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V.  STRATEGY FOR FINANCING COUNTY TRANSPORTATION IMPROVEMENTS

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This chapter of the TE provides a forecast of expenditures and revenue for the period 2015-2035. The purpose is to show how Snohomish County will support the land uses identified by the FLUM.

Most public expenditure for transportation will be related to preservation and maintenance of existing infrastructure, improving some existing arterials to design standards, and finishing the major arterial projects to which the county is already committed. It is probable that new revenues will need to be authorized in order to fund new transportation projects directly related to more intensive development within the county’s UGAs. The county will need a financial strategy to accomplish needed improvements.

A.  County Transportation Improvement Expenditures
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Expenditure on transportation service and facility improvements by Snohomish County over the 2015-2035 timeframe will exceed $2 billion. This will be in addition to operating and capital expenditures made by the state, cities and public transportation agencies. Future expenditures on transportation-related improvements within the county will depend on the availability of funding and also on the timing and intensity of land development. Table 17 provides a summary of future transportation expenditures by major programs expected to be made by the county during the 2015-2035 timeframe. The expenditures in Table 17 are in YOE dollars. Expenditures are first projected in current dollars (2015 dollars) and then adjusted for inflation by inflating current dollars to the year of expenditure.

Table 17 Summary of Transportation Expenditures – 2015 through 2035

YOE Dollars

Expenditures Programs

2015 -2021 ($ Millions)

2022-2028 ($ Millions)

2029-2035 ($ Millions)

Total ($ Millions)

Operations & Maintenance

$513

$549

$596

$1,658

Non Capacity Capital

114

115

128

357

Capacity-related Capital

129

160

192

481

Total

$ 756

$824

$916

$2,496

Source: Public Works 2015.

The implications of the county’s expected expenditures on capacity-related capital improvements over the next 20 years are explained in Chapter IV. Recommended Transportation Improvements, B. County Arterial Improvements. The methodology for forecasting non-capital expenditures are based on historical analysis and trends. Activities included in each are as follows:

Operations – transportation planning, modeling & forecasting; code development; contract & interlocal agreement development and administration; training; public involvement/communications; fiscal analysis & forecasting; budget development & monitoring; central services for the entire Public Works department such as human resources, technology, payroll and public disclosure; accounts payables & receivables; transfers to other county departments for services; and general county overhead charges such as indirect costs, insurance, information services, security & payroll expenses.

Maintenance – general roadway maintenance/preservation activities such as asphalt patching, BST overlay, striping, ditching/drainage maintenance, roadway shoulder pulling, mowing/brush cutting, weed control, sign maintenance, signal maintenance, bridge maintenance, and facility maintenance

Non-Capacity – this category includes all of the elements of the Annual Construction Program which do not add capacity expansion of the road network: miscellaneous engineering, project scoping and studies; pavement preservation and rehabilitation; nonmotorized pedestrian facilities, sidewalks, walkways, shoulders, transit & HOV improvements; traffic safety & intersection improvements, slide repair & bank stabilization, traffic calming & guardrails; bridge replacement & rehabilitation; drainage improvements, culvert replacement & rehabilitation; and Brightwater mitigation projects.

B.  County Transportation Revenues
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The revenue forecasts presented here are based on primary sources of revenue that the county can reasonably expect to receive from 2015-2035. The purpose of this analysis is to assess whether the needed improvements will be "affordable" given the county’s forecast of available revenue. The process for using and programming these revenues is described later in this chapter. The actual allocation of fiscal resources to the various geographic areas of the county can vary depending on how any given area develops and the resulting infrastructure needs relative to priorities throughout the county.

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Snohomish County relies on a number of revenue sources (federal, state, and local) in order to design, build and operate transportation facilities and services within the unincorporated areas of Snohomish County. Descriptions of the primary revenue sources follow and Table 18 provides a summary of the revenue forecast for these primary sources.

a.  Property Taxes

Property taxes are levied for many state and local purposes and are arranged in a complex hierarchy. The basic limits of the senior county levies are $1.80 per $1,000 assessed valuation for general government (current expense) and $2.25 per $1,000 assessed valuation for roads. The sum of the two senior county levies cannot exceed $4.05 per $1,000 assessed valuation. The authority to levy property tax is codified in RCW 84.52.043; the road fund levy is specifically expanded upon in RCW 36.82.040. State law limits the county council to a one percent annual increase in the property tax levy. A one percent increase is proposed for 2015, but an annual budget action for each year towards 2035 would be needed to realize more revenues.

b.  Reimbursable Services

The county is reimbursed for various expenditures and services it provides to other agencies per interlocal agreements and/or contacts.

c.  Fuel Taxes

The county receives an allocation of the state fuel tax by several categories that it can apply to local operations and maintenance and capital projects.

The State Motor Vehicle Fuel Tax (commonly called the gas tax) is one of the primary sources of road fund revenue for counties. The state gas tax is an excise tax on the sale of motor vehicle fuel. The rates, processes, exemptions, etc. are set by statute (RCW 82.36). Collection and distribution are by the Department of Licensing and the Treasurer. Washington State counties receive about a half-cent allocation under the 9.5 cent fuel tax that was enacted in 2005. These funds “…shall be for the use of the state, and through state agencies, for the use of counties, cities, and towns for proper road, street and highway purposes, including the purposes of RCW 47.30.030.” (Non-motorized traffic). In addition to the regular distribution to each county, it also provides the funding for various state grant funding programs.

d.  Real Estate Excise Taxes

Real Estate Excise Taxes (REET) are collected on the sale of residential and commercial real property in Washington State. Snohomish County collects one-half percent REET for local capital projects. The 2015–2020 TIP contains a $2.4 million allocation of REET for transportation. REET beyond 2020 is projected at $400 thousand annually in the 2035 revenue forecast in Table 18.

e.  Transportation Impact Fees

The county collects impact mitigation fees based on daily vehicle trips generated by new residential and commercial developments. These fees vary depending on the TSA they lie within. These fees are used to fund selected arterial capacity improvements that form the cost basis to provide the improvements within each TSA. The fee schedule is adopted and amended as appropriate in SCC 30.66B.330.

The 2015-2035 revenue forecast summary shown in Table 18 includes estimated transportation impact fees from new development. Payment of a transportation impact fee is a requirement of almost all development proposals within unincorporated county and is used to help pay for the cost of capacity improvements necessitated by new development. The estimated impact-fee revenues in Table 18 are based on a historical analysis of fees collected and expended on impact-fee projects in the ACP/TIP, but an assumption that these revenues will decline over the TE’s 20-year planning horizon was also factored into the revenue estimates. Additional revenues that might be generated by rate increases are discussed in this chapter, in section C. County’s Financial Strategy.

The impact fee revenues also include estimates of payments by development proposals located inside cities for those cities with which the county has reciprocal traffic mitigation agreements.

This TE identifies a set of arterial capacity improvements needed to accommodate planned 2015-2035 land use. These capacity improvements will be the basis for the continued impact fee program. After the adoption of the 2015 TE, as part of implementing the updated TE, the impact fee schedule in SCC 30.66B.330 will likely need to be amended. Based on the estimated costs of the identified arterial capacity improvements needed to accommodate planned 2015-2035 land use, the number of forecasted new vehicle trips expected to be generated by 2035 by the planned land use in the adopted 2015-2035 land use element, and any proposed changes to TSA boundaries; the public works department will need to calculate the maximum possible impact fee that could be charged in each TSA. Revisions to the fee schedule in SCC 30.66B.330 would be needed where a current fee in an TSA exceeds the maximum possible impact fee that could be charged in that TSA. Current fees that are greater than the maximum possible fee would need to be reduced to an amount that is equal to or less than the maximum possible fee. Conversely, elected officials could consider increasing fees in TSAs where current fees are lower than the maximum possible fee. Appendix D provides more detail on transportation impact fees.

f.  State and Federal Grants

The county receives a variety of state and federal grants that are awarded for specific projects. These projects generally are capital in nature which provide operational or capacity improvements. State and federal revenues are expected to remain relatively stable and yield up to $233 million towards 2035.

g.  Other Revenues

The County receives other revenues in any given year that include private timber-harvest tax, federal forest-yield, leasehold excise tax, inter-departmental service fees, interest income, and miscellaneous review fees.

The various sources of revenue described above make up the county road fund, from which funds are drawn for operations, maintenance, and capital programs as described under the prior section on county expenditures.

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The forecast of county revenues presented by Table 18 identifies a capability to fund about $380 million of the capacity-related project improvements identified for the planning time frame. The expected expenditures to fund capacity-related capital improvements (i.e. the recommended county arterial improvement projects) are estimated at $481 million. Like project costs and expenditures, revenues are in YOE (inflated) dollars. Revenues have been adjusted for inflation to the year of receipt. The county will rely on a definitive financial strategy in order to close the gap in available funding and expected expenditures.

Table 18 Primary Revenue Forecast Summary

(YOE Dollars)

Revenue Category

Short-Range

2015–2021

($ Millions)

Mid-Range

2022 – 2028

($ Millions)

Long-Range

2029 – 2035

($ Millions

Total

2015-2035

($ Millions)

Property Tax (w/1% increase in 2015 only)

$421

$476

$537

$1,434

Reimbursable Services

72

77

83

232

Fuel Tax

66

71

76

213

Real Estate Excise Tax

7

3

3

13

Impact Fees

45

28

25

98

State/Federal Grants (1)

74

77

82

233

Other Revenue (2)

54

57

61

172

Subtotal

$739

$789

867

$2,395

Less Maintenance and Operations (3)

($513)

($549)

($596)

($1,658)

Less Non-Capacity Capital (4)

($114)

($115)

($128)

($357)

Available Revenue for Capacity-related Capital Improvements

$112

$125

$143

$380

1.Includes State Gas Tax (CAPP Grants).

2.Other Revenues include private harvest tax, federal forest yield, interdepartmental service fees, interest income and miscellaneous review fees.

3.Includes enhanced pedestrian and transportation demand management enhancements.

4.Includes bridges, overlays, traffic/intersections, nonmotorized/transit/HOV, drainage, etc.

C.  County’s Financial Strategy
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The GMA provides guidance to the county regarding how to balance expenditures and revenues for transportation to adequately serve planned land use. The GMA requires:

an analysis of funding capability to judge needs against probable funding resources (RCW 36.70A);

a multi-year financing plan based on the needs identified in the comprehensive plan, the appropriate parts of which serve as the basis for the six-year .... road .... program required by .... RCW 36.81.121 for counties .... (RCW 36.70A); and

if probable funding falls short of meeting identified needs, a discussion of how additional funding will be raised, or how land use assumptions will be reassessed to ensure level of service standards will be met (RCW 36.70A).

These requirements of the GMA are the fundamental basis for the county’s financial strategy described in the next section of this TE.

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The financial strategy pursued by Snohomish County, in order to meet requirements of the GMA, recognizes the limitations of traditional revenues and seeks additional revenues to fund transportation improvements that benefit the entire county.

The intent of this financial strategy is to ensure that adequate funding is available for the transportation improvements needed to serve planned land use, while at the same time maintaining the county’s adopted LOS standard and the public’s safety. Table 19 presents a comparison of the capacity-related capital improvement expenditures versus traditional transportation-related revenues. Table 19 shows a $101 million shortfall towards the year 2035.

Table 19 Summary of Expenditures Vs Primary Revenues

($ Millions)

Revenue-Cost Comparison

Short-Range

(2015-2021)

Mid-Range

(2022-2028)

Long-Range

(2029-2035)

Combined

(2015-2035)

Available Revenue:

$112

$125

$143

$380

Capacity-related Capital Costs:

$129

$160

$192

$481

Revenue Surplus/(Shortfall)

($17)

($35)

($49)

($101)

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Snohomish County’s financial strategy for funding needed transportation improvements within the unincorporated county will be to pursue revenue measures beyond those traditionally available. There are seven supplemental revenue measures that have potential to provide additional revenues for transportation improvements. These measures, taken in whole or in part, could reduce or eliminate potential deficits in transportation funding towards the year 2035. Table 20 summarizes the range of additional revenues these measures could potentially provide.

a.  County One Percent Annual Property Tax Increase (2015–2035)

This revenue measure would presume annual approval by the county council of a one percent increase in the road levy portion of the property tax for the county road fund. This change would be at the discretion of the council and could be pursued as part of annual preparation of the capital facilities program and county’s road fund budget. The revenues generated would substantially supplement the county’s capital programs.

b.  Extend REET Allocation to Transportation (2020–2035)

REET are collected on the sale of residential and commercial real property in Washington State. Traditionally, Snohomish County REET has been allocated to fund capital improvements for parks, surface water, and non-departmental debt service. The 2015–2020 TIP contains a $2.4 million reallocation of REET for transportation. This measure would continue this allocation beyond the 2020 timeframe, through 2035. This change would be at the discretion of the council and could be pursued as part of annual preparation of the capital facilities program and county budget.

c.  Increase in County Impact Mitigation Fees (2015–2035)

This revenue measure would entail increasing the mitigation fees paid by development. In some TSAs, there may be potential to substantially increase current impact fee collections. This measure would require adoption of an ordinance amending the fee schedule under Chapter 30.66B.330 SCC.

d.  Bonding

The County could issue bonds in order to generate funds sooner for transportation improvements. Bonding is not new revenue, though it accelerates the ability to fund needed improvements. In a nutshell, bonds are certificates of debt that promise payment of original investment and interest. While bonding funds are received sooner, long-term costs are increased because bond debt incurs interest

The road fund has the capacity to potentially issue $5-15 million in capital project bonds over the course of the time horizon. Current debt service for the road fund is approximately 5% of operating revenues which is at the low end of financial guidelines. In addition, the road fund will be relieving a sizable portion of current debt service by 2020.

e.  Public Works Trust Fund Loan (PWTFL)

The PWTFL loans have been unavailable the past several years due to state budget constraints. However, the state has announced new loan availability for the 2015-2017 biennium. PWTFL for transportation capital projects are at extremely competitive interest rates and would greatly enhance funding capability.

f.  Increase in State Fuel Tax (2015-2035)

This revenue measure would involve action by the Legislature that would result in at least an increased allocation to counties of a half-cent state fuel tax for the second decade of this TE. A large portion of the resulting revenue of a future fuel tax allocation would be applied to the county’s capacity-related capital program.

g.  Local Option Vehicle License Fee (2015-2035)

This revenue measure would require action by the county council to authorize the county to enact an annual vehicle license fee within the county’s established Transportation Benefit District which would be used for transportation purposes. The revenue range has been calculated based on $20 per vehicle in 2015-2021, $25 per vehicle in 2012-2028 and $30 per vehicle in 2029-2035.

Table 20 Additional Transportation Revenues under the County’s Financial Strategy

Revenue Measure

Range of Revenue towards 2035

Remarks

a. Property Tax Increase (1% each year 2015–2035)

Up to $160 million

Council would need to take affirmative budget action each year starting in 2015.

b. Enhance REET Allocation (2021–2035)

Up to $6 million

Would enhance the current 2015-2020 TIP allocation through 2035.

c. Increase County Impact Mitigation Fees (2015–2035)

Unknown

Would require Council action to amend Chapter 30.66B SCC.

d. Bonding (2021–2035)

Up to $15 million

Up to three bond issues over planning time frame.

e. Public Work Trust Fund Loan – PWTFL (2021-2035)

Up to $15 million

Potentially seven state funding cycles over timeframe.

f. Increase in State Fuel Tax – (2015-2035)

Up to $21 million

One-half (1/2) cent increase.

g. TBD Motor-vehicle License Fee (2015–2035)

Up to $60 million

Would require action by the county council enabling council or voter-approval.

Other Miscellaneous

Unknown

Could provide a small but significant additional level of financial relief.

Total Range

Up to $277 million

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There are four miscellaneous revenue or cost reduction measures that the county could pursue, in addition to the primary revenue measures discussed above. These have potential to generate a minor but significant amount of financial benefit if pursued. Increase in revenue or reductions in capital or operating costs are difficult to predict; however, these measures are worth citing as part of the county’s overall financial strategy. Table 20 provides a summary of the range of potential funds that may be generated if the county were to pursue the revenue measures identified under the strategies presented herein.

a.  Joint Funding with Cities

The county, under this measure, would collaborate with the appropriate cities to achieve joint funding where a project substantially benefits a given city, and the area served is likely to be annexed within the subsequent six years. The city’s funding contribution would serve to ensure equitable sharing of the financial burden. Importantly, this measure would also allow the city to fund specific design features on a roadway soon to be within its jurisdiction.

b.  Encourage Mutually Beneficial Annexation by Cities

This cost reduction measure could go hand-in-hand with joint-funding efforts. This measure would be aimed at reducing the county’s road expenditures by having the appropriate city assume all or part of the responsibility for a particular arterial road improvement serving an area to be annexed. Incentives to encourage city annexation could include: participation in and deference to city extra-territorial planning efforts; commercial rezones aimed at tax base enhancement; and county in-kind and/or funding participation in arterial road projects. Annexation interlocal agreements would need to be broadened in scope, commitment and effect.

c.  Private-Sector Partnerships

This measure would allow private-sector entities (corporations, developers, and individuals) to participate in funding transportation improvements that allow economic benefit to the private-sector partners, while at the same time allowing the county to share the costs of transportation with the private partners. The candidate transportation improvements for private-sector partnerships would likely be capital projects or operations-related programs that are not fully funded from governmental revenue sources.

d.  Road Improvement Districts

A Road Improvement District (RID) is a special assessment district that can be formed by the county, adjacent cities, and/or landowners. The purpose for forming an RID would be to generate funding for transportation improvements that would benefit the landowners within the district. Funding for RIDs usually includes the issuing of bonds to finance road improvements that serve and benefit specified properties. The bonds are paid off by assessments against the benefited properties over a period of time, usually ten years.

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Primary revenues generated during the 2015-2035 timeframe of this TE are not likely to be sufficient to allow all arterial improvement projects to be programmed in the annually adopted TIP, and thereby meet current commitments and complete improvements that resolve all LOS problems and deficient conditions identified through RCAs.

It is evident from the results presented by Table 19 that the county will experience a funding shortfall if it must only rely on primary revenue sources. An additional $101 million will likely be needed from supplemental sources to eliminate a funding shortfall for capacity-related capital improvements.

It can be seen, from the ranges of revenues that can be generated from some realistic revenue measures described in Table 20, that the county has the ability to close the funding gap for needed capacity-related arterial improvements. As noted previously, no county arterial units are identified as being in arrears as of the publication date of this TE and consequently no existing arterial deficiencies are identified in this TE. In addition, revenues and expenditures are in balance in the currently adopted six-year Transportation Improvement Program (TIP) and the Annual Construction Program (ACP). If the projected funding gap for needed capacity-related arterial improvements materializes as the 20-year planning period of this plan unfolds, then the county council could consider implementing one or more of the additional revenue measures in Table 20. For example, the first revenue measure in Table 20, a one percent increase in the road levy portion of the property tax, would be considered annually by the council during the adoption of the annual budget and ACP/TIP. This measure, if adopted annually, has the ability to more than cover the projected 20-year funding shortfall. The seventh measure in Table 20, the enactment of an annual vehicle license fee within the Transportation Benefit District (TBD), also has the potential to generate significant revenue. The TBD has already been established, and if needed, the TBD Board could authorize the collection of an annual vehicle license fee to fund capacity-related arterial improvements. In the event the county cannot close the funding shortfall for transportation needs, it has the option to reconsider policies and elements of the comprehensive plan by conducting a reassessment of land use, LOS, and capital funding.

D.  Process for Reassessment of the Comprehensive Plan and Transportation Element
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The Capital Facilities Requirements adopted in support of the GPP sets forth a reassessment strategy when the public revenue capacity of the county cannot fund the full inventory of potentially needed projects within the planning period. (ref. 33) The reassessment strategy includes the following possible options:

reduce the standard of service, which will reduce the cost; or

increase revenues to pay for the proposed standard of service; or

reduce the average cost of the capital facility (i.e., alternative technology or alternative ownership and financing); or

reduce the demand by restricting population; or

reduce the demand by reducing consumption; or

use any combination of the options listed above.

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Applying these options produces the following overall strategy for financing public transportation services and facilities needed to support the land use plan.

The first step of the reassessment strategy sets an appropriate, yet affordable minimum LOS for transportation systems to support the planned land uses. The full inventory of projects involves a wide range of LOS considerations. Out of the range of LOS options, the TE establishes a specific minimum LOS against which to measure the adequacy of transportation services to support development.

The second component of this financial strategy is to identify additional public resources that could be used to increase revenues to pursue improvement projects.

The third step considers deferring potential demand for arterial improvements by reducing the intensity of allowable land development in some areas where existing land use patterns and constraints may limit the suitability for higher intensity uses. One typical constraint is the expense and, in some cases, physical infeasibility of making the street improvements that would be necessary to adequately serve high-intensity uses. In these areas future development will be largely infill consistent with existing land use patterns and the existing roadway system. Generally, the existing road system should be able to support this planned pattern of uses at a tolerable LOS.

One last step in the strategy could involve restrictions to the land use element through development phasing in order to control the timing of development, and to match the adequacy of public facilities to support the development. While not proposed under this TE, development phasing could be part of a reassessment process. Phasing changes the way that developer installed improvements are provided as a way of furnishing additional revenue to finance appropriate facilities prior to development. The development phasing strategy can be successful as long as the transportation needs in areas not covered by phasing are adequately provided at the time of development. Increased intensity of development in these areas could adversely impact the provision of these facilities.

Phasing not only controls the demand for road improvements by slowing new development, but also potentially adds revenue by better coordinating required developer contributions to the system. Under phasing, largely undeveloped areas will be subject to phasing restrictions. These areas are now served by a rural system of roads that are inadequate and inappropriate to support higher intensity urban uses and densities.

While the county EDDS do require new development to provide an appropriate road standard, these requirements generally apply only to the frontage improvements and internal roads on the property. (ref. 22) Without phasing, such frontage improvements are usually made parcel-by-parcel. This case-by-case approach limits the effectiveness of these standards to achieve the level of adequate infrastructure envisioned. Phasing restricts further development until adequate streets are provided. This requirement encourages adjacent developers to work together to find financing for the street that includes the required frontage improvements. RIDs, latecomer programs, and developer agreements are some of the ways this improved coordination and funding can be achieved.

The intent of this reassessment strategy is to ensure that adequate funding is available for the transportation improvements needed to serve planned land use, while at the same time maintaining county LOS standards and public safety. Where land development causes deterioration of LOS below adopted standards, the county needs to demonstrate that improvements or strategies are in place at the time of development, or that a financial commitment is in place to complete the improvements or strategies within six years.