by Jim MacIsaac, P.E.
The public is hearing costs of the Proposition 1 package ranging from $18 billion in backdated 2006 dollars to $157 billion in tax collections over the next 50 years from 2008 thru 2057 (see chart below). Let me clarify these differences.
Let's begin with the different estimates being tossed around in the news media:
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Sound Transit initially disclosed a combined Prop 1 cost estimate of $18 billion. Unfortunately for voters, this represented the 20-year capital costs only for the program, discounted to 2006$. Some newspapers still use this estimate. |
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Sound Transit has also released the 20-year program capital cost estimates as totaling $27 billion in actual dollars (YOE$) thru completion of construction. 64% would be spent for the ST2 program, and 36% would be spent on the RTID program (Not 60%/40% as is often being claimed). |
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When asked to disclose total costs thru 2027, including debt service, agency administration and other costs, Sound Transit disclosed that the total cost outlay for Prop 1 would be $38 billion -- but only thru 2027. |
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When asked to include the remaining bond interest costs from 2027 thru ST2 bond retirement, Prop 1 supporters started putting the total cost of Prop 1 as $47 billion. Of that total, 65% would go to ST2 and 35% would go to the RTID. |
But the Sound Transit Taxes Never End
The RTID taxes will continue in full with accelerated bond payoff thru 2037, and then fully sunset. RTID tax revenues will total $16.1 billion thru 2037 when the tax is ended. After 2027 all operation and maintenance costs of the road projects will be covered by pre-existing road taxes.
But the Sound Transit taxes will never end. Approval of ST2 will also authorize extension in full of the Sound Move (ST1) taxes that were to be reduced after 2006. The combined ST1/ST2 0.9% sales tax collections would need to continue in full as a minimum through 2047 if Sound Transit chooses to accelerate bond payoff as the RTID is planning to do. But since the sales taxes will be used to secure all ST2 bonds, Sound Transit may make legal claim to continue the sales tax in full until the bonds are paid off in 2057, as it did for the Sound Move MVET that was used as part of the security for the 1999 bond series issue.
The ST1/ST2 taxes can never sunset since the new taxes would need to cover ongoing O&M costs, agency admin costs, and capital replacement reserves in perpetuity. However, I have chosen only to accumulate Sound Transit tax revenues thru 2057 when the bonds are paid off.
The 50-year estimate of cumulative tax revenues for the Prop 1 package would be as follows from 2008 thru 2057: (Based upon Sound Transit estimates of MVET and sales tax revenues thru 2040, extended thru 2057 using ST's post-2030 annual growth rates)
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Added ST2 tax revenue stream -- $76.8 billion |
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RTID thru Sunset in 2037 -- $16.1 billion |
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Total Prop 1 Package -- $157.3 billion |
Click here to download the following chart as a one page pdf.
Further Concern About Sound Transit Cost Estimates
In further support that the ST tax rates will not reduce until at least after 2057, if ever, consider two concerns expressed by ST's Expert Review and Citizen Oversight Panels. For two years the COP has been warning ST that it is seriously underestimating the annual growth rate for O&M costs. It recommends an annual growth rate of CPI+4% compared to ST's use of CPI+1%. If the COP's concern alone comes to reality, ST will need to collect the combined 0.9% ST1/ST2 sales taxes in perpetuity.
Both panels are concerned that ST is underestimating the construction cost inflation rates as both ST and the RTID go into these multi-$billion per year construction programs that will overload our heavy construction industry. If construction inflation costs are higher than an average of +3.5% per year, the ST2 program may never be completed without another tax increase. The construction cost index has been increasing at over +5% per year for the past few years, and construction materials costs over the past few years have been inflating at double-digit rates. Much of this accelerated construction index rate for this region is due to high demand for construction that would continue with approval of the Prop 1 package.
Tax Cost per Household
Sound Transit has low-balled the estimated cost per household of the Prop 1 package approval. It first omits any inclusion of the ST1 tax extension that is being approved with ST2. It then claims that the annual cost per household in backdated 2006$ would be $150 in sales taxes plus $80 in MVET fees on a car worth $10,000. Many are interpreting this as $230 per year. Sound Transit is basing its sales tax estimates on a State Department of Revenue study that found that 60% of sales tax revenues come directly from households, and 40% come from businesses.
But Sound Transit dismisses the 40% from business, totally ignoring that business taxes are passed through to householder/consumers in the costs of goods and services. It next reduces the 60% from households to 40% by excluding high-income households, assuming everyone claims associated federal tax deductions, and other reduction assertions. My estimate simply divides total estimated Prop 1 tax revenues by the number of households within the RTID and Sound Transit tax assessment areas, acknowledging the growth in numbers of taxable households. Those year-by-year estimated household tax levies are shown in the far-right column of the above schedule of annual Prop 1 taxation (download chart in pdf).
During 2009, the first full year of Prop 1 tax collections, the Prop 1 tax per household would average $872. The annual tax amount would inflate to $3,650 by 2057. The average annual cost per household over this 50-year period would be $1,870 (some have rounded up to $2,000). The total cost to a householder that lives through this 50-year period would be $93,600.
When the Seattle Monorail Project was being disclosed with a cost of under YOE $2 billion, it was strongly supported by the voting public. But when the public was informed that its costs of construction and financing would be $12 billion over a 50-year period to be paid by ongoing tax levies, public support totally reversed. What will the public do when the $157 billion taxes over 50 years proposed in Prop 1 sinks in?
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Last modified:
February 07, 2011