Like many agencies nationwide that are balancing transit operations and mega-project capital expansions, Sound Transit faces rapidly escalating costs in nearly every area of its work.
Capital and operating costs have risen significantly since voters approved the ST3 Plan in 2016, and they’re continuing to escalate faster than contemplated 10 or even five years ago. If the agency does nothing to counter these rising costs, combined with lower revenue projections, completing Sound Transit’s expansion program will become unaffordable.
This is a long-term challenge, projected to begin the 2030s, that Sound Transit’s staff and Board are taking proactive steps to solve.
Today the agency remains financially sound, with more than $8 billion in cash and investments and exemplary credit ratings that benefit regional taxpayers. Agency leaders are well positioned to develop and implement solutions that will affordably deliver the objectives of the ST3 program and set us up for success in the decades ahead.
What does "affordable" mean?
Two factors determine whether Sound Transit’s program is projected to be “affordable”: the agency’s ability to take out loans and bonds and its ability to pay them back.
Both factors have defined limits that Sound Transit must adhere to.
The first is referred to as debt capacity, All Washington government entities are required by state law to stay below their debt limits. (Specifically, Sound Transit’s debt cannot exceed 1.5% of the assessed valuation of real property located within the regional transit authority district.)
The second is debt service coverage. This is the ratio of the agency’s total revenue, minus operating costs, divided by debt service. Sound Transit Board policy requires the agency to maintain a specific threshold (it may not fall below 1.5 times its total debt service in any given year, or 2.0 times on average during the plan period.)
All transit agencies, especially those with major expansion programs that span decades, are constantly tracking and adjusting to ensure future affordability. Sound Transit models this through its Long-Range Financial Plan, which projects spending and revenue through 2046 (the life of the ST3 plan).
If projected debt capacity and net debt service coverage remain within prescribed limits, Sound Transit’s plan is considered affordable. If models forecast that the plan will become unaffordable at a point in the future, Sound Transit takes preventative action, as it’s doing now.