Working Paper on Link Light Rail Finances by Jim MacIsaac, P.E. January 20, 2003

Working Paper on Link Light Rail Finances

by Jim MacIsaac, P.E.

January 20, 2003

Two important questions discussed and debated among supporters and critics of Central Link Light Rail demand an answer:

This is my response using the latest "Scenario: 2003 Baseline v4" Excel Workbook data obtained from Sound Transit after the 2003 Budget was approved by the Sound Transit (ST) board. This workbook has about 60 inter-linked spreadsheets, and it is the detailed technical background for ANY financial numbers or statements that ST or its Board members can make.

The first table presented here is Sound Transit's grand summary tab named "Board Report".

I offer this in supplement to the above two questions, since it is the all-important summary of all programs in all five subareas. I offer this also as a heads-up that Sound Transit appears to be breaking two or three more promises:

The second table presented next is a direct replication of the "Central Link Report - Subarea" tab from the Excel Workbook.

The third table shows that table with some reordering of the "Uses of Funds" lines.

All income and expense for North is dedicated to the Link program only plus Regional Fund Contributions. As with KC Metro Transit, any Seattle-oriented transit line beginning outside of Seattle is considered of NO benefit to Seattle. South King is obligated to all three ST transit mode programs, including all of the costs of Sounder in King County south of downtown Seattle. The portions of each South account are separated out of the far right column into the second column; and the first and second columns are summed to show totals for the Link program only.

Now, for the many costs of Link IS. The first number shown by ST is $2.2 billion. Included in this number is about $70m in "Non-IS" costs -- costs associated with design, ROW and construction of other Link segments north and south of the Initial Segment. Much of these Non-IS costs are already sunk costs. Perhaps by deducting the Non-IS costs is how ST rounds the cost of Link IS down to $2.1 billion.

But in addition there are a number of other costs that must be incurred in the Link project development. When these are added to the basic cost, the total cost increases to $2.5 billion (see first subtotal). But this is not where the fed let's us stop counting. Program costs must also include the costs of debt service up to the year of project completion and full operation. That brings us up to the $2.9 billion total cost of the Link IS program through 2009.

Keep in mind that $410 million of Central Link costs have already been spent thru 2002. By the end of 2003 another $250 million is planned to be spent. However, the 2003 Link expense is optimistic by Sound Transit since FFGA processing will use up most of this construction year.

Near the bottom of the third table, note "Possible Program Adjustments". Shown also is "Ending Unrestricted Cash" as of the end of 2009, which is negligible. This is cash available to either cover further Link IS cost increases, cover completion of delayed stations, or use for Link extensions. The boxed summaries at the bottom of the table assume these amounts are available for Link extensions.

The upper boxed dataset adds to these $$ the amount of additional bond capacity available for extensions as of the end of 2009. But actually both the North and South subareas will be considerably "overdrawn" in bonding, assuming the Sound Move policy of a 1.3 safety margin is maintained. So, at the end of 2009 ST will have only $198 million available to apply to Link IS extensions.

Sound Transit finds that delaying the program buys time to accumulate more tax money. However, with all programs operational and the huge debt service obligated for the $1.7 billion in combined North and South subarea bonds, there will be little net revenue after obligatory expenses. For example, in 2010 North will take in $127m in revenues and spend $117m in O&M and debt service. Debt service alone will be $68m and rising. South is estimated to take in $81m in revenues and expend $81m -- net zero in cash increase available for Link extensions.

The bottom data box shows what could be available for Link IS extensions by 2016. By 2016 the ST forecasts show only $598m available for North-ward extension, and $191m available for South-ward extension.

Extension of Link IS from S.154th to the Airport terminal is about 1.5 miles (vicinity of S.175th Street). Extension to S.200th Street is about 2.9 miles. All of the southward extensions will be on elevated structures. Given ST's current estimates for structured guideways, these extensions are expected to cost somewhere in the order of $250m per mile plus the added cost of several more years of delay beyond 2009. So, extension from S.154th to the Airport terminal is estimated in the order of $400 million; from S.154th to S.200th in the order of $800 million.

The costs of northward extensions will be much greater. In early 2001 Sound Transit proposed MOS-1 from S.Lander Street to the U-District (7.6 miles) with a cost estimate of $2.6 billion. MOS-1 included the DSTT plus free use of the Metro Busway south to Lander -- 3.1 miles of virtually free ROW and the rail maintenance base. Let us generously assume that the cost of converting the DSTT and Busway to rail use would cost $100m per mile, and that the maintenance base would cost $200m. That leaves $2.1 billion as the cost of extending Link from CPS to the U-District (4.5 miles at $467m per mile). Add costs of further years of delay beyond 2009, and the cost estimate for Link extension from CPS to the U-District is in the order of $2.5 billion.

But neither Seattle nor its Downtown Business Association will accept a northern terminus short of Northgate -- a northern terminus that Sound Transit has always acknowledged as its goal. This requires another 3.2-mile extension beyond the U-District. It will be a combination of tunnel and elevated structures. Given 2016 or beyond for earliest completion, this segment from the U-District to Northgate is estimated to cost in the order of and additional $1 billion.

ST Board Chairman Sims says we will complete Central Link Phase I from S.200th Street to the U-District without increasing the Sound Transit Phase I tax levies. He has not yet released his financing plan, but it will certainly be creative.

MacIsaac says that to accommodate the northward extensions, Sound Transit will need to: Double the tax levies for the North subarea starting in 2007, obtain another $100 million per year in federal grant assistance from 2009 thru 2016 for North extensions alone, and increase North bond obligations from $1.1 billion for Link IS to about $3 billion.

To extend from S.154th to the Airport terminal could possibly be done with creative financing: Get more federal assistance, get state assistance, get Port of Seattle assistance. Current revenue estimates indicate that ST could finance about half of that 1.5-mile extension need by 2016 with existing Phase I revenue estimates for the South subarea.

However, the South Link extensions would be easy if taxes are increased to achieve any reasonable North extension. The North extension will require a major tax increase. And any tax increase must extend to all five subareas. Snohomish, Pierce and East King are all expected to complete their Phase I programs with existing Phase I tax levies by 2009. After 2009 they will all be accumulating excess revenues to fund any "Phase II" program needs. In fact by 2020 the East subarea would have accumulated over $1.5 billion to finance any post-Phase I program desires -- such as BRT in the I-405 Corridor. So why would those subareas be interested in approving any further Sound Transit tax increases?

And one final note. The Sound Transit revenue forecasts predict no further economic recessions for its three-county tax region through the year 2025. But history shows economic slowdowns occur on a 10-year cycle for this region. By 2010 we will likely be looking toward another economic downturn. This could place the maintenance of Sound Transit Phase I and Link IS O&M and debt service costs into jeopardy. It certainly could negate any ability for the North and South subareas to accrue any additional cash and bonding capacity from Phase I taxes for use in Link extensions beyond Link IS. And certainly the East King, Snohomish and Pierce subareas would not be prudent in extending any inter-subarea loans to North and South.