In voting to take the loan, city councilman Robert H. Harlin said, "Our traction system is on the rocks. It is headed for receivership, then land on the general fund. Woe will betide us then! We're offered a feasible plan for saving the system and modernizing it."
Public transit in Seattle was owned by the Puget Sound Power and Light Co., a subsidiary of the Boston firm Stone and Webster, which also owned many other transit systems and interurban trolley lines. In 1919, the city purchased the operation in Seattle and ran it as the Seattle Municipal Railway. The heavy debt service prevented much in the way of expansion or maintenance, and service was generally poor. In 1935, the John C. Beeler Organization proposed replacing the streetcars with trackless trolleys that received electric power from overhead wires, and with buses. In a contentious election in March 1937, Seattle voters rejected two bond issues to refinance and rebuild the aging and unprofitable system, which consisted of some 224 miles of track, 8 miles of cable lines, and 84 miles of bus routes.
The Reconstruction Finance Corporation was a New Deal agency of the federal government. The loan provided $4.5 million to pay off the debt to Stone and Webster (approximately 40 cents for every dollar actually owed) and the balance to purchase 235 trolley buses and 102 motor coaches. A three-member commission was appointed by the mayor (a condition of the loan from the Reconstruction Finance Corporation to depoliticize operations) and the system was renamed Seattle Transit System. By 1941, it was planned, the last cable car and streetcar lines would be out of service. The loan was to be retired in 1952.