OLYMPIA — If Sound Transit stops using a controversial method of calculating car tabs, owners of newer vehicles could get a bit of relief.
For the agency, the financial toll could exceed $6 billion between the drop in collections of motor vehicle excise taxes and the rise in cost of debt payments to carry out projects.
That’s an estimate assuming the regional transit authority moves swiftly to ditch the two-decade-old depreciation schedule, which overvalues cars and is a contributing factor to soaring tax bills.
Sound Transit officials provided information to lawmakers Thursday ahead of a legislative hearing on the $54 billion light rail expansion plan known as Sound Transit 3 approved by voters last year.
It was the first time the agency put a dollar figure on the potential effect of some of the changes sought by lawmakers besieged by vehicle owners angered by the spike in their car tab payments.
“There are multiple solutions that have been presented out there,” Peter Rogoff, Sound Transit’s chief executive officer said after Thursday’s hearing. “Some are very expensive and would do serious damage to our ability to deliver to the voters what was promised.”
The ballot measure hiked the motor vehicle excise tax collected by Sound Transit from 0.3 percent to 1.1 percent effective March 1. The sales tax will go up a half-cent within the taxing district April 1 and there’s a brand new property tax assessment this year of 25 cents for each $1,000 of assessed valuation.
Those taxes will finance the 25-year, $54 billion expansion to push light rail service into Everett and Tacoma.
Many vehicle owners aren’t thinking about the future. They are howling at car tab bills that are double or triple from a year ago.
Lawmakers think they can significantly soften the blow by getting Sound Transit to stop figuring its excise tax using a depreciation schedule drawn up in the 1990s.
That schedule is tied to the Manufactured Suggested Retail Price and shows a car’s value dips only 5 percent or 6 percent a year. The Department of Licensing updated its depreciation schedule in 2006. It shows a car loses 19 percent of its value after one year, 55 percent after five years.
By law, Sound Transit must switch entirely to the newer schedule in 2029 when bonds from the first two phases of expansion are retired. Those were sold with an assumption of car tab collections tied to the older schedule.
Bills pushed by Republican lawmakers force Sound Transit to change sooner and begin using car values from the Kelley Blue Book or the National Auto Dealers Association.
Sound Transit provided an outline of what that would entail. The information was shared with lawmakers whose districts are within the agency boundaries.
To comply, the agency would immediately defease, or pay off, existing bonds dating back to ones issued in 1999, according to the documents.
And once done, the transit authority would no longer be able to collect its original 0.3 percent excise tax because it is linked to those earlier bonds and thus goes away when the debt is paid. Going forward, the 0.8 percent approved by voters in November would be collected under the new depreciation schedule.
All of this could negatively effect the agency’s credit rating and lead to higher borrowing rates to finance its capital program, according to the materials documents. Also, the agency could be forced to renegotiate $3.3 billion in federal loans, which assumes repayments with car taxes using the older schedule.
Sound Transit estimates it would wind up collecting roughly $2 billion less in car taxes and paying $4 billion in higher debt service.
A silver lining for some taxpayers: “Owners of vehicles that are less than 11 years old would receive lower bills under the 2006 depreciation schedule while owners of vehicles older than 11 years old would receive higher bills,” according to the information provided lawmakers.
Democratic representatives want the transit agency to use the 2006 schedule on any future bond sales.
Officials considered that scenario, too. If new bonds are issued, there could be slightly higher interest rates. And the agency would need permission from the U.S. Department of Transportation before issuing any.
Sound Transit now borrows billions of dollars from the federal government under a Master Credit Agreement. It assumes repayment includes car taxes calculated on the older schedule. The transit agency must inform the federal department of any changes in case they think the changes are significant enough to put the agreement on hold, officials explained.
Democratic lawmakers are also pushing for Sound Transit to develop a program to provide low-income individuals a rebate of up to 40 percent of their excise tax. Sound Transit officials told lawmakers they are learning how the city of Seattle’s rebate program is run and would report back to the Legislature.