Last night’s returns indicate I-976 is likely to pass. The next step is likely a court challenge, or several. What if the initiative is sustained? Let’s look ahead at the implications for Sound Transit.

If Sound Transit is forced to stop collecting the MVET, that reduces 2021-2041 revenues by $6.9 billion, or 12.3% of what was previously estimated. (Sound Transit mostly relies on sales taxes with a smaller contribution from property tax).

The impact of losing the MVET revenues is multiplied because it is front-loaded. The MVET is 18% of tax revenues through 2028, and just under 10% thereafter. That’s because the 0.3% Sound Move MVET must end in 2028 as a result of a previous Eyman initiative. When that happens, the 0.8% ST3 MVET would have moved to the lower 2005 car valuation schedule reducing those revenues about 30%.

In theory, if Sound Transit were to make up the lost MVET revenues with debt, it would accrue another $13 billion in interest and debt servicing expense. Practically, that’s impossible. Sound Transit runs up against statutory limits on debt long before that. Projections in the current financial plan indicate the agency may already be on track to approach the statutory limit in the 2030s. They also risk hitting limits on debt coverage as revenues are reduced.

Therefore, the impact of I-976 will mostly take the form of slower spending and delayed projects. Before the ST3 spending program peaks (i.e. when limits on debt are most constraining), they must slow outlays by about as much as the loss in MVET revenues. If the Board chooses, all promised projects can probably be built eventually because there’s no time limit on the authority to collect other taxes. But there’s no pathway to delivering the ST3 plan on the schedule anticipated in 2016 because there’s no longer enough money.

The first question the Board must consider is whether to conserve resources on active projects. Most ST2 projects and a few early ST3 projects are in construction. It may not make sense to re-open contracts to slow these down. Proceeding through 2024 would build out the core of the system through Federal Way, Lynnwood, and Redmond.

Powering ahead with planned projects through 2024 adds debt and operating cost commitments. After all, we want to operate the newly expanded system to its potential. But delivering current projects on time means a greater delay to later projects because they must shoulder the entire burden of bringing the financial plan back to balance.

The typical run rate of capital spending 2025 through 2035 is about $2.4 billion per annum. That means the MVET revenue loss is about three years of capital spending on projects. That’s just the starting point, however. Add to that the cost of the debt added to complete current projects through 2024. If current trends in land and capital goods costs are sustained, the system will cost more to build as it is delayed. Lower revenues may also increase the cost of issuing debt. (Sound Transit will have some room to manage this because they already assume conservatively high interest rates after 2021).

With all these factors, the cumulative impact is to delay ST3 projects by at least four years, more likely five years. That’s on average. Suburban projects are likely to see greater delays.

The loss of MVET revenues is a bigger problem for the suburbs than for Seattle, if subarea equity is followed.

Car tabs contribute a greater share of revenues in the suburbs than in Seattle. Just 8.5% of North King’s 20-year forecast tax revenue is from the MVET, but it’s about 15% in Pierce and Snohomish. Subarea financials suggest extending the spine north and south may take a back seat to completing the Seattle lines. Don’t expect all board members to see it that way, however.

Some questions for the subareas: