Without Reform, Dedicated Funding Won't Save DC Metro
On March 22, Maryland joined Virginia in approving the first-ever annual dedicated funding for the crumbling Washington Metro system. The funds are an integral part of a broader Metro Accountability and Reform Act, which, if passed, would also reign in the rising labor and fringe costs that are crowding out funds needed to maintain Metrorail tracks.
Years of insufficient funding, subdued revenue, and skyrocketing operating costs have driven the system — which operates 91 Metro stations, six lines, and serviced over 175 million trips in 2016 — into a state of seemingly permanent decay.
Endless repairs and consistent delays already affect ridership, which decreased by 9 percent between July 2016 and March 2017 alone. The Washington Metropolitan Area Transit Authority (WMATA) had to cut services and raise fares last year in anticipation of massive budget deficit.
Metro receives half of its average $300 million annual funding from the federal government. But another half (a so-called “operating subsidy”) has to be negotiated on an annual basis among three jurisdictions: the District of Columbia, Maryland, and Virginia. One promising solution to this unstable and insufficient funding, however, is the Metro Accountability and Reform Act, introduced by Congresswoman Barbara Comstock (R-VA) last December. The Act seeks to make the funding package from the three jurisdictions permanent (in addition to boosting it to $500 million).
Dedicated funding has already received considerable support from policymakers and business communities. Amazon, who is eyeing the Washington metropolitan area for its next headquarters, might be playing a role here. And the region appears to be close to finalizing the deal: Maryland just recently approved $167 million and, earlier this month, Virginia legislators greenlit a $154 million package. The District itself is expected to chip in another $179 million.
Under this act, the dedicated package would be conditional on Metro “reducing the use of overtime, shifting employees from a [defined benefit] pension system to a 401k system (as recommended by the current manager), control contract increases, and promote Metro ridership by improving reliability.” And rightly so.
Last year, Metrorail’s labor (salary, wages, and overtime payments) and fringe (i.e., health care and pension benefits) expenses were $768 million, already eating up over 77 percent of the operating budget. That’s up from 66 percent a decade or so back. The rest of the shrinking pot went to pay for utilities, necessary supplies, and servicing the crumbling tracks.
But simply boosting the Metro’s budget, as some propose, without requiring any meaningful changes to the structure of labor and fringe costs, would fail to solve Metrorail’s longer run budgetary hurdles.
This is most clearly reflected by understaffing issues in Metrorail’s control center, fire marshal office, and numerous other support departments. While Metrorail labor and fringe costs grew by 53.5 percent in the past 10 years, during the same period, the Amalgamated Transit Union (ATU) Local 689 — the largest labor union — increased its workforce by only 4.4 percent.
With Metro’s labor and fringe costs growing much faster than the new headcount, taking new employees on board, as well as keeping the existing ones, becomes increasingly costly over time. This would only be justified if Metro employees became so much more efficient at their jobs that it would translate into more revenue for WMATA. But alas, that is not the case. This is a structural problem. And if this trend is not reversed, the dedicated funding could be consumed by the very same costs down the road, leaving little to nothing for maintenance and other important non-labor expenses.
Here’s an example. In 2017 Metro’s five pension plans were $1.1 billion (market value) in the red. That is a 27 percent growth in debt since 2014. Rising pension debt, in turn, translates into higher annual contributions. Last fiscal year alone, Metro contributed almost 6 times more in into the ATU Local 689 pension plan than it had in 2008.
These defined benefit pension plans promise lifetime benefits, thereby creating long-term liabilities. By contrast, 401(k) plans provide all pension funds at once upon retirement and do not generate liabilities or debt. Moving new hires to this type of plan should help Metro cut its future pension costs. Unfortunately, the bill under consideration does not address the flaws of the current defined benefit pension plans, of which there are many. For example, Metro could lower its assumption about the rate of return on its investment for its pension benefits plan from 7.9 percent to a more realistic 6 percent target. Another prudent policy would be to set a fixed end date for its payment plan for unfunded liabilities, instead of re-amortizing it over a 30-year period every year, as is currently the case.
Cutting overtime payouts, as the Act proposes, without specifying how, would also be beneficial. The main factors that currently elevating overtime repairs and maintenance works are: understaffing, decaying infrastructure, and the so-called “pick” system. The latter allows more senior Metrorail employees to get the first pick on which Metro escalators they will be assigned to maintain, often leaving those in worse shape to inexperienced engineers.
There is little doubt that Metrorail needs dedicated annual funding. However, to genuinely address Metrorail’s funding struggles, the package should be conditional on significant reform to the structure of labor and fringe costs. This would ensure equipment and maintenance are properly funded for the long term.
Anil Niraula is a Young Voices advocate and an analyst who writes on labor, public pension, tax, and economic policies.