Sound Transit Funding Problems

(Sound Transit's 2016 Propose Budget prompted the following post.) 

Sound Transit Funding Problems

Sound Transit’s 2016 Proposed Budget included news they had issued $1 billion in new bonds in 2015.   They netted $600 million in new funds from the sale after paying off earlier bonds.  Their 2015 budget proposal had not included their intentions to do so suggesting the decision to obtain additional funds by increasing bond indebtedness in August was more recent. 

The bond sale included fixed-rate bonds paying 3.88% and approximately $150 million in variable rate bonds.  Thus the bonds will require nearly $40M annually just to pay the interest.  (The 3.88% interest seemed rather lucrative for presumably tax-free municipal bonds.)  No mention was made as to when the $1B bonds would be redeemed.  The 2015 budget also didn’t include ST plans for obtaining additional funding via a $1.3B January loan.  That loan will require ST pay nearly $50M annually until 2058.

I don’t recall seeing anything in the Times about ST increasing their bond indebtedness and they chose to put the news “Sound Transit takes out loan” in “Around the Northwest” on page B2, next to the obituaries on a Sunday paper.  ST had earlier indicated they would need to borrow $6.6B more by 2023 unless they obtained some additional funding to finish the Prop 1 extensions.  Presumably the $600M netted from the bond sale is just the initial installment.

ST claims their ST3 package they’ll be asking voters to approve next fall are for extensions beyond Prop 1.  The reality is they will likely need the $1B annually from ST3 approval, beginning in 2017, to pay for Prop 1 extensions.  Voter rejection of ST3 would require they either borrow or issue new bonds to obtain the $1B annually for the next 6 years.  My guess is neither would be attractive to the financial market.