Sound Transit faces massive revenue hit

Sound Transit faces massive revenue hit
Sound Transit could face a $12 billion revenue shortfall through 2040 due to the state’s COVID-19 response. Photo: freepik.com

One of the major objections raised by Sound Transit advocates against a recent legislative proposal to reduce the ST3 motor vehicle excise tax by $1 billion through 2041 is that it would detrimentally affect the agency’s ability to complete projects on time. Now the agency faces an even bigger financial challenge due to the COVID-19 shutdown: a recession that if prolonged could reduce revenue by up to $12 billion through 2040.

While the transit agency board contemplates various options such as federal grant funding and higher debt capacity, potential long-term decreases in ridership could also require changes to ST3 projects.

“While we don’t know the depth and length of this recession, we do know the economic ramifications are going to be significant,” Sound Transit Board of Directors Chair Kent Keel said at a June 3 meeting. The board is composed of local and county elected officials from King, Pierce, and Snohomish counties, as well as Washington State Secretary of Transportation Roger Millar.

A sales and rental car tax, property tax and motor vehicle excise tax (MVET) compose 67 percent of Sound Transit’s total revenue, with the other 33 percent consisting of fares, grants and debt service. In April, MVET revenue dropped by 25 percent, while the rental car tax revenue fell by 87 percent. Additionally, ridership fell by 86 percent. Last month’s revenue still hasn’t been determined. However, Chief Financial Officer Tracy Butler told board members that there are a lot of unknowns, particularly regarding the length of the current recession. “It would take a while for us to know how long this recession is going to be and how deep the recession is going to be.”

Under a moderate recession, she estimates the agency would lose $743 million between 2020-2022 alone and a total of $7.8 billion through 2040. A severe recession could see up to 23 percent, or $12 billion, through 2040. As a comparison, a 15-mile light rail line from Kent to the Tacoma Dome scheduled to be completed in 2024 is estimated to cost up to $3 billion.

However, Butler added that even if the economy recovered soon, “revenue may not recover to prior projections,” a situation that occurred with ST2 revenue during the Great Recession. A significant factor is Sound Transit’s heavy reliance on the sales tax portion, which makes up 53 percent of total tax revenue.

The Sound Transit Board’s options include increasing the agency’s debt capacity from 1.5 percent to 5 percent of assessed property value, though that would require 60 percent approval from voters. Another is to increase tax revenue, though CEO Peter Rogoff said that would be “extraordinarily difficult.”

Another avenue for the agency is to reduce project costs associated with the environmental review and preliminary engineering costs, although Planning and Project Development Executive Director Don Billen said that the portion of total costs is “relatively small.” Construction costs alone make up 70 percent of total project spending.

He added that “you need to be more careful about how much upfront design work you do, because codes do change over time. You don’t want to be in a situation where you’ve completed the design for a project…and it needs to be redone. Or, conditions in the field have changed that require a rework.

One of those changes could also be a lack of rider demand due to a combination of health concerns and a growing preference for telecommuting.

Billen said that the number of riders for each project is something “we would be wise to be aware of (when) making decisions about individual projects.”

Washington Policy Center Transportation Director Mariya Frost wrote in a recent blog post that the situation presents an ample opportunity for the agency to shift away from planned light rail projects in favor of “a transit system that can be built faster, cheaper and carry more passengers. Extending light rail to low-density cities to justify collecting taxes from parts of the region that won’t benefit from the expansion in any meaningful way – results in underperforming systems and in those very projects being the first on the chopping block during an economic crisis.”

The next board meeting is scheduled for June 25.

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