Too Much Credit?

The state auditor finds flaws with how the monorail does business and warns that the agency's debt limit is abnormally high.

Call it a wrist slap and a warning. In a much-anticipated report on the Seattle Popular Monorail Authority, state Auditor Brian Sonntag says his office found nothing amiss at the struggling agency that would warrant an official "finding," or deficiency. But he cites several violations of state law and notes that the agency's debt capacity—its authorized borrowing limit—is unusually high compared to municipalities and other agencies authorized to collect taxes.

The Washington State Auditor's Office has no enforcement authority. Its mission is to shed light on problems so agencies can correct them and so taxpayers can see how well government is spending their money. But this annual audit was released Monday, Sept. 12—just three days before a deadline set by Seattle Mayor Greg Nickels for the agency's board to put a new taxing or project plan before voters, or terminate the project. It's not clear what the board will do to meet Nickels' deadline, or even if it will. The city's only real check on the Seattle Monorail Project (SMP) is power to withhold construction permits. But the city's confidence in the project is essential for the project to move ahead, and Nickels' demand puts pressure on the agency to come up with a workable plan, or risk having it die where it stands.

The audit report does not scrutinize a recently abandoned $11 billion, 50-year financing plan. Nor does it examine a tentative $2.1 billion agreement with Cascadia Monorail, the consortium that submitted the lone bid to design, build, operate, and maintain a 13.7-mile monorail from Ballard to West Seattle. However, Sonntag's office did examine actual SMP spending and how the public agency conducts business. Besides having an unusually high credit limit, Sonntag says:

SMP paid three public-art consultants $77,534 but could not document what work was performed.

The agency's board may have violated state open-government laws by discussing issues via e-mail, making a decision outside public view, and not accurately describing reasons for holding closed meetings.

SMP awarded two architectural and engineering contracts worth $50,000 without soliciting bids, as required by law.

Three board members did not submit financial-disclosure forms until the auditor's office inquired.

SMP spent $11,500 on a parade float for the 2004 Seafair Torchlight Parade and other events that could not be justified as necessary to inform the public about the project.

On the issue of debt capacity, the auditor found that the borrowing limits authorized by the Legislature ($1.3 billion) and Seattle voters ($1.8 billion) "may not provide the same safeguards that were established for cities, fire districts, school districts, and Sound Transit," which is building a light-rail line from downtown Seattle to Seattle-Tacoma International Airport.

Debt capacity is expressed as a ratio of the maximum amount that can be borrowed versus the annual tax revenue available to repay the debt. The monorail project's debt-limit-to-revenue ratio would be 31 to 1, Sonntag reported, while Sound Transit's is 14 to 1. For reference, a typical homeowner's 30-year fixed-rate mortgage involves a ratio of only 3 to 1.

SMP officials called their audit "clean" and noted that the debt-limit-to-revenue measure has not previously been employed by the auditor's office as a measurement. "Bond insurers and rating agencies do not assess creditworthiness based on this type of analysis," acting board Chair Kristina Hill said in a written statement. "To imply potential default because of an interpretation of this ratio seems misleading and simplistic. While we appreciate the audit's thoroughness, its timing, tone, and commentary on issues outside the scope of a normal audit seem largely to be products of the politicized environment in which the monorail project has often found itself."

The auditor said SMP operating expenses in fiscal 2004 were $4.3 million and capital expenses, including land acquisition, were $90.3 million. The agency collected nearly $40 million in motor-vehicle excise tax in 2004 and has borrowed $110 million.

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