Correction: Back in March, when Seattle Weekly reported that the true taxpayer cost—principal and interest—of Seattle's planned new monorail could be as much as $6 billion, Seattle Monorail Project (SMP) officials sniffed at the notion, calling it "a worst case scenario."
We regret the error. So, likely, will taxpayers. The cost, according to SMP's own revised estimates released June 20, is almost double our projections—more than $11 billion. We hadn't anticipated the monorail agency would extend the taxpayers' mortgage so far into the future that the heaviest payments will fall on today's unborn.
But, it now turns out, there is an even worse worst case: The cost to build Seattle's new 14-mile monorail system could be as much as $14 billion, agrees state treasurer and newly anointed monorail critic Mike Murphy, willing to step over the inert body of City Hall and get in the monorail's face. "That's like," says Murphy, "a billion a mile!"
Actually, since both the monorail's tax revenue and proposed junk bond loans have no sunset clauses, the full cost is unknowable, says Murphy. "Under their plan, the financing could go on and on and on," he says, "and that has been deceitful. There are only two reasons why a municipal entity would issue junk bonds: because they don't have enough revenue or the project is too expensive. They negotiated this deal in secret, with a single bidder, as well. They ought to be ashamed of themselves. The project should be stopped."
Murphy is a longtime advocate of including loan fees and interest in the publicized cost estimates of public projects—he was among the first to emphasize that the new Seattle football stadium built by taxpayers for billionaire Paul Allen was not a $300 million deal but a $600 million pact when the interest, borne by taxpayers, is included. As a state official wading into a city battle, his only power is influence. "I can talk but it's up to the Seattle City Council to do something," says Murphy. "I've talked with one member [monorail skeptic Richard Conlin] but, you know, any of them can call me any time if they're interested."
Treasurer Murphy and state auditor Brian Sonntag have also invited SMP board members to call—the two have scheduled a meeting with several members in Olympia July 8. "We're going to say their financial plan is a mistake," says Murphy. Adds Sonntag, who has just launched an extraordinary review of the monorail agency's finances: "Our office doesn't get into commenting on whether they made wise or unwise decisions. We look to see if they are complying with laws and the language. The state treasurer doesn't weigh in very often on local issues, but I think it's very appropriate that he has in this case. People need to understand where and how their public dollars are being used."
The daily news media discovered the monorail's actual current cost the other day when a public watchdog group, OnTrack, popped the $11 billion figure out of SMP's newly proposed contract with Cascadia Monorail. Also overlooked had been the open-ended tax revenue feature of the financing scheme. SMP, in an explanatory statement June 23, four days after the contract's release, pointed out that wasn't necessarily news, either: As "Seattle Weekly reported on Oct. 30, 2002, 'According to ETC's financial consultant Daniel Malarkey, 'there is no explicit cap on what the monorail can cost.' And, although the monorail authority has to stop collecting the tax once bonds are paid off, that could be 25, 30, even 40 years." (See "Don't Let This Train Leave the Station," Oct. 30, 2002.)
Would you believe 73 years? In a newer analysis of SMP's proposed contract released Thursday, June 23, by Krista Camenzind of OnTrack, the watchdogs now think 40 years and $11 billion are soft numbers: "Finance costs will most probably exceed $11 billion because the SMP finance plan is based on the highly optimistic assumption that MVET [license tax] revenues will grow at an average rate of 6.1 percent, twice the growth rate (3 percent) that economists predict for the economy. The SMP finance plan includes a scenario in which the MVET grows at a more prudent 4.5 percent annually. With a 4.5 percent MVET growth rate, the SMP's own projections show the tax would last 73 years, until 2078, and cause finance cost to further escalate by billions."
Says Murphy: "I think there's a little sleight of hand going on here. They [SMP officials] were a little duplicitous in their legislative attempts this year." In January, the SMP pushed a bill in the state Legislature to allow the transit agency to sell bonds for 40 years or longer. Although the effort failed, SMP is now proposing a revolving-credit plan to borrow, pay down the loan, and borrow anew that would stretch the payments out for decades. Murphy says the SMP also wanted a revision related to private financing that could extend the agency's borrowing capability. Says the state treasurer, "When we asked them about that, their response was to remove the language and never give us an answer. Frankly, I'm getting a little tired of these guys."
Monorail leaders and some city officials, spinning the effects of the financial sticker shock, continue to downplay interest expenses. They weren't mentioned in recent two-page SMP newspaper advertisements announcing the contract, which listed "cost" at $1.615 billion. As SMP Executive Director Joel Horn puts it, the price seems high because some are comparing today's dollars with future dollars and not realizing that in 40 years, today's dollar may be worth only a dime. "The current discussion is not comparing an 'apple to an apple,'" says one of SMP's explanatory statements. "It is more like comparing an apple to a Caesar salad." (Awkward as that sounds, it's probably better than comparing an "apple to a lemon"). The high cost, says SMP in yet another explainer, "is similar to when someone buys a home with a 30-year mortgage and the interest payments over the 30 years end up being greater than the initial price of the home."
Of course, if you bought a $200,000 home, say, at the current fixed interest rate of 5.5 percent over 30 years, it comes to $208,000—a total home cost of $408,000. If SMP used its example as its guide, it would pay $2 billion to finance the $2 billion line, not more than six times that amount. A homeowner can also eventually burn the mortgage or sell at a profit. But under the current monorail plan, the payments could continue into and beyond you going to your grave. As for Horn's comments, Murphy asks: "If a dollar is worth a dime in 40 years, so what? That's his rationale for taking on a payback rate of five to six times [the principal]? Give me a break. I honestly do not understand their thinking."
SMP feels it has approval from taxpayers to build, operate, and maintain the start-up Green Line at any cost, which in a sense allows the agency to project costs and revenues without having to be accurate. Its estimates come with the (unstated) caveat: if all goes as planned. Unfortunately, at SMP, nothing has. The agency has an almost perfect record of underestimating its costs and overstating its revenues. Given there are other operational and intangible costs to come and that the agency is being forced to issue high-yield, high-risk bonds paid off with open-ended revenues, the situation is ripe for an ever-longer loan retirement period. With the heady supply of taxpayer funds, SMP's bonds should be attractive to buyers, Murphy allows. The rule is, he notes, "There's never a bad bond. There's just an expensive one."
Among Murphy's questions is whether the agency has skirted the spirit if not the intent of voters who narrowly approved the "$1.75 billion" project in 2002. They were told the monorail would come in on time, on budget, and that decisions would be made in an open atmosphere of "transparency." Today's bottom line, if one can be found: With billions more in expected cost and, so far, millions less in expected revenue, voters will get a system with fewer-than-promised track miles, cars, and stations—none of which will be ready for passengers until likely 2011, five years later than claimed.
As for transparency, public hearings on the deal are set for July 5, 6, and 7 in Ballard, downtown, and West Seattle, respectively (for more information, visit www.elevated.org). The Seattle Municipal League is asking SMP and the City Council to extend that schedule into later this summer, saying it's unrealistic. As monorail critic Mike Schuh notes, there are 50,000 pages of contractual documents that took 10 months of closed negotiation to produce and which leave taxpayers indebted for more than half a century. Three nights of public review? "Be really, really scared," says Schuh.