Three months have passed since Daniel Malarkey--the Seattle Monorail Project employee perhaps most responsible for the agency's 30 percent tax revenue shortfall--stepped down as finance director. Since then, the SMP has worked to regain its financial credibility under its new finance director, Jonathan Buchter, an attorney who for several decades advised agencies working on public projects, including a $1.5 billion school financing program, in Ohio. Most recently, Buchter was an associate general counsel for the SMP.
How have you dealt with the revenue shortfall? Can we afford to pay for this project? [SMP consultant] ECONorthwest did a study that showed we have an annual average growth in the value of our tax base [the value of all the cars in Seattle] over the next 30 years of about 6 percent. So if the value of the base is going to go up, then our revenue is going to go up and we will have more than enough money to pay off the bonds in the later years. Our problem is figuring out ways to solve our [short-term] cash-flow problem and to pay back more of the debt in the later years . One of the tools you can use is zero-coupon bonds: bonds that don't bear any current interest, but you have a higher rate later on. If you use that kind of financing, you don't have any obligation in the early years. [The tradeoff is that] you have a bigger obligation in the later years.
What about critics' concerns about extending the tax to 40 years? Weren't voters led to believe it would only last 25 to 30 years? The tradition in the financial markets is that bonds can be paid off early--after about 10 years. So when [cash flow overtakes] our debt service, we have a choice to make: Do we lower the tax rate and keep it going, or do we start paying off the bonds? If we left the tax rate at 1.4 percent we could pay it off early and the tax may not go much longer. [On the other hand,] there are some people who suggest that you're better off lowering the tax rate and keeping it for 40 years. And there's a whole public-policy theory that suggests you shouldn't load all of the tax burden on the people that are there when it first gets constructed--that, in fact, extending the tax more fairly distributes the burden [to new residents].
What is the SMP doing to ensure that taxpayers aren't stuck paying for overruns? One of the big advantages of the DBOM contract [in which a single team designs, builds, operates, and maintains the monorail] is that you have a fixed price, which shifts a lot of the risk onto the contractor. [For example, while the SMP will be responsible for cleaning up unanticipated hazardous waste, the contractor will have to pay for increases in the price of steel.]
There is some cost to us, though [in that the contractor will factor additional risk into its final price]. I'm willing to pay that cost to get that certainty. And I would suggest to you that the cheapest monorail that we can build is not what we want. What we want is the best monorail that we can build. Is there any limit on how long the tax can be collected? Our $1.5 billion bond cap is important because it limits how much tax the tax- payers are going to pay. It limits how much I can borrow. So the tax is a function both of how much I have to pay back and how long I have to pay it back. I don't have a cap on how long the tax can be collected, but I do have a cap on how much. Remember that after 2020 we can only use the [monorail tax] for capital costs. If a piece of the monorail fell down in an earthquake, we could continue to levy the tax to fix that, but if fares are short, I can't use the tax to cover the fares.
