Offering frequent news and analysis from the majestic Evergreen State and beyond, The Cascadia Advocate is the Northwest Progressive Institute's unconventional perspective on world, national, and local politics.

Tuesday, October 9, 2007

The real cost of Roads and Transit

There has been a significant amount of debate about the cost of the Roads & Transit package. Is it $17.8 billion, $38 billion, $47 billion, or $157 billion? My answer is $230, but I'll explain why later in this post.

Proposition 1 opponents have been throwing around the dishonest number of $157 billion. State Treasurer Mike Murphy has called this number (seemingly pulled from thin air by anti-rail zealots obsessed with attacking Sound Transit) "bogus".

Will at HorseAass made the observation that using the same math, the Seattle Post-Intelligencer would cost tens of thousands of dollars:
Using the same methodology reported in the P-I to arrive at the $160B cost figure for the joint ballot measure, the Seattle P-I costs a reader $60,000.

Here’s how it works: 50-cents per day for 6 days a week, plus $1.50 for Sundays. That’s $4.50 a week, multiplied by 52 weeks a year for $234 per year. But wait – those are 2006 numbers. Using MacIsaac's terms, you go back to what you’ve been paying since 1996 and go forward to what you’ll pay through to 2057. Using ST’s/MacIsacc’s/P-I’s annual inflationary factor of 5.2%, you deflate back to 1996, inflate up to 2057, add it all together and you get $60,075.37 – the true cost of the P-I to the reader. I like Joel Connelly, but he doesn’t seem like much of a bargain at that price, now does he? Curiously, the P-I does not use these figures to encourage purchasing their product.
The $157 billion number also makes the erroneous assumption that the taxes continue at full force, forever. But the law requires the taxes to be scaled back as projects are finished. The only way the revenues can continue is if the voters decide to authorize a new package.

The $17.8 billion number is how we have always talked about projects, and how we continue to talk about almost all of them - or example, the Evergreen Point (State Route 520) floating bridge, the Viaduct, and the recent Narrows Bridge.

$17.8 billion is how much Roads & Transit would cost if we could build it with no debt and no inflation. As far as I know, no package or mega-project in recent memory has been financed like that.

That's where the $38 and $47 billion numbers come in. The $38 billion represents the total year of expenditure (YOE) dollars for the package.

To arrive at that number, you estimate what the projects will cost in the dollars of the years they are built in.

For example, let's say you want to build a house ten years from now. If you could build it today, that house would cost $100,000.

To get the YOE dollars, you figure out how much the various materials and labor required to build your house will increase over ten years.

So if it's 5% a year, the YOE amount for your house is about $163,000. Of course, assuming equal inflation across all goods and services, that $163,000 will mean the same thing to you in ten years, as $100,000 means to you today.

Unfortunately, construction costs, especially the price of concrete, are soaring right now. That's why it's so imperative we act quickly - because it will only become more expensive to build later.

To get to $47 billion, interest on financing is added in. Going back to the house project, let's say over the next ten years you save $10,000 a year (we'll ignore interest on that). In 10 years, you'll have $100,000 in the bank, but remember, your house now costs $163,000. To build it, you have to get a loan for the remaining amount (40% is the amount Sound Transit is financing).

If we go by Sound Transit's ratio of debt service, that's the total amount you'll pay back compared to the amount you borrowed, of 2.2 to 1, which is typical for projects like this (home mortgages are in that range, while the junk bond-financed monorail program would have had a debt ratio of more than 5 to 1). So using that ratio you get a total payback amount of $138,600. We add that to the $100,000 you are expending from savings and come up with a total of $238,600.

So the $47 billion figure is simply the YOE dollars combined with the interest paid. It represents the total cost of the system, dollar for dollar, inflation and interest included. But if someone asked you today about the house you were going to build, would you tell them it's a $100,000, $163,000 or $238,000 house?

All this aside, the real number that matters to Puget Sound voters is the cost to their pocketbooks. What is the yearly impact on a family?

And the answer is $230 (not $2000, as opponents are falsely claiming – that level of taxation would require hundreds of thousands of dollars in taxable purchases a year, and ownership of two cars each worth fifty thousand dollars).

Since we are talking about fixed increases in sales tax and vehicle fees, while inflation will raise the amount of revenue collected, it will keep the proportion of income that people pay the same.

If today you spend $25,000 on taxable goods, you will pay $150 more in sales tax, or .6% of the total you spend. If in 2020 you are now spending $50,000, you'll pay $300, the same .6%. The vehicle fees work the same way.

For the typical family, the plan will cost about .4% of their annual income.

Whether we are talking about today, tomorrow, or twenty years from now, the net effect on families is the same.

So the question is, do Puget Sound voters want to pay a little over two hundred bucks more a year for safer roads, fifty miles of new light rail, better bike lanes, completion of unfinished HOV projects, new park and rides, and improved bus service? Is having more time to spend with your family, a cleaner region, and more transportation options worth the investment?

We say the answer is yes.

Comments:

Anonymous Anonymous said...

yeah, you look at the taxation claims made by the No R&T folks at http://www.bettertransport.info/pitf/JimExplainsTheProp1Taxes.htm and you can see that they completely ignored the fact that Sound Transit will be rolling back taxes to very little once the light rail is built and the trains are in operation.

October 9, 2007 5:31 PM  

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