Wall Street has given direct marching orders to the newly constituted Seattle Popular Monorail Authority (SPMA): Get a better bond rating.
In a January 15 letter, Goldman Sachs and Salomon Smith Barney, the two firms slated to sell bonds for the SPMA, told the monorail's financial director, Daniel Malarkey, that, as the monorail plan stands now, Wall Street would probably give monorail bonds a low grade: triple B. "Without... changes," the letter from Salomon Smith Barney and Goldman Sachs says, "the monorail bonds will likely receive lower bond credit ratings and the differential... could be quite dramatic."
Indeed, a triple-B rating would add about 1.25 percent to the SPMA's borrowing costs (which would obviously be passed on to taxpayers). The higher interest could add about $400 million over the 30-year life of the bonds, the letter says.
According to Wall Street, in order to score a better rating and bring down the interest payment, two elements of the SPMA finance plan need fixin'. First, the SPMA must close an auto registration loophole. The problematic loophole allows Seattle residents to register cars outside the city. (The SPMA's money comes from a 1.4 percent motor vehicle excise tax--the MVET--levied on Seattle car owners when they register with the state.)
Second, the SPMA needs to amend last year's monorail legislation to explicitly spell out a key point: If voters decide to dissolve the SPMA, the agency is still responsible for paying back the bonds to bond holders.
The SPMA sent legislation that would explicitly fix both problems to Representative Ed Murray's transportation committee on January 30. The bill is being sponsored by a slew of Seattle legislators, including Joe McDermott, Sharon Tomiko Santos, Eileen Cody, and Mary Lou Dickerson.
Will the bill pass? "I think it is has a good chance," says its prime sponsor, West Seattle Representative Joe McDermott (D-34). "It is a way to save up to $400 million in the life of the monorail project and it doesn't cost the state anything."
However, monorail foes aren't happy with the idea that taxpayers may have to continue footing the project's expenses even if voters decide to dissolve the SPMA. Furthermore, some monorail critics don't think the SPMA legislation addresses the real issue that may be dogging the monorail bond rating. Rumor has it that Wall Street underwriters aren't confident in the SPMA's ridership projections. Lower ridership, the theory goes, means lower fare revenues--and lower fare revenues mean less capability to pay back the bonds.
Nonsense, says the SPMA. "They're not skeptical about our ridership numbers," Malarkey says. "We didn't even pledge fare revenues as part of our payback plan. We're only pledging MVET revenue."
The SPMA's underwriters, the folks who drafted the letter, agree that ridership estimates aren't relevant to the bond rating equation. However, as Ed Murray (who has outstanding questions about monorail bonding) points out, the underwriters have a vested interest in selling the bonds, so they may just parrot the SPMA's line to get the notes out the door.
