Ask GGW: With another fare hike in store, why is Metro still short on cash?

WMATA is hiking fares while still claiming it needs more money. How does the agency’s financial status compare to that of other large US transit agencies? Have member jurisdictions’ contributions to WMATA changed recently? Our contributors do their best to explain some of Metro’s finances in this week’s Ask GGW.

Reader Samuel Inman asks:

Can GGW provide any stats or comparative data on WMATA’s financial status against, say, Boston’s MBTA or New York’s MTA?

WMATA keeps saying they need to raise fares, that they need to cut service, and that they need more money from local jurisdictions.

But where is the money going? From a rider’s perspective, fares have climbed pretty steadily and are comparable to those in Boston and New York. So why does Metro still need more money?

It would also be interesting to look at historical funding structures for WMATA. Are they asking for more because their jurisdictional contributions are down?

Michael Perkins provides this breakdown:

Regarding rail, rider fares and other revenues like parking and advertising currently pay for about 80% of the operating system’s costs. The remaining costs are divided up among the jurisdictions according to a funding formula (see my previous GGW article on the subject for background).

This means that if the costs of the system go up and there is no change in fare, parking, or advertising revenue, the jurisdictions have to pay for the increase out of their contributions alone. Since the contributions only pay for 20% of the cost, the increase is multiplied by 100%/20% = 5x.

For example, if the system costs $1 billion to run, $800 millon comes from fares and $200 million comes from the jurisdictions. A 5% increase in costs means that the system now costs $1050 million. Since $800 million still comes from fares, the jurisdictions now need to pay $250 million, which is 25% more than before.

Regarding bus, there are two parts of the bus system. The “regional” routes meet certain criteria but are the major routes that cross jurisdictional boundaries or travel major corridors. The regional route bus funding is divided up among jurisdictions according to a different funding formula, which depends on factors like ridership, service level, etc. The “non-regional” routes are operated at the request of a particular jurisdiction and are funded by that jurisdiction.

With Metroaccess, this paratransit service is funded by the jurisdiction that the customer resides in.

Perkins further explains WMATA’s revenues and costs, and gives context for comparing the Washington region’s system to those in other cities:

Fares are a very large portion of the Metro budget, especially for rail. Every year when Metro costs go up, unless there is a fare increase or ridership increase, the jurisdictions will be asked for a contribution increase. Their contribution increase is multiplied by about five if there is no more money from riders, i.e., if costs go up 3%, the jurisdiction are asked for a 15% increase in budget. This is because fares pay for about 80% of rail operating costs. There are very few jurisdictions out there that can bear such an increase every year.

Metro service off peak has been lousy lately. There is lots of track service, both single tracking and otherwise. Even when a route is not affected on a weekend, the friction of having to figure out what is affected sometimes discourages people from riding. This cuts into ridership and revenue.

The federal transit benefit was cut back recently. This has cut people’s desire to spend $12 round trip from the farthest stations. Other systems like Chicago and Boston have unlimited transit passes that are below the transit benefit level, while Metro’s is nearly double the limit.

Metro arbitration rules with their largest union do not allow the level of fares to be a factor in determining Metro’s ability to pay. As long as Metro can get more money by raising fares, they will be directed to raise fares in order to pay for raises and benefits mandated by arbitration. I think we have reached the point where increasing fares is starting to affect ridership negatively, so they may be able to argue that raising fares to increase revenue is less possible.

In the core of WMATA’s operations (rail operators, bus drivers, station managers), it is difficult to impossible to improve efficiency by substituting technology for labor. Unlike industries like offices or construction where new techniques or equipment can do a job with fewer people, there is no easy way to drive a train with less than one operator other than by replacing the entire control system at considerable expense.

People have reduced labor costs in lots of other industries&emdash; for example the self-checkouts at grocery stores, filling your own drinks at restaurants, switching from table service to fast casual restaurants, and automated copy machines instead of having lots of office administrative assistants.

Metro is suffering the same cost issue that other labor intensive industries like education and medicine are suffering. Only by increasing the efficiency in a passengers per operator sense can we keep fares under control, and the only way to do that is to increase ridership when the trains aren’t packed (non-peak direction, off-peak ridership, and uncongested portions of the peak direction trains).

Comparing Metro to NYC is not really possible. The density around stations, the system design, the financial situation and the overall size of the system makes NYC not comparable to any other transit system in North America, and really only comparable to huge systems like Paris, London, Moscow or Tokyo.

Metro is best compared to Atlanta or San Francisco, except Metro has a bus system tacked on to it, and has to operate its own paratransit service, which I think in SF is handled by the jurisdictions individually. I don’t know about Atlanta.

Ben Ross provides more background on the labor aspect of WMATA’s cost structure (which we covered in August 2011):

The level of fares is considered by the arbitrators when they make their decision about what the fair level of pay would be. The arbitrator’s job is to balance the interests of management against the interests of labor. One of the interests of management that the arbitrator considers is the need to hold down costs.

Arbitration becomes meaningless if Metro can ignore the arbitrator’s order after it’s given. What binding arbitration means is that it binds. Once the level of salary has been set, the political process decides how much to be paid out of the local jurisdiction contribution and how much out of fares.

It’s important to point out that the binding arbitration process was set up because the area’s transit workers lost the right to strike, which they previously had, when WMATA took over local bus systems (including some lines converted from streetcars only a few years earlier). Do proponents of ending binding arbitration want to give back the right to strike?

What the statute says is that so-called “public welfare” — a misleading piece of terminology since it’s defined to mean the desire of local governments to hold down taxes — is to be considered by the arbitrator in addition to the factors that the arbitrator usually considers in setting a fair wage.

The final thought comes from Tracy Loh, who puts this discussion in a wider context to highlight a key disconnect in US transit policy:

Part of the issue with transit finance in the US generally is that we treat the market for mobility and the market for land as if they were separate, when in fact they are closely intertwined.

Transit agencies worldwide that succeed without subsidy do so by operating as land owners, land developers, landlords, and mobility providers. This allows wealth generated through land development to subsidize capital construction for transit, and income generated through rents to subsidize transit operations.

It also establishes potent feedback loop whereby easy access to residential and commercial development near transit stations boosts demand for both those destinations and for the transit service, thus allowing the developer/transit agency to capture value twice.

In our region, WMATA does have a Joint Development program, but this program still sends a substantial portion of the value it creates to the private sector and local jurisdictions, rather than to WMATA. Thus WMATA can only capture that value indirectly, through taxes and then through subsidies, which can only be less efficient.

Do you have a question? Each week, we’ll post a question to the Greater Greater Washington contributors and post appropriate parts of the discussion. You can suggest questions by emailing ask@ggwash.org. Questions about factual topics are most likely to be chosen. Thanks!