Local transit agencies are facing financial challenges as revenues from fares and sales taxes decline precipitously. Federal aid has mitigated the most immediate operational impacts, but the affordability of the ST3 expansion plan is now in question. Sound Transit on Thursday signaled it was looking at a re-prioritization of planned capital projects. Decisions on delays to ST3 rail and BRT extensions may come as early as this summer.

In the near term, Sound Transit is financially well-positioned to maintain operations. Recent reductions in service are a result of operator shortages at partner agencies rather than budgetary concerns. Those can be restored as the virus crisis heals and more staff return to work. Transit operations are just $370 million in a more than $3 billion budget for 2020. Fare revenues will fall far short of plan this year, but that’s just $100 million in a full year. The larger part of Sound Transit’s budget is capital for system expansion. A sudden recession threatens a tax revenue shortfall with cascading effects on agency debt leading to extended delays for most ST3 projects.

The CARES Act included once-off assistance for transit agencies, some $167 million of which is expected to flow to Sound Transit. Future relief legislation may include additional aid for transit, and local agencies are lobbying for an adjustment to the usual formulae that would direct more aid to agencies that are dependent on sales taxes. Sales taxes are 79% of Sound Transit’s tax revenues. Although generally less volatile than income taxes, they are more volatile than the MVET and property taxes that make up the balance of Sound Transit’s tax base. Because of the unusual nature of the current crisis, with most retailers shuttered and private construction halted, they have probably declined by much more than in a typical recession.

In a report to the System Expansion Committee on Thursday, Sound Transit CEO Peter Rogoff referenced the “tremendous uncertainties around the economic impacts” and described steps underway to respond. A freeze on hiring has taken effect. An interdepartmental working group has been formed to develop a realignment process. This is modeled on the process in 2010 that delayed several projects as tax revenue expectations were revised downward. Between May and July, staff will report to the Board several times with updated financial projections and options for adjusting the expansion plan.

Projects already in construction or entering construction will be protected as far as possible, implying later projects may face greater delays. Staff will also review financial commitments already approved by the board to see if there are opportunities for more savings.

A March presentation illustrated some scenarios. A shallow recession comparable to that in 2000 would increase Sound Transit’s debt and push it slightly beyond allowable debt limits around 2031. A deeper recession, following the template of the Great Recession in 2008, would push the agency far beyond permitted debt balances. This would have to be corrected through delaying projects. The recession we have likely just entered is sharper than either of these, but it remains to be seen whether it will be a persistent slowdown or if the economy might snap back more quickly as businesses re-open.

Sound Transit financial scenarios based on previous recessions show the agency exceeding permitted debt capacity around 2030 after a mild recession, and far worse after a deep recession (image: Sound Transit)

Highlights of CEO Rogoff’s remarks follow: