Seattle could build a monorail without using junk bonds, without paying unusually high interest rates and without taking 40 to 50 years to pay off the debt.

That's the good news. The bad news: According to a Seattle Times analysis of the project's finances, the only way to do that is by paying a lot more in monorail taxes and by scrapping several of the promises monorail backers made to win voter support:

• Revenue from the 1.4 percent motor-vehicle excise tax (MVET), which advocates have insisted would be sufficient to fund the monorail, is coming in 30 percent lower than originally envisioned. To pay off the project in 25 years, closer to the norm for such projects, the tax would have to be raised — perhaps to almost 2.5 percent, increasing the bill on a $10,000 car from $140 to nearly $250.

• If the MVET were not raised, it would have to be supplemented by one of the other taxes the monorail agency is authorized to collect.

• The voter-approved debt cap, which limits the total principal outstanding to $1.5 billion in 2002 dollars (about $1.7 billion now) probably would have to be lifted.

• If those options aren't appealing, the Seattle Monorail Project (SMP) would have to seek outside funding, from the federal government or elsewhere, rather than relying solely on its own resources.

• Operations would almost certainly have to be subsidized somehow, as no public-finance expert interviewed by The Times believes the monorail's claims that it can support itself from fares, ads and self-generated revenue.

"Typically, urban transportation projects in the United States are not self-supporting," said Scott Trommer, senior director at Fitch Ratings, one of the nation's three bond-rating agencies. "They require subsidy support, from some kind of dedicated tax or government grants."

Under the SMP's original plan, the agency would have paid more than $9 billion in interest over 45 years on $2.26 billion in short- and long-term debt, for a total cost of $11.4 billion. But facing intense public criticism, the monorail board last week abandoned that plan; yesterday, SMP board Chairman Tom Weeks and Executive Director Joel Horn resigned.

The monorail will need a new financing plan, not just new leaders, if it is to regain public trust. A more standard financing plan, the Times analysis suggests, could slash the monorail's total cost to around $3.8 billion over 25 years.

However, those adjustments would make the monorail look a lot more like other big-ticket transit projects around the country and distance it from its populist roots.

Voter OK required

Seattle voters, who've already given thumbs-up to the monorail concept four times, would have to approve such major changes in the financing. That means that, once more, the city must ask itself just how badly it wants a monorail.

The plan set aside last week foundered on concerns over the total cost of servicing the debt — a consequence of the long payoff period and the planned use of low-rated or unrated bonds, which carry higher interest rates, for part of the borrowing.

The plan called for the SMP to start issuing short-term debt this year, in the form of commercial paper, and not pay off the last bonds until 2050 — longer if MVET revenues fell below projections. By contrast, the standard debt term for a transit project is 20 to 25 years, said Keith Curry, a financial adviser who heads Newport Beach, Calif.-based Public Financial Management's national transportation practice.

Though monorail officials tried to minimize the significance of high-yield debt in its plan, Curry and other finance experts said such debt is almost never used to fund large public-transit projects, especially when backed by a dedicated tax such as the MVET.

Much more typical is the way Phoenix is financing its share of Valley Metro Rail, which broke ground this year on a 20-mile light-rail line.

Phoenix issued $500 million in 15-year bonds backed by a broad sales tax, said Jeff Dolfini, finance and grants manager for the city's Public Transit Department. Those bonds pay 4.037 percent interest, Dolfini said; the rate was attractive enough that investors paid a $43 million premium for the bonds. By the time they're all paid off in 2020, he said, the city will have paid just $273 million in interest.

Tri-Met, the agency that runs metropolitan Portland's MAX light rail, recently issued $79.3 million in 12-year bonds to help pay for a new line. Those bonds also were sold at a premium; by the time they're paid off, Tri-Met chief financial officer Dave Auxier said, the agency will have paid about $24.8 million in interest.

Both projects rely on federal grants for a significant chunk of construction costs, an option the SMP forswore. The agency could reverse that decision and seek federal money — lowering the amount to be raised locally, but likely delaying the start of construction as the monorail competed with grant requests from around the country.

In addition, most transit projects are supported by multiple revenue sources and broad taxes. Portland's Tri-Met, for example, backs some of its bonds with a regionwide property tax, others with a payroll tax, and still others with anticipated federal grants. Denver's Regional Transportation District has funded its light-rail projects with a mix of federal, state and local money; its bonds are backed by a sales tax.

The SMP has taxing options, though all would have to be approved by voters. A 2002 state law authorizes the agency to levy an MVET of up to 2.5 percent of the vehicle's assessed value; it can also impose a 1.944 percent tax on car rentals, a flat vehicle-license fee of up to $100, and a 0.15 percent property tax.

Adding any or all of those revenue sources would ease the burden on the MVET.

But if the tax is retained as the sole backing for the monorail's bonds, the only way to pay them off within the standard 20 to 25 years is to raise the rate.

The Times used a standard amortization formula to get a sense of what a revised payment plan might look like. The newspaper assumed the SMP would borrow the same $2.26 billion it had planned to borrow under the old plan; that its bonds would pay 4.5 percent interest, a rate similar to that of other projects the newspaper examined; that it would make level semiannual payments throughout the term of the debt (rather than the back-loaded repayments under the old plan); and that it would pay off the bonds in 25 years.

$7.6 billion less

Under those assumptions, the total cost would be just under $3.8 billion, compared to $11.4 billion under the SMP plan.

Although cheaper over the long run, such a revised plan would require higher debt payments now. That means monorail taxes would have to go up.

How much the MVET would have to rise depends on how much you assume its base — the total value of all vehicles in Seattle — will grow over the years. The monorail's consultants estimated an average annual growth rate of 6.1 percent from now until 2030, but that has been widely criticized as overly optimistic.

Using the consultants' low-end estimate for average annual growth (4.5 percent), the MVET rate would have to be set at 2.48 percent — just shy of the statutory maximum — to raise enough money. With the 6.1 percent growth assumption, the rate would have to be 1.87 percent.

Those figures assume all the bonds would be sold upfront, rather than in batches ("tranches" in bond lingo), which would require lifting the monorail's $1.7 billion debt limit.

In reality, federal rules tie an agency's sales of tax-exempt bonds to its construction schedule, so they might have to be sold in more than one batch anyway. Even so, the overall cost would still be much lower.

Drew DeSilver: 206-464-3145 or ddesilver@seattletimes.com