Anonymous Tip Received by the Public Interest Transportation Forum from Professionally-Qualified Source on 2/23/2001, 10:15 AM
Subject: Subregional Equity
The Sound Move financial policies state the following in regard to the Regional Fund:
"Funding sources"
"The RTA will establish a regional fund that will be funded through a percent of local tax revenues contributed by each of the five subareas and interest earnings. The percent of local tax to be contributed will be set in the adopted Financing Plan, and then reviewed and set annually through the RTA budget process. It will not exceed ten percent per year during the ten-year system plan period."
"Uses for the regional fund"
"The regional fund will be used to fund system-wide elements. These elements include:
a) The RTA's fare integration program.
b) The RTA agency administration, including:
- Research and development of new technology;
- planning and environmental analysis for a future capital program.
c) Contingencies that may occur due to shortfalls in actual revenues collected or funding obtained, and/or overruns in actual expenditures relative to cost estimates provided that the funding of such contingencies shall not diminish the RTA's ability to fully implement its fare integration program."
There you have it. Loopholes big enough to drive a train through. This is why Sound Transit keeps saying they will abide by the subarea equity policy. In their view hundreds of millions of dollars can be siphoned away from the Eastside and Snohomish County while still staying within the letter of these policies.
By the way, the fare integration program isn't going to require very much of the large surplus now accumulating in the regional fund. ST's provision for researching new technology is mostly a joke. They decided what technology would be used nearly a decade ago. But don't expect Sound Transit to lower the rate of regional fund contributions. This is the mechanism for shifting funds to bail out Link. And at the end of the ten year system plan period do we expect Sound Transit will keep the rate below ten percent? Or will they raise it considerably to help the Seattle/N. King subarea pay for overruns and debt service?
Sound Transit is counting on using the surpluses in the regional fund to cover bond reserve requirements. FTA and bond underwriters require that a certain amount be set aside as insurance the bonds will be repaid. As Sound Transit's cost overruns have gotten worse, and the level of debt increased, the amount needed for bond reserve also increases. Obviously there isn't enough revenue in the Seattle/N. King subarea to cover this increase.
What the suburban cities need to hear:
The sad part about all this is that the Eastside and Snohomish County believe they are protected by ST's subregional equity policy. Nothing could be further from the truth. Sound Transit continues to promote the idea that the policy insulates the other subareas from Link cost overruns. That is fiction. The policies above are the ones Sound Transit is counting on, and they were devised specifically to circumvent the broader goal of maintaining subreagional equity.
What is amazing to me is that elected officials from the Eastside and Snohomish County have been known to say things like, well, Link has cost problems but that is the risk Seattle is taking. Wrong! The risk of cost over-runs falls on the subareas that have surpluses, specifically the Eastside and Snohomish County. Seattle has very little risk because all its revenues are already committed to Link. So the price goes up, Seattle knows it won't be paying for the increase, it can't. And of course Seattle has no exposure to cost overruns elsewhere because it has no revenue to spare. Through the fine print of ST's policies nearly all the financial risk of Link has been shifted outside Seattle.
Just to give you another example of how bad the situation is, suppose the Eastside decided to speed up implementation of a Bus rapid transit system or some other improvements using their surplus revenues. They would quickly discover that not all of that surplus Eastside revenue is available. Sound Transit is counting on it both for "inter-subarea borrowing" and as bond reserve. Banks don't like it when somebody spends their collateral. In this way, transit improvements for the fastest growing regions are held captive to the enormous debt of Link.
In the meantime, the Eastside continues to sit there happy and stupid, thinking they are protected from Link's massive financial problems. Thus demonstrating again that ignorance is Sound Transit's strongest ally. Instead of waiting to see whether they get shortchanged, the Eastside and Snohomish County need to wake up to the reality that THEY ARE ALREADY GETTING SHORTCHANGED. If the suburban cities had any idea how bad the situation is they would demand an immediate accounting by the State Auditor's office.
Some further questions:
- What is the current rate of contributions to the regional fund? (probably about 5%)
- How much of the regional fund is committed to bond reserve in the revised Sound Transit financial plan?
- Is Sound Transit still assuming that sales tax growth rates will be uniform throughout all the subareas (they knew this was a bad assumption before, but it came in real handy since it guaranteed big surpluses from the Eastside that could be used to bailout Link).