Metro may draw on cap­i­tal funds

Warn­ings heard as board eyes use of money for op­er­a­tions

The Washington Post Sunday - - METRO - BY FAIZ SID­DIQUI

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.”

LINDA DAVID­SON/THE WASH­ING­TON POST

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.

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