By Nick Licata, Seattle City Council

Ed. Note: This piece originally appeared in Nick Licata's newsletter, "Urban Politics."

The question that has dominated the discussion of the deep-bore tunnel replacement for the Alaskan Way Viaduct has been: who will pay for any cost overruns?

The answer is the state with regards to the contract for the tunnel. The reason is that the contractor that wins the design-build contract for the tunnel will be signing a contract with the State of Washington not the City of Seattle.

The contract will oblige the Washington State Department of Transportation to cover risks associated with the tunnel. The City of Seattle will not be contractually obligated to cover cost overruns for the tunnel.

Think about it for a moment – the contractor could care less who pays the bill as long as they get paid. They are not going to sign a contract in which this is left in doubt.

Since the city is not a party to the contract, there would be no legal standing for either the Washington State Department of Transportation or the contractor to look to the city to cover any of the bill spelled out in the contract.

That said, what does the $2.8 billion cap that the state legislature set on the entire tunnel project mean? The cap is real in the sense that the governor cannot spend more state money than the legislature has approved.

So, let's assume that the $1.96 billion tunnel goes over budget. The state is on the hook, not the contractor. The state could pay them and still be under the $2.8 billion cap.

However, what happens to the other parts of the overall tunnel project?

The most important project element for Seattle is taking down the current viaduct to free up the waterfront to pedestrians.

The state funding toward viaduct removal and rebuilding Alaskan Way is $290 million, but the state could use this money to cover any additional tunnel costs.

The city could argue that the state was still obligated to do the project, but if the money isn't there, the Washington State Legislature would have to approve funding, which would put Seattle in a weak position.

This problem could be solved by the state and the city agreeing in advance to put aside the money for the waterfront, thus creating a separate locked box for it.

Another major part of the tunnel project, to be tackled after the tunnel is completed, is to reconnect Thomas, Harrison and Republican streets across Aurora Avenue, to "reconnect" the street grid between Queen Anne and South Lake Union.

It is a critical engineering task, necessary to avoid congestion problems on Mercer and facilitate access to the tunnel.

The same approach of separate funding should be undertaken with this project as with the waterfront. In a worst-case scenario, this is the portion of the tunnel project that could be sacrificed – it would be the most difficult one to convince the state legislature to fund if this money is used for the tunnel.

Seattle and the state are negotiating agreements to allow the tunnel and related projects to proceed. Hopefully they will protect funds for the waterfront and reconnecting the grid. We will need to see what is included before knowing how well or whether this is addressed.