Seattle Monorail Foes’ Lawsuit Targets Tax Used to Back Bonds

SAN FRANCISCO — A determined group of opponents continues to dog the Seattle Monorail Project’s efforts to get off the ground, this time filing a new lawsuit that could make it harder for SMP officials to sell bonds to finance the elevated rail system.

Most of the project’s $1.6 billion capital cost is to be financed with 40-year bonds backed by a motor vehicle tax that Seattle voters approved in 2002.

A group of plaintiffs has alleged that the state overvalues the price of used cars when assessing the motor vehicle tax, and that the annual tax is therefore illegal.

Project officials are used to obstacles being thrown in the way of their 14-mile line. Despite the swirling controversies, Seattle voters have consistently signaled their support for the project. Last November, voters overwhelmingly rejected “Monorail Recall” Initiative 83, which would have barred the train from the city.

“The people who filed this [lawsuit] are the same people who paid for last year’s ballot,” project finance director Jonathan Buchter said. “Their only purpose is to slow us down.”

SMP officials believe the current lawsuit is baseless and are confident they will prevail in court, as they have in similar lawsuits challenging the vehicle tax, but are concerned any pending litigation could scare investors and increase the project’s overall price.

“The litigation must be disclosed in the Official Statement and all other disclosure documents related to … any public bond offering,” Buchter said in an affidavit in January. “This disclosure will increase uncertainty and costs to the SMP and the public because, among other things, it may result in higher bond interest rates and higher costs for bond insurance. Moreover, as long as this litigation remains pending, financing or construction may be unable to commence.”

SMP officials are currently in discussions with the three major rating agencies but have not yet formally requested a rating, Buchter said. Pending litigation could cloud the rating agencies’ views of the project and create uncertainty regarding its principal source of revenue, leading to lower ratings and higher interest rates once the bonds come to market.

“The market’s usual reaction to this [pending litigation] is ‘this is not as clean as we would like to see it,’ ” Buchter said.

A hearing is set for next Thursday to consider SMP’s motion to dismiss the lawsuit. The project’s bond counsel, Preston Gates & Ellis, referred all questions to monorail officials.

Meanwhile, Seattle press reports in recent weeks have raised questions concerning the project’s costs and ability to collect sufficient revenues to pay off any future bonds.

Local newspapers have reported that SMP officials and Cascadia Monorail Co., the sole bidder to build the train, are $200 million apart on a price. Buchter says confidentiality agreements restrict his ability to comment on price but that negotiations are expected to conclude to both sides satisfaction.

Those questioning the project’s finances gained more ammunition when state Sen. Ken Jacobsen, D-Seattle, publicly released a letter last week from Washington Treasurer Mike Murphy expressing concerns about the project’s ability to meet its future interest payments.

“If you use 6% as an interest rate assumption, interest payments for the first year would total $90 million, with none of the principal paid down,” Murphy wrote. “Even if the rate is at 5%, the first-year interest-only bill would be $75 million. Monorail officials project receipts from the motor vehicle excise tax, which will be used to repay the initial bonding, at $47 million the first year. Something doesn’t add up.”

Buchter said that since fall 2003, when the tax went into effect, project officials have had to revise downward the base from which the tax is collected. However, he added, by issuing capital appreciation bonds — which defer interest payments to maturity — the project could mold the maturity schedule to fit the revenue stream.