Jul 17 • Get the Facts

I-91… Take 3

I just wanted to take the opportunity to share with you our take on I-91 one more time in an effort to clarify our position in an easy to understand way.

The main problem that seems to be causing so much confusion for people is that the City and County are raising debt to fund their contribution and as such are not investing “cash” from the general fund. As such, there is no “cash” investment on which to calculate the “cash-on-cash” return required by I-91. Thus, the mistake that most observers (including Chris Van Dyk) keep making is to wrongly assume that the $200 million in debt financing is a cash investment and therefore reach the dubious conclusion that the City of Seattle has to earn a 30 year treasury return on the entire $200 million investment after accounting for the City’s debt service costs.

As can be seen in Section 2 of I-91 (below), “fair value” should be computed as the net cash-on-cash return after interest and financing costs. Nowhere in the entire ordinance is there a mention of applying a premium to the City’s borrowing cost when it is using debt instead of cash to fund its investment.

Fair value is defined herein as no less than the rate of return on a U.S. Treasury Bond of thirty years duration at the time of inception of any such provision of goods or services, real property or lease; and further, such return shall be computed as the net cash on cash return, after interest and any financing costs, on the depreciated value of the cash investment of the City of Seattle in such goods, services, real property or facility, and shall exclude all intangible, indirect, non-cash items such as goodwill, cultural or general economic benefit to the City, and shall also exclude unsecured future cash revenues.

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