Seven months ago, a potential $6 billion cost to finance Seattle's proposed new monorail was, in the words of Seattle Monorail Project board members, a worst-case scenario. Not going to happen, they said reassuringly, because that might destroy the project. Today, a worse worst-case scenario, a plan costing $7 billion, is suddenly the one that's going to save the monorail.
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"There is still opportunity for the agency if you want to pursue this," Kevin Phelps, SMP's new financial consultant, told board members Sept. 7, presenting them with the whittled-down $7 billion plan he devised in 38 days. "I believe there is good news and the possibility of much better news on the horizon."
His new recommendations nonetheless arrived with old tax concepts and earlier projections intact, along with a number of ifs—if the monorail could save $50 million here and $100 million there. Phelps, an ex–Tacoma City Council member, readily acknowledged his predictions are subject to financial and political interpretation. "I know that the critics will still attack what I've said tonight," he told the board. But, "I would like to remind you that, in my opinion, being a critic is the easiest job there is in the country. And I say that because I can go into a restaurant and write a review on how good that food is and not know how to fry eggs in the morning," he said. "Finding solutions to problems is where the difficulty lies."
So has he found a solution or just cracked a few more eggs? Phelps, who chaired Sound Transit's finance committee and has become almost legendary for efforts to overcome that light-rail-building agency's financial shortfall, says he can lop off as much as $5.7 billion from an earlier, collapsed monorail finance plan. That plan, the mother of all worst-case scenarios, projected costs of $11 billion to $12.7 billion (or as much as $14 billion) in principal and interest costs, which the embarrassed board was forced to quickly reject in July. Compared to that outrageous price tag, Phelps' new $7 billion scheme is a blue-light special.
But it is still at least $5 billion more than the projected actual cost of building the 13.7-mile Green Line from Crown Hill to West Seattle, which was to open in 2007 but won't be operating until the next decade, if at all. Phelps' proposal is, as well, at least $2 billion above the cost of financing that officials were suggesting when voters narrowly approved the monorail in 2002. And it is for the most part based, as before, on speculative revenue projections. The plan anticipates 6 percent yearly growth through 2030 in the motor vehicle excise tax, SMP's sole source of income, dropping to 5.6 percent after that.
Almost everyone but monorail officials, it seems, feel such a projection incorporates a lot of wishful thinking for an agency whose revenue is already coming in 30 percent below original predictions. Phelps is a true believer in the 6 percent, while his dueling forecasting foe, Seattle economist Dick Conway, says modest 4.4 percent growth is more likely. Phelps maintains that Conway's demographics "raise some concern," in particular Conway's assertion that Seattle will have fewer drivers in the future percentage-wise, and thus fewer car owners. (As ever, the monorail's financial health is totally dependent on the automobile because of the licensing tax; for the transit plan to succeed, Seattleites must also purchase more cars at higher values.) Statistically, Phelps employs economic models, data points, and trend forecasts different than Conway's, relying on more optimistic state and regional economic indicators. That's risky and questionable to some. "The MVET is the key factor to the success of this project, and you can't afford to make any mistakes," says Krista Camenzind of the watchdog group OnTrack. She calls Conway the expert on MVET projections, claiming Phelps, a "local politician," has given the board "easy answers."
Underscoring all that conjecture, the monorail is an "experiment," as SMP officials like to say, and cost overruns and further revenue shortfalls can be expected. Mayor Greg Nickels has set a Thursday, Sept. 15, deadline for SMP to present a reasonable and reliable money plan or face denial of city right-of-way permits, killing off the project. One of the questions the mayor's staff is sure to ask is how, in just five weeks, Phelps was able to dramatically pare down projections that SMP's top financial people insisted, after two and a half years, couldn't be cut. It's something that board member Cindi Laws asked last week, curious about how Phelps carved out as much as $5.7 billion in savings when others, including since-resigned Executive Director Joel Horn and former board Chair Tom Weeks, couldn't envision it. Said Phelps: "I don't think it's a criticism of the prior leadership. Oftentimes when you're right in the middle of it, you can't see some solutions that someone who comes in with a fresh perspective sees. I'm clearly not a genius. . . . It's mostly just from my years of doing this." Even at that, Dick Falkenbury, the cab-driving father of the monorail plan and a candidate for the monorail board in next week's primary election, brought up a practical example that Phelps didn't mention: cutting asset costs. After all, asked Falkenbury, why does a monorail being built in city streets need $100 million in private land?
Phelps maintains he can reduce overall interest payments in part by reducing maximum bond-term length from 50 years to 39 years and eliminating unrated junk bonds. The savings would require dipping into operating revenue sources used for other transit projects, reducing overhead and oversight costs, and establishing a thrifty "best practices" approach to borrowing. He also offered the board some policy guidance.
"You can choose to frame the discussion about whether $5 billion or $7 billion or $2 billion or $9 billion is the right number, but I think you need to work into this conversation the thought of what is the cost if you don't build this system? . . . Is it out of line with the vision that I think the citizens have in the city of Seattle?" He pointed out that Sound Transit's financial turnaround required a new way of thinking among the agency's leadership. "If you stay true to your vision," he told the board, "I believe this can be a second success story."