Metro may draw on capital funds
Warnings heard as board eyes use of money for operations
As Metro stares down a $290 million budget shortfall for the coming fiscal year, it is all but certain the agency will dip into a pool of federal grant money to offset some of the costs.
The question is how much of the annual formula-based allotment, intended for long-term maintenance and planning needs, the agency will instead use to cover day-to-day expenses.
Metro General Manager Paul J. Wiedefeld has proposed using $60 million of the $300 million pot to support short-term needs for the fiscal year that begins July 1. But some board members want to increase that amount by tens of millions to stave off fare increases and service cuts, continuing a trend in which the transit system has dipped deeper and deeper into federal money intended for capital needs to fill holes in its operating budget.
Congress and the Federal Transit Administration have in the past criticized the agency for the practice. Meanwhile, former Metro officials, who embraced the budget move during their terms, now warn against it — saying that years of deferring the system’s long-term needs to balance the budget
contributed to the system’s deterioration.
Metro leaders say they might be left with no choice, however. The revenue gap is driven in part by declining ridership, and the agency is weighing fare increases and service reductions that threaten to accelerate the decline.
Even Metro Board Chairman Jack Evans, who last fall vowed not to repeat the practice — saying, “even if it’s legal we’re not doing it” — has changed his mind.
“I would rather not do it,” Evans said recently. “I would rather get money from [the District, Maryland and Virginia] and the federal government. If that is not going to come, then we have that hard choice.”
The District, Maryland and Virginia already have agreed to increase the amount of money they contribute to Metro included in Wiedefeld’s fiscal year 2018 budget. But still their contributions will not be enough to cover the budget shortfall, and Wiedefeld has proposed raising bus and rail fares, reducing the frequency of trains and eliminating bus routes to limit operating costs. The funds needed to avoid those steps would have to come from the jurisdictions or the grant money, Evans said.
It’s a clear change of heart for Evans, who last year said: “Well, we’ll do it, I’ll just quit. Over the long term, it’s impractical — because you need the capital dollars to do the capital improvements.”
The FTA has yet to make a final decision on whether Metro’s proposed budget makes appropriate use of the formula funds, an agency spokesman said Friday.
The agency, which has assumed temporary safety oversight of Metro, said it requires that the funds be spent on correcting safety deficiencies before being steered toward other projects. The FTA is comparing Metro’s proposed list of projects with the transit system’s safety and “state of good repair” needs before reaching a conclusion, the spokesman said.
And as the region learned in the past week, running afoul of FTA guidance can have serious ramifications. The FTA announced Friday that it will withhold millions of dollars in funding from the District, Maryland and Virginia because they missed a deadline to create an independent Metro oversight commission. The largest amount, more than $4 million, would have flowed to Metro between now and September. The FTA said it will not give any of the three jurisdictions any of the money, which could total as much as $15 million over a full fiscal year, until the oversight commission has been established.
To complicate matters, the FTA also has given Metro indications in recent months that the transit system might be okay in shifting the funds. Capital funds cannot be used for operating costs such as wages, but they technically can be steered toward “preventive maintenance,” which the FTA considers a capital expense, the agency said.
The term is essentially meaningless, however. Under one grant definition, the FTA says preventive maintenance is “all maintenance.” Under that definition, one former Metro official said, money that the transit system reserved for uses such as traction power upgrades, rail car rehabilitation and replacement, and fixing rotting tracks, could instead be used for oil changes and wiping down rail cars.
Former Metro board chairman Tom Downs, who approved the redirection of capital funds during his tenure, while acknowledging the risks, said it amounts to “financial trickery.”
“It’s the work that didn’t get done on rail, on ties, on connectors, on the power system,” Downs said. “The problem with the use of capital [funds] for operating is that the effects are not seen for years.”
Board policy has traditionally limited capital funding of preventive maintenance to $31 million annually. But Metro has increasingly drawn from the federal cash pool in recent years. Last year, as the agency sought to avoid fare increases and service cuts, in what was then also viewed as a dire budget situation, Metro made what it called a “one-time” increase to $95 million.
Wiedefeld’s proposed budget takes the amount down to $60 million. But in the face of daunting cuts, some board members are suggesting the amount be increased to $80 million or more.
“Whether we stay at 60 or go up to 70, 80, 90 — I think that’s all on the table for discussion, depending on what we can do,” Evans said.
He pointed out that other systems also use federal grant money for maintenance. For fiscal year 2016, the comparably smaller Boston, Philadelphia and Los Angeles systems used between 5 and 21 percent of their federal grant funds for
“It would be a reduction in the replacement and capital upgrade work that needs to be done.” Mortimer L. Downey, former board chairman
preventive maintenance, respectively, according to a recent FTA memo.
But neither New York, the nation’s busiest subway, nor Chicago, the third, used federal funds in that manner. (Metro is the country’s second-busiest subway.)
Wiedefeld acknowledges that spending capital funds for operating needs has a downside — potentially deferring long-term work that has been neglected in the system. But, he said, the decision ultimately is up to the board.
“I mean, it’s a slippery slope when you use capital money for operating,” he said. “The board’s got to make a tough call on that one.”
Former board chairman Mortimer L. Downey, who also approved the practice while on the panel, said the move is particularly risky now when the future of all federal funding for mass transit is uncertain. The Republican Party platform calls for the end of such funding, saying it is a local responsibility. With a Republican president and Republican-controlled Congress, there are fears that that could become a reality.
“Making the fight for capital funds is weakened if you’re actually using them for operating,” Downey said.
Downey, however, defended his decision to approve the use of $95 million of the funds while he was on the board, citing the dire and limited circumstances.
“Part of the agreement was that it would only be for one year,” he said. “Once the budget is totally cooked, I had to vote for it.”
What would be the effects of prolonging the practice?
“For the system in itself, it would be a reduction in the replacement and capital upgrade work that needs to be done,” Downey said. “Which would mean either further deterioration in condition or failure to improve the condition at the rate that they’d like to.”
For example, instead of going to long-term track fixes, replacing rails, crossties and upgrading the traction power system, the redirected funds could go to day-to-day maintenance: “cleaning the cars, changing the oil on the buses,” he said.
“Once you get down to using your capital money for that, you really have hit bottom,” Downey said. “I think at the $95 [million] level, they certainly are getting there.”
Still, Metro ridership is down about 100,000 daily trips from its 2009 peaks, and reducing train frequencies and raising fares — while riders continue to be frustrated with chronic service disruptions — is likely to accelerate the decline. Downs acknowledged that board members are in a bind.
“I know that the board members probably think they don’t have any other choice,” he said. “Their jurisdictions have said ‘no, we’re not going to cough up any more money.’ They should point out the fact that they don’t have any choices, that this is being done with a gun to their head.”
Board member Carol Carmody, who represents the federal government on the panel, acknowledged the potential perils of the move but said she has not decided either way.
“There’s a risk to it,” she said. “If you get used to plugging your operating budget with capital funds, the hole is still going to exist next year.”
Passengers on an escalator at Metro’s L’Enfant Plaza station in February 2016. With a budget shortfall worsened by a drop in revenue caused by declining ridership, the transit system again is considering using capital funds for maintenance work. The practice carries risks.