant funds for Link Light Rail need
to go through an annual appropriations process in the Congress. Failure of Sound Transit
to keep the Link Light Rail construction on budget and on schedule would be an issue in
these appropriations from the point of view of both FTA and Congress.
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Last modified:
October 21, 2008