Island Transit may borrow millions for two new buildings

Island Transit mechanics Josh McNamara and Michael Matros look at the undercarriage of a bus in one of two maintenance bays in the transit organization’s Central Whidbey facility. The board of directors will consider next week whether to borrow $22.4 million to pay for a new facility. - Justin Burnett/Whidbey News-Times
Island Transit mechanics Josh McNamara and Michael Matros look at the undercarriage of a bus in one of two maintenance bays in the transit organization’s Central Whidbey facility. The board of directors will consider next week whether to borrow $22.4 million to pay for a new facility.
— image credit: Justin Burnett/Whidbey News-Times

After years of being shot down for federal and state grants, Island Transit officials have come up with a new plan to pay for two new buildings at their facility just south of Coupeville.

Friday, Jan. 21, the transportation service’s board of directors will consider a proposal to spend more than $22.4 million by borrowing the money needed for the project from Colorado-based Municipal Services Group, a national financial institution specializing in assisting municipalities with public works projects.

But while Island Transit officials are trumping the project as sorely needed, and one that will come at no additional burden to the public as existing revenues should cover the tab of the 20-year loan, it may prove a hard sell for decision-makers.

Board President Bob Clay, who is also a Coupeville Town Councilman and a staunch supporter of Island Transit, said no one is doubting the need for the new facility. The board has been aware of and discussing problems at the existing facility for nearly a decade.

“But we’re also aware that spending $20 million is a pretty big step,” Clay said. The transit system doesn’t charge fares, instead getting its revenue primarily from a sales tax.

Island Transit Director Martha Rose said she knows this is a big decision but is adamant that the project is justified. And with potential service reductions at stake, Rose said she’s prepared to put the pussycat approach aside and really fight for the new facility.

“It’s time to be a bulldog, it really is,” Rose said. “Something has got to give.”

The need

Opening its doors in 1987 as Island County’s first voter-approved public transportation benefit area – it is completely autonomous of Island County government – the fledging agency set up shop in a 6,000-square-foot building with a single bathroom. At the time it worked, as there were only 20 employees charged with managing five buses on just three routes.

Over the next 23 years, however, the organization would grow steadily; it now has over 200 vehicles that operate on 21 different routes, and employs more than 145 people. The operation is largely unrecognizable. In fact, the only thing that hasn’t changed is the facility.

“It gets blood-thirsty when people want to use the bathroom,” Rose said.

But there are larger issues at stake than just the single toilet. The outdated facility only has two maintenance bays, which is grossly insufficient to handle the 200 vehicles that drove a collective 3.35 million miles in 2009. Unless the maintenance shop expands, Rose said Island Transit may have no other choice but to start reducing services.

The proposal is to build two buildings: a 14,000-square-foot administrative and operation center and a 29,000-square-foot maintenance building with 12 service bays. The existing building would be torn down to make way for parking.

Designs for the new facility, permitting, and even some funding has already been acquired, making the project largely shovel-ready. All that’s needed is the money, Rose said.

Funding options

Rose and other Island Transit officials have spent the past few years seeking funding through state and federal grants programs, but their efforts have been unsuccessful. Getting a loan from the Municipal Services Group has largely been a last resort, but that doesn’t meant it’s a bad financial decision.

It’s a guaranteed funding mechanism – unlike asking voters to pay for the facility – and the interest rates will likely be comparable to any bond, Rose said. While no contract has been approved, the financial firm gave an early quote of a 4.6 percent interest rate, which would equal about $10 million in interest over 20 years.

However, the idea is to pay off the loan as quickly as possible to avoid paying the full sum. Most of the money is expected to come from grants that the Municipal Services Group would actually assist in acquiring. Much like larger transit authorities, the group is armed with its own resources and lobbyists, Rose said.

According to Barb Savary, finance administrative manager for Island Transit, the transit agency has had poor luck getting grants over the past two years, but overall, it has a long track record of successful grant writing. Since 1987, the organization has received about $36 million. The organization has also never had a negative finding by the state Auditor’s Office, Savary said.

“All told, that’s why we add up to a good financial risk,” she said.

A cost-benefit analysis has also revealed that the new facility could save Island Transit $32.7 million over a 20-year period. About $23.5 million works out to direct savings, from vehicle maintenance to operational savings, while another $9.2 million is chalked up in soft savings, such as risk management and environmental costs.

Hard sell

But while the Municipal Services Group and Island Transit officials see this as a solid financial move, some board members aren’t so sure. Jim Palmer, the Oak Harbor City Councilman who represents the city on the board, said he has serious concerns about where the money will come from.

Island Transit officials led a successful campaign in 2009 to increase the amount it levies from sales taxes to nine-tenths of 1 percent – the maximum allowed by law. It sold the ballot measure to voters by saying it needed the money to maintain existing services.

“I don’t want to turn around now and use a large portion of that money to build a building,” Palmer said.

The funding source makes up about 95 percent of the Island Transit’s total annual budget. According to Rose, some of that revenue has always been put toward capital projects. So far, about $3.4 million has been squirreled away so that the organization can meet matching requirements common to grant awards.

Also, it’s unlikely that they couldn’t meet the two annual payments of $775,000, but if that ever happened the money could always be found by reducing existing services, Rose said. That, however, is something that Palmer said would not be acceptable.

“I’m going to have to hear a better explanation than that,” he said.

Clay said he has similar concerns. While it seems as though the deal would work out well, and he’s not against the project in any way, Clay said he will need to see additional information on revenue forecasts before he agrees to a 20-year obligation during a recession.

“I have mixed feelings,” he said. “I don’t know if I want to saddle Island Transit and taxpayers with that. But we have to do something.”

Get involved

What: Discussion of Island Transit borrowing $22.4 million for a new facility.

When: Friday, Jan. 21, 9:30 a.m.

Where: Room 131 of the Law & Justice Building on Sixth Street in Coupeville.

Who: Transit board members include Jim Palmer, Oak Harbor City Council; Robert Clay, Coupeville Town Council; Robert Gilman, Langley City Council; Helen Price Johnson, Island County commissioner; and Kelly Emerson, Island County commissioner.

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