Seattle paid millions in interest on transportation bonds before projects were ready
Seattle has spent about $7.5 million paying interest on transportation bonds sold before the projects were ready, the city says.
Seattle Times transportation reporter
Seattle has spent about $7.5 million paying interest on transportation bonds sold before the projects were ready for construction, the city says.
This five-year total represents taxpayer dollars that might have been used to fix pavement or add sidewalks.
Interest costs snowballed as the city amassed surpluses, peaking at $112 million at the start of last year.
However, the city budget office and Mayor Mike McGinn’s administration say they spotted the problem in 2011 and responded by spending some of the surplus in 2012 and selling fewer bonds.
City Councilmember Tim Burgess, adding a political twist to the number-crunching, this week called for an audit. Burgess is among the challengers to McGinn’s re-election this year.
“We are $1.8 billion behind on basic street- and bridge-maintenance projects. It’s very troubling that we have been sitting on so much cash,” Burgess said.
On Wednesday his proposal to avoid selling transportation bonds in 2013 was endorsed by the council’s Government Performance and Finance Committee, which he chairs, and goes to the full council Monday.
Budget Director Beth Goldberg said the Seattle Department of Transportation (SDOT) will tighten the way it calculates its borrowing. She has proposed selling a mere $6 million this year, far below the $34 million she says SDOT sought.
Either way, the current $64 million transportation surplus will soon shrink, as the city begins new projects. The Mercer West project, which starts next month, will receive $11 million from bond revenues in 2013.
Cost of delay
Goldberg blames the surpluses on “a propensity toward conservatism” within SDOT, where officials worried about running out of money during the Great Recession.
The city was accelerating projects after the council voted in 2006 to boost parking taxes, as a money stream to pay off bonds for the Bridging the Gap transportation package.
Bonds are written promises issued to someone who lends money to the city. The investors are paid interest — 4.5 percent a year for 20 years in the 2012 Seattle bonds. Investors, who buy bonds in $5,000 increments, are repaid the initial amount at the end.
Seattle sells transportation bonds just once a year, in the spring, so staff members must predict when they’ll have to pay construction firms. They don’t want to be caught short. But if all decisions are based on that worry, the result is compound bloat.
A case study is the widening of the Spokane Street Viaduct.
The city’s 2009 bond sale of $64 million included $23 million for Spokane Street. But a bidder challenged the contract award, and Goldberg says the state took a long time to issue land permits, causing startup to slip into 2010. Then the city sold more bonds in 2010, to cover second-year expenses.
A federal stimulus grant of $15 million offset some of the $175 million project budget — good news, yet it increased the bond surplus.
(The work was finished for $12 million less, freeing money for street repair, signals, sidewalks and other work this spring, McGinn announced Wednesday, in a parry to Burgess.)
In a sense, the public won’t lose money in the long run, because bond interest is paid for 20 years, regardless of when the bonds are sold.
But elected officials and probably most voters would prefer to save money now rather than in the 2030s, putting every dollar to work now on the battered street grid.
Burgess’ proposal wouldn’t necessarily create a big windfall for city streets.
The city could spend interest savings to slightly reduce its $39 million general fund support for SDOT’s $318 million yearly budget, leaving dollars for social services. A $6 million reduction in bonds — the difference between Burgess’ and McGinn’s proposals — should save $160,000 this year in fees and interest, said Councilmember Nick Licata.
“This could go to pay two health professionals downtown, so there are fewer people walking around in need,” Licata said.
Mike Lindblom: 206-515-5631 or firstname.lastname@example.org.