Greater Greater Washington

Budget


Sequestration could hurt Metro, other regional projects

Because the Congressional "supercommittee" failed to agree on a deficit reduction plan, WMATA is likely to lose about $12 million from the federal government in 2013. This could spell trouble for an agency that has already had to raise fares to keep up with its significant capital needs.


Photo by thisisbossi on Flickr.

Under the terms of the Budget Control Act of 2011, without a supercommittee deal, nearly every item in the federal budget will suffer a 10% "sequestration" effective January 1.

Most of the nation's transit systems will be protected from this cut because they get formula grants from the Highway Trust Fund (HTF), which is immune from sequestration. WMATA, however (like Amtrak), receives a direct annual appropriation from general taxpayer funds, $150 million a year for 10 years to make needed repairs that was part of 2008's Passenger Rail Investment and Improvement Act, or PRIIA.

WMATA got that $150 million in fiscal 2012 (which ends September 30). A continuing resolution approved last week will continue this funding level through at least March 31, 2013. But after that, sequestration would take hold.

The HTF gets most of its money from gasoline taxes. Thanks to Congress's refusal to raise the gas tax, even to keep up with inflation, there hasn't been enough money in the fund to meet its obligations for the past several years. Thus, Congress has chosen to infuse general fund money into the HTF to keep it solvent.

These general fund infusions may be subject to sequestration, but none of the HTF's obligations to the states and transit agencies will be reduced. The most likely result is that Congress will have to infuse more general fund money into the HTF sooner. The White House Office of Management and Budget (OMB) will have some leeway in applying the sequestration within each federal department and agency.

The WMATA cut is not the only way sequestration could hurt our region. If OMB chooses to apply the cuts retroactively to TIGER grants that the US Department of Transportation has already awarded, this would delay the completion of TIGER-funded projects like bus priority improvements and completing the Anacostia Trail.

Another possible victim is the Silver Line, much of whose funding comes from the Federal Transit Administration's New Starts program, which is not funded by the HTF. Many other capital projects in the region, including the Purple Line light-rail corridor, have yet to receive federal funding, and any reduction in the amount of money available for grants would put them even farther back in line.

The only alternative to sequestration is another grand debt-reduction deal from Congress. But such a deal could hurt some programs more than sequestration would, in order to preserve others. Even transit-friendly members of Congress from Maryland and Virginia may vote to axe Metro in the end if it means preserving other pots, such as Pentagon spending, that provide huge sources of employment for their constituents.

While members of Congress are campaigning in their districts throughout October, consider taking an opportunity to remind them how important investments in infrastructure that reduces traffic congestion and enhances mobility in a sustainable manner are to you and to the region's economy.

You can also make the point that we could avoid this whole sequestration mess altogether if they could muster the gumption to raise taxes on the wealthiest Americans, place a small tax on financial transactions, or finally raise the gas tax.

Besides, deficit spending really isn't a bad thing, especially with the economy in recession.

Malcolm Kenton lives in the DC neighborhood of Bloomingdale. Hailing from Greensboro, NC and a graduate of Guilford College, he is a passionate advocate for world-class passenger rail and other forms of sustainable transportation, and for incorporating nature and low-impact design into the urban fabric. The views he expresses on GGW are his own. 

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Hey Malcolm, the transit formula grants are only safe for this year — next fiscal year the transit account of the trust fund will not be solvent and therefore subject to cuts based on the general funds within the account. And New Starts will definitely get a cut this year of about $156 million, which will definitely have an impact on grants — that's almost the exact cost of the Tucson Streetcar opening this year.

http://t4america.org/blog/2012/09/24/automatic-budget-cuts-looming-for-transportation-programs/

by Steve Davis on Sep 27, 2012 12:05 pm • linkreport

Err, if the local projects aren't being funded by HTF money, how is increaing the gas tax going to help.

And I'd strongly guess a massive cutback in federal spending (and employment)-- which is needed -- is going to hurt the DC region far more than cutting a few infrastructure projects.

by charlie on Sep 27, 2012 12:09 pm • linkreport

Um, Charlie, why is a "massive cutback" in federal spending and employment needed?

by Nick on Sep 27, 2012 12:12 pm • linkreport

Cue political flame war :-D
Moderated comments in 5..4..3..2..1..

by Jasper on Sep 27, 2012 12:17 pm • linkreport

@Nick; everyone is in agreement that trillion dollar deficits are not sustainable. The question is WHEN do you do a cutback, and whether you increase taxes as well.

And in terms of federal spending and employment, the biggest area is national defense/intelligence/homeland security. And if you think cutting that back to a rational level will NOT hurt the area's prospects, I've got a bridge to sell you.

(I've come to the view that sequestration could be the best thing for this country, as it is only way we're going to get increased taxes. 10% cuts in federal spending don't get to the waste I identified but won't do any damage naitonally. Locally is another matter.)

by charlie on Sep 27, 2012 12:28 pm • linkreport

@charlie

No, there are a lot of economists out there would argue that we do not need any cutbacks, and that cutbacks would only make things worse, as they had in Europe. Large deficits are sustainable when the interest burden is extremely low, as it is now, and will be into the medium run. Please see Dean Baker (a well respected economist) on this: http://www.cepr.net/index.php/blogs/beat-the-press/the-budget-deficit-and-the-mysterious-forces-that-determine-newspaper-headlines.

The recession and slow recovery have greatly extended the size of the deficit (which is supposed to happen) through stabilization policy. However, we haven't seen a pick-up in revenue because the recovery has been slow, there is extreme slack in demand and high unemployment. The last 4 years have seen pretty stable employment in the federal government, and extensive cutbacks in state and local government jobs, especially in the services we need most like education. We don't need cutbacks.

However, I totally agree that defense/homeland/intelligence cutbacks would hammer the regional economy.

by Nick on Sep 27, 2012 12:55 pm • linkreport

We are in such a slow economic recovery right now that spending cuts and deficit obsessions should NOT be a priority. Austerity is having disastrous results all over Europe, cuts in state and local spending are dragging down the national economy, and we managed to unnecessarily prolong the Great Depression when FDR reversed course in 1937 to focus on debt reduction. The track record is horrible (although Simpson-Bowles may be slightly better than the Ryan plan).

Now it the time to spend on infrastructure projects. Interest rates are very low and the economy as a whole desperately needs a boost.

by watcher on Sep 27, 2012 12:55 pm • linkreport

@Jasper:

As my Granddaddy would say, "An' ol' Bre'r Rabbit, he jes' lay low and didn't say nothin'." :-)

by Ser Amantio di Nicolao on Sep 27, 2012 12:55 pm • linkreport

Could the $12mil loss be covered by the $28mil surplus?

by Bossi on Sep 27, 2012 1:32 pm • linkreport

"This could spell trouble for an agency that has already had to raise fares to keep up with its significant capital needs."

Correction - passenger fares fund the operating budget, not the capital budget. The capital budget is funded by a combination of federal formula grants (5307, 5309, etc.), federal dedicated grants (PRIIA), and local matching funds and additional funds from the WMATA Compact jurisdictions. It would be more accurate to say that more local tax revenue from the jurisdictions have been promised to Metro to meet its capital needs. Rising fares have been the consequence of operating budget deficits that have been discussed at length in other posts by Michael Perkins, et al.

by fulgur on Sep 27, 2012 1:35 pm • linkreport

Minor correction. Having the CR go through March doesn't mean those funds are safe from sequestration in January. Sequestration would impose a roughly (depends on account) 8.2% cut on the CR appropriations.

Of course, as implied in the original article, sequestration being in effect when the CR expires would doubtless impact further appropriations.

by John on Sep 27, 2012 1:44 pm • linkreport

12 million? Really? The entire region is going to suffer because of 12 million dollars, or less than 1% of the 1.5 billion that was gifted to them is no longer available?

So Metro, a ~35 year old system is neglected like proverbial red headed step child the first 30 years of its life. WMATA’s budgets were borderline criminal, not making any allowances for maintenance.

So instead of forcing Metro to fix its self created issue, Uncle Sam plays the benevolent rich uncle and steps in with 1.5 billion in free money in 2008, spread over 10 years, completely excusing Metro and its management for decades of disturbingly poor management, many of the folks responsible still being there.

On top of that, Metro has raised fares nearly 35% since 2007, during a 5 year period of lowest sustained recorded inflation in the past 100 years.

They’ve done this because Metro, year after year, decade after decade refuses to make the minutely difficult decisions and go after the prodigious low hanging fruit on their tree, all of which has been discussed here in perpetuity.

If Metro can’t shake the cushions enough to get 12 million dollars, they will have simply reaffirmed all the reasons I stopped riding metro 18 months ago and took the $1100 a year I was paying them to provide me a horrible substandard transportation service and spent it on something else.

by Metro on Sep 27, 2012 1:45 pm • linkreport

Sequestration isnt going to happen. So you can take the duct tape off the windows and stop building the underground shelter now.

by Soothsayer on Sep 27, 2012 1:53 pm • linkreport

Sequestration isnt going to happen.

Sequestration is a lot like nuclear war during the Cold War. There's a lot of saber rattling but since there are rational actors on both sides, it's unlikely to actually happen. But, then again, the Cuban Missile Crisis brought us one miscalculation away from WWIII.

We don't need cutbacks.

True. What we need is a reallocation from "guns" to "butter". That is, shift money from defense spending to infrastructure investment.

by Falls Church on Sep 27, 2012 3:03 pm • linkreport

rational actors on both sides

Not really certain about this one. When we have roughly 1/2 of the legislators in this country who have deferred judgement on 1/2 of the equation, all to a conservative lobbyist who came (this close) to shutting down our goverment, I can't be certain I agree here.

What we need is a reallocation from "guns" to "butter". That is, shift money from defense spending to infrastructure investment.

I couldn't agree more. How much better off is our country right now, Bush had decided to sign us up for an additional 1 trillion is infrastructure spending, as opposed to a completely useless desert expedition?

by Kyle-w on Sep 27, 2012 4:40 pm • linkreport

I think across the board cuts (coupled with tax increases) make a lot of sense. Surely Metro can afford a 12 million cut.

Pension and health care costs seem to be driving a lot of the yearly Metro deficits.

by H Street LL on Sep 27, 2012 4:48 pm • linkreport

From what I've heard at work, massive layoffs of actual feds is unlikely to happen, even with sequestration. There would be lots of furloughs and we might have to start bring in our own pens and printer paper, but lay-offs have complicated rules and can actually be costly in the short run. Plus, since the sequestration is by program, project and activity, it's a blunt instrument that won't allow for the shifting of priorities in a rational manner.

Contractors are a different story. There could be massive contractor layoffs. Plus, starting Oct 1, I would imagine that if agencies can delay buying anything or starting new contracts they will until we see how this plays out.

by Kate W. on Sep 27, 2012 7:15 pm • linkreport

Most of the nation's transit systems will be protected from this cut because they get formula grants from the Highway Trust Fund (HTF), which is immune from sequestration. WMATA, however (like Amtrak), receives a direct annual appropriation from general taxpayer funds, $150 million a year for 10 years to make needed repairs that was part of 2008's Passenger Rail Investment and Improvement Act, or PRIIA.

[Deleted for violating the comment policy.] Every urban transit system, INCLUDING WMATA, get funds from the Mass Transit Account of the Highway Trust Fund. You can go on the Federal Transit Administration's website and see (look at allocations for Section 5307 Urbanized Area Formula, which at about 5 billion dollars a year, is one of the largest funding pools ) WMATA gets an *extra* allocation from the General Fund of roughly 150 million a year, which NO other transit system in the country gets. You can argue whether this is appropriate or not, but it means that WMATA simply gets 12 million less. It gets an annual apportionment from 5307 and 5309 formula funds of roughly 300 million, even before the additional 150 million.

by AA on Sep 28, 2012 4:53 pm • linkreport

No level of deficit spending is sustainable when there is no plan to eventually pay down the debt. It's really no different than credit cards. Does it matter that your first year interest rate is low? Not unless you plan to pay off your debt in 1 year. We will be paying high interest rates on our debt once we have finished running it up to a ridiculous level. Even with low rates today the interest on the debt is the fastest growing part of the budget.

by Brian White on Sep 29, 2012 2:56 pm • linkreport

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