Financial Crisis At Metro Demands Leadership From D.C.

[ad_1]

Anyone who’s lived in the D.C. area long enough has seen a certain cycle play out involving the regional transit agency’s finances over and over again: Without more money, Metro says it will have to make devastating cuts, regional leaders find some cash to avert the emergency, everyone pledges to make long-term changes, and then things head back to square one a year or two later.

But this latest round of panicking feels different. Not only is Washington Metropolitan Area Transit Authority’s financial deficit daunting—the system is facing a $750 million operating shortfall starting next fiscal year—but the pandemic’s transformation of the economy ensures there’s no ridership rebound just around the corner to fill the gap in revenue. WMATA’s leaders outlined plans Thursday for some cost-cutting moves to reduce the deficit, but it’s becoming increasingly clear that the region is going to need to find some sort of transformational solution to end this cycle once and for all. That means a dedicated source of funding for Metro’s operations, not just the money that D.C., Virginia, and Maryland all agreed to dedicate to its construction budget five years ago.

Deep down, the region’s elected officials are well aware of this reality, and they’ve begun quietly discussing potential solutions. But they also know that they’re stepping into a political minefield, particularly in D.C., where the economic picture remains most uncertain in the wake of COVID-19 and where residents most depend on Metro’s trains and buses. The District took the lead on the dedicated funding debate back in 2018, and many are looking to the city to do the same again. But discussion of a solution will almost certainly involve some sort of new taxes to prop Metro up on a permanent basis, and that is anathema to Mayor Muriel Bowser and her allies in the city’s business community.

“I think they’re frustrated with having to lead the way, but I do think it is so much easier for the District to lead on this,” says Stewart Schwartz, the executive director of the influential Coalition for Smarter Growth and a veteran of many Metro funding debates. “Just by the nature of the different government structures [in Maryland and Virginia], it’s easier for D.C. to come to a consensus. I also think D.C. has to acknowledge that Metro is more critical to them, perhaps than any other jurisdiction, both for people in the city and people coming to the city.”

Consider that Maryland’s suburban lawmakers have to convince their counterparts in Baltimore and the Eastern Shore to pay for a transit service their constituents will hardly ever use. The same dynamic is even more pronounced in Virginia’s legislature, where the “NOVA vs. ROVA” divide has only widened as the D.C. suburbs have thrived and its old southwestern power centers have faded. (A Republican governor more preoccupied with harassing trans kids and planning a potential White House run than managing the state doesn’t help either.) There are divisions between Bowser and the various councilmembers, of course, but D.C. has to get only 13 legislators and one mayor on the same page instead of an entire statehouse.

“The District stepped up first in 2018,” recalls Council Chair Phil Mendelson. “And the District is still going to show leadership here.”

D.C. Council Chairman Phil Mendelson Credit: Darrow Montgomery/File

Loose Lips is still waiting to see signs of that leadership, however. Bowser has offered vague gestures of support toward Metro, but so far has not discussed her plans publicly (and her spokesperson didn’t respond to LL’s questions on the matter). Mendelson and his Council colleagues have spoken about it on occasion, but have yet to offer too many detailed ideas. This is hardly any great surprise, considering how loathe politicians are to discuss even the best-intentioned tax increases, but LL suspects it serves no one especially well to delay the inevitable.

“Raising revenue is going to have to be on the table if we’re going to have any serious conversation, but I also think that we will get distracted if we start talking about what that looks like too soon,” says Ward 6 Councilmember Charles Allen, chair of the Council’s transportation and environment committee and one of the more outspoken politicians around the DMV on this question. “Is that a regional thing? Is that each jurisdiction doing their part? I don’t know, but I think talking about the revenue is a little bit putting the cart before the horse right now. We need to clearly define what our problem is first.”

To that end, Mendelson says he convened a meeting last week with the city’s representatives on the Metro board, City Administrator Kevin Donahue, and Chief Financial Officer Glen Lee to discuss the prospect of D.C. getting better visibility into Metro’s finances. Five years ago, then-CFO Jeffrey DeWitt managed a similar process to give leaders around the region confidence in the exact size and shape of Metro’s financial needs; Mendelson is counting on Lee to play a similar role this time around.

“I want to know that our CFO tells me the numbers are the numbers, and then I’ll go out and find the money,” Allen says. Metro is also offering to trim at least $50 million from the $750 million deficit with a variety of cost cutting moves, and suggests it could save even more by deferring future expenses like preventative maintenance and the purchase of new railcars (though Allen and Mendelson both find those maneuvers a bit suspect). The Metropolitan Washington Council of Governments, a coalition of elected leaders that Allens helps lead, is also studying the issue and hopes to deliver a report outlining the size of the problem and potential solutions later this fall. Add all this up, and you can see why some officials are urging patience.

But this is all likely delaying the inevitable. No matter what the CFO or the COG finds, the deficit will still be in the hundreds of millions of dollars. Metro’s proposed cutbacks are well-intentioned (the agency needed to offer some sort of olive branch to elected officials before it started shaking the can for more money, particularly to placate Virginia Republicans), but WMATA can’t cut its way to a balanced budget without decimating its service and triggering a death spiral for the system. A new, dedicated revenue source is almost certainly the only way out of this logjam. Metro General Manager Randy Clarke led a successful campaign for property tax increases to fund transit at his last job in Austin, so he knows how to manage this sort of push.

“I was shocked by how little Metro can do to solve this problem,” says Yesim Sayin, the head of the D.C. Policy Center and a former official in the CFO’s office, after reading through WMATA’s latest budget plans. “This seems more to me like a call for action to the region’s leaders…And it has to be a dedicated source of funding because it can’t go through the budget risk every year.”

Local leaders can (and surely will) wait on more studies of what that dedicated funding could look like, but the experts have been unanimous on the answer for nearly two decades now: A regional sales tax.

A 2005 report commissioned by the COG, the Federal City Council, and the Greater Washington Board of Trade recommended a .5 percent sales tax hike across the region, suggesting it would raise $500 million over the next decade and solve Metro’s funding woes in perpetuity. The federal Government Accountability Office confirmed many of these suggestions a year later. The COG recommended the same solution in 2017 as the last dedicated funding debate kicked off (this time pitching a 1 percent increase). The Council even proposed a bill calling for a sales tax hike, provided that Maryland and Virginia followed suit. No less a luminary on D.C. financial matters than then-Ward 2 Councilmember and Metro board chair Jack Evans was a vocal proponent of the idea.

“Frankly, I think the ideal solution would be a regional tax,” Mendelson concedes. “But I think the chances of that are highly fraught.”

Indeed, for all of those recommendations, it is hard to imagine Virginia and Maryland ever agreeing to something like a regional sales tax. With much larger populations, the suburbs would likely end up paying a much larger share of the tax while receiving less Metro service than the District. Sayin reasons that even some D.C. officials might balk at the idea, considering it’s generally seen as a regressive tax that falls hardest on low income people. She notes that the idea of raising the rate was widely panned when it came up before the city’s Tax Revision Commission, which is considering a variety of proposals for the District’s tax structure.

As a member of the commission, Sayin is optimistic that some ideas debated there could ultimately help with Metro’s budget problem. For instance, the panel recently considered a pitch for a “business activity tax,” applying to companies that do business in the city but aren’t based here and therefore escape many other levies. Even if the District doesn’t dedicate a portion of that new revenue to Metro specifically, it could use that new money to backfill cash diverted from a different source, like sales tax revenues. Maryland and Virginia could then have their own, unique taxation debates.

But all of these ideas still feel very pie-in-the-sky. Metro needs money right now to avoid service cuts and layoffs in fiscal year 2025. Schwartz notes that the agency’s budgeting process is already starting, and it’s obligated to notify its various unions about potential layoffs as early as February. The state legislatures will also start meeting in January and lawmakers will need to have some sort of plan ready to pass.

That’s why Mendelson predicts there will need to be a “short-term solution and a long-term solution” to Metro’s woes. Some have already pitched temporary fixes, such as asking federal agencies that provide transit benefits to their employees to simply write Metro a check instead. There could be more federal funding to bridge the gap, too, though Congress has never been especially keen on kicking in for Metro (and it can’t even manage to fund the federal government these days).

Ward 6 Councilmember Charles Allen Credit: Darrow Montgomery/file

Mendelson has a more off-the-wall idea: Maryland and Virginia could finally give the District ticket reciprocity, and allow it to start collecting money from the hundreds of thousands of outstanding traffic tickets racked up by out-of-state drivers. “I may be the only person that thinks that, but that would be a relatively painless, short-term solution,” he reasons. Though LL notes that he may be underrating the pain involved, considering the years of fruitless negotiations on this question.