Sound Transit is facing an unprecedented and extremely challenging financial environment caused by two major, simultaneous factors: (1) a pandemic-driven recession that has severely reduced consumer spending and government agency tax revenues; and (2) unrelenting pressures in the real estate and construction sectors of the economy that are continuing to drive costs to levels significantly beyond those foreseen in our plans.
Reduced consumer spending limits available revenues for construction
The COVID-19 crisis has greatly reduced the revenues Sound Transit relies on to expand our regional transit system. As businesses remained closed and people stayed home, sales tax revenues critical to funding transit construction have declined rapidly. Severely reduced ridership fare earnings and other lower tax receipts have compounded our revenue shortfalls.
Real estate and construction costs increases continue to surge
The recession has not slowed the pace of growth in costs for real estate acquisition or for construction labor and materials. Light rail extension projects in early planning and design, including those to West Seattle, Ballard, Tacoma Dome and a new Operations and Maintenance Facility South, are seeing significant cost estimate increases. For these projects, the cumulative impact of the revised estimates is significant: approximately $4.8 billion to $6.2 billion, or an increase of more than 40%.
Learn more in the Capital program cost estimate growth and response actions memo.
Realignment of project schedules and plans is required to address financial constraints
With greatly depleted revenues and higher construction costs, Sound Transit will not be able to deliver many expansion projects on their original timelines unless we receive alternative revenue from federal or state sources.
Through a process called realignment, the Sound Transit Board of Directors is working to determine how plans and timelines for voter-approved projects will need to change to address these financial pressures. The ST3 ballot measure approved by voters requires this process when we know the program is not affordable. We owe a transparent and honest reading on what can be accomplished in what timeframe to the voters, taxpayers and communities that have waited so long for high-capacity transit. We must make realignment decisions this year to achieve affordability in our long-range financial plan. Taking measures now will prevent a spending trajectory of costs exceeding revenues in future years.
Projects under construction, including light rail extensions to Northgate, Lynnwood, Bellevue, Redmond, Federal Way and Tacoma's Hilltop neighborhood, as well as the Puyallup Sounder garage, are not subject to realignment. We are poised to open all of these projects on schedule almost tripling the light rail system in the next four years. Schedules for projects not yet in construction are subject to the Board’s realignment decisions in summer 2021.
Board options for realigning Sound Transit's capital program
The realignment process is moving forward under the Board's two-pronged approach. The first prong prioritizes pursuing expanded financial capacity. This includes aggressively seeking new federal and state funding and cost relief to help bridge the affordability gap.
To the extent that sufficient new resources are not secured, the Board's second prong, as required by the ST3 Plan, will ensure affordability under updated projections for current revenue sources. Under the second prong, the Board's options for addressing revenue shortfalls and increased costs include delaying the delivery of projects to provide longer periods for revenue collection; delivering projects in phases; and reducing project scopes. The Board also retains the most extreme option, which it has not yet discussed, of suspending or deleting projects if deemed necessary to best realize the region's critical transit needs within the parameters provided by voter-approved plans.
The Board has set the process for capital program realignment, culminating in summer 2021 after gaining input from the public and partner organizations. This will provide time for the financial impacts of the recession to become clearer while we pursue additional funding opportunities. The Board has laid out a month-by-month process:
January: review project evaluation
- Board workshop provides common grounding for the 2021 realignment requirements, processes, and decisions. Review project evaluation results, clarify tools available to the Board, clarify project and program elements subject to realignment. Update federal revenue prospects. Provide direction to staff on realignment approaches to develop.
February: discuss realignment approaches
- Board reviews financial update, previews work on approaches emerging from the Board workshop.
March: define realignment approaches for public feedback
- Board reviews financial update; discusses public engagement plans.
April: engage with the public and key stakeholders
- Board asks what is important for them to consider before they make final realignment decisions.
May: discuss realignment options
- Board hears public engagement results and identifies priorities for a draft realignment plan.
June: develop draft realignment plan
- Board leadership outlines what they have heard as priorities and requirements for realigned plans. They present and discuss proposals for a realigned plan; identify potential refinements; and direct staff to prepare final plan/action for Board consideration in July.
July: take realignment action
Pursuing alternative revenue sources
Staff will aggressively pursue federal grants and other alternative revenue sources to help close the financial gap. We will join other agencies and allies in urging that federal recovery efforts and potential actions at the state level provide funding support for transit infrastructure so we can deliver our planned projects on schedule and maintain our place at the center of our economic recovery.
Transit construction will help our economy recover
Sound Transit is currently building 40 miles of new light rail track and 28 new stations. This construction will help our region's economy recover from the COVID-19 recession, just as transit construction helped fuel our recovery from the Great Recession.
Family-wage jobs offered by Sound Transit's construction projects will help thousands return to the workforce, and in turn will support even more retail and service jobs in the community. As the economy recovers, investments in these new transit infrastructure projects can help deliver tens of thousands of daily riders to work and other destinations.