Bonds, sales tax increase on table for transportation improvements

Bonds, sales tax increase on table for transportation improvements

Unfunded transportation capital projects list is estimated at $113.6 million from 2019 to 2022.

The Issaquah City Council is considering a potential sales tax increase or bonds as it works to create a plan to finance upcoming transportation projects.

At a March 4 meeting, the city council discussed how they would pay for currently unfunded transportation projects. Interim finance director Beth Goldberg recapped a conversation held by the Ad Hoc Long-Term Finance Committee regarding the various options the city can take to make the projects a reality. The ad hoc committee is made up of councilmembers Tola Marts, Paul Winterstein and Chris Reh.

Seven projects are on the unfunded transportation capital projects list with an estimated combined cost of $113.6 million from 2019 to 2022.

The committee recommended the city finance the projects with 20-year bonds. The annual debt service payments would be about $9.2 million, much lower than the estimated $14.6 million for 10-year bonds.

Goldberg said the payment method was recommended because the transportation projects would benefit current and future citizens for the next 20 years.

The ad hoc committee considered several options regarding how to pay the debt incurred by the bonds but ultimately recommended using existing debt service capacity and a sales tax increase.

Goldberg explained the city budgets $2.2 million for annual debt service payments and that some city debts will be retired within the next few years. By 2028, she said, all existing debt will be retired. By dedicating the remaining funding as debts decrease, the city estimates it could have $21 million in capacity to put toward the transportation project costs.

Of that $21 million, the ad hoc committee recommends reserving $7 million for parks acquisitions and development costs, leaving $14 million for transportation. The council plans to have a separate discussion on parks funding at a later date.

The ad hoc committee also recommended a 0.2 percent sales tax increase through the city’s Transportation Benefit District. Adoption of a sales tax increase must first be voter approved by a simple majority. If adopted, the sales tax would only exist as long as debt for the transportation projects is active.

Goldberg said the staff’s conservative estimate of money made through a sales tax would support $26 million in project costs. Sales taxes, she said, have the benefit of being paid into by shoppers in the city who do not live in Issaquah, so it is not just paid for by residents.

The combined funding of the existing debt service and a sales tax would bring the total funding to approximately $40 million, which still leaves a big gap to the full project cost. The two most expensive projects on Newport Way would only be funded through the right-of-way acquisition process, delaying actual construction until a later date. That price reduction would bring the total costs down to $38.8 million, Goldberg said, which is within the estimate revenue total.

In the discussion, the council was supportive of the funding mechanisms and the project list, but asked staff to bring back more information on the list of projects for councilmembers to have more material regarding refined revenue estimates, possible timelines, and timing to place a sales tax increase on an upcoming ballot in 2019 or 2020.

Councilmember Mariah Bettise said she wants the two Newport Way projects complete as soon as possible, but she understood the funding constraints around them. She wants to make sure the city and council do all they can to put those projects in a position where they can earn grant funding to continue development.

The council supported city staff bringing more information back to a public work session on May 13. The May meeting would allow more time for the city to let citizens know about the conversation and about the possibility of putting a sales tax increase on an upcoming election ballot. The open public meeting will serve as an opportunity for the council to receive more detailed information as well as a chance for citizens to bring questions and comments.

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