Posts about Capital Shifting

Paying extra capital to use for operating is not as problematic as taking money out of the capital budget. No capital projects are being deferred; it's just accounting sleight-of-hand. This is extra, new money that WMATA had hoped to get, but isn't already part of the regular capital budget since it depended on new spending from Congress.

Using it does, however, mean that DC would have to find another way to pay next year, or risk having to cut the service we're trying to avoid now. If DC had made room in its operating budget for the WMATA contribution, it would form a baseline for next year; that's not the case if DC uses this one-time leftover pot of capital dollars. However, it's better than no money and no service, and better than blowing the pot of money on some tax incentive for one single company to move from Bethesda or something.

DDOT could also implement some bus priority measures over the next year to reduce the overall bus operating costs. WMATA estimates that there are about $10 million a year of bus priority savings to be found in DC, which could cover much of the gap, and perhaps the economy will improve enough to add some operating dollars as well.

It would be better if DC could give this money to WMATA as regular capital dollars, matched by federal money, and come up with more money for operating. However, the FTA's timetable means that the money isn't coming this year, and without the federal match, DC, Maryland, and Virginia won't be contributing this set of capital dollars. Using it to save some service as a one-time maneuver is the next best thing.

There are some nuanced differences. Using capital dollars for operating expenses in FY11 will kick the can down the road to FY2012, when WMATA would face a similar budget deficit if its revenues and expenses are all mainly the same. I've argued before that it's okay to do this once or twice, but jurisdictions have to promise to pay back the cost, in cash with interest or with equivalent bus priority savings. Maryland is promising to pay it back, while that wasn't a clear-cut portion of Graham's suggestion.

Still, Graham's frustration is entirely understandable. He's been advocating for policies for months, and WMATA and Maryland didn't reveal some very material facts very much pertaining to those policies.

Maryland needs to deal with its transportation funding problems. It pays for transportation out of a Transportation Trust Fund that's broke. And with the Intercounty Connector, it obligated decades of future federal transportation aid and tolls from elsewhere in the state. In FY10, they had to cut nearly all road maintenance, until the stimulus restored many of those projects. But the stimulus isn't happening again.

Northern Virginia also has a transportation funding crisis, but its jurisdictions are at least considering property tax increases to pay for transit. Property taxes aren't really the best funding mechanism, but Maryland has no funding solution whatsoever except for borrowing from the future.

Update: Based on new information, I added the paragraph about Maryland's expected FY11 deferral on top of the existing FY10 deferral.

This doesn't mean that the $80 million had no purpose. There are projects designated to get that money. But it does mean that the money isn't being put to work at the moment, except for interest payments that WMATA receives. And by the time WMATA spends that money, it will have gotten more from jurisdictions.

It's not mismanagement. If you're doing an IT upgrade and find that the project that you had been planning for has been eclipsed by technology, you have to put it off, re-write the specs and re-advertise the contract (unobligated and unexpended). On the contract compliance end, if you find a railcar doesn't meet specifications, you're not going to make final payment (obligated but unexpended) until it does.

You can also do no more than you have resources for. You can't take all the the contract compliance personnel away and put everybody to work on the front end letting contracts.

At last week's meeting, federal member Mort Downey suggested that WMATA might obligate its funds by a percentage greater than 100% in order to maximize the use of capital dollars and accelerate capital spending since actual expenditures trail obligations by a significant margin.

On the other hand, DC member Jim Graham suggested that jurisdictions could redirect this balance to operating funds by contributing a little less to capital and spending the savings on operating contributions instead. Doing that wouldn't stop any capital projects.

The points of view of both board members have validity. If WMATA is able to accelerate its obligations (contracts) for capital projects, more will get done sooner and at a lower cost. If WMATA adopts a more realistic obligation/expenditure timetable, then jurisdictional capital contributions could be reduced (freeing up some money for operating) without delaying capital projects. In view of WMATA's dire capital needs and stressed operating budget, perhaps there's a middle ground that satisfies both points of view.

Craig Simpson is the Legislative and Political Representative for ATU Local 689. Opinions posted here are his own and not the offcial position of ATU Local 689.

WMATA has identified a number of potential capital project deferrals in its budget. Most are not good projects to defer. Bus replacements, station entrance canopies, and replacing automatic vehicle locating devices are necessary to maintain the system. 8-car train power upgrades and bus priority corridor improvements bolster service reliability. Open bankcard and automatic fare collection systems improve customer service. And bus camera installation aids safety.

However, there are two projects that could be deferred without a significant impact on service: the purchase of additional fare card machines and making improvements at the new West Ox bus garage.

WMATA says the effect of deferring purchase of additional fare card machines "...will defer installation of machines where ridership has increased." However, rail ridership is currently down 1% over last year and SmartBenefits users will soon no longer have to go to the farecard machines to load benefits. This reduces the need for more machines. Purchasing more machines may be necessary over time, but WMATA could use the $6.48 million for other needs now without an adverse effect.

With at least some bus service reductions likely and future expansion plans on hold, it may also not be necessary at this time to upgrade the West Ox bus garage. This project would cost $1.5 million. Based on my understanding, WMATA is still not utilizing this garage at capacity. This project probably could be deferred unless there is a compelling reason to move forward at this time.

A possible third project involves bus purchase. WMATA expects to save nine "peak" buses from consolidating bus stops on 4 lines in the District and at various places in Maryland and Virginia. It also has an ongoing capital program to replace approximately 100 buses per year. This program would cost $73.3 million in FY 11. Reducing the program from the scheduled 100 buses to 91 buses in FY 11 would save $6.6 million that could be used for preventive maintenance in the FY 11 operating budget.

Together these three projects total $14.6 million. That can pay for a lot of the bus or rail service planned to be cut. While bridging the gap until economic recovery takes hold is a worthwhile goal, it's still necessary to figure out how to put the money back in future years so that the projects don't get deferred forever.

The best way to do that is through efficiency measures that will reduce operating costs. WMATA has identified traffic "choke points" for buses throughout the region. If bus priority measures were applied to these "choke points" on corridors with high bus frequencies, WMATA estimates it could save about $5 million annually. These require only simple measures, just paint and signage with some enforcement and limited capital investment.

Expanding the spacing of bus stops on major arterials from the proposed four bus lines in the District to 10 or so would likely increase these operational savings by another $1-2 million. Securing jurisdictional commitments to work with WMATA to implement these measures would be one way to free up funds from the operating budget and return them to the capital budget.

Another measure that WMATA could implement is the increased use of eight car trains during peak periods, as Erik wrote this morning. I estimate this could save over $1 million annually.

Together, these measures could allow WMATA to defer the farecard machines and West Ox garage, restore some service, then pay back the money in future years. As for the money for the nine buses, as the recession ends ridership should increase again, bringing in more revenue. The jurisdictions should agree to reinstate the capital money before decreasing their jurisdictional contributions.

Next: Other potential revenue sources in the budget.

WMATA currently uses $30.7 million in capital money for "preventive maintenance." That amount is $10 million more than in FY09. In addition, WMATA is closing part of the FY10 $40 million budget gap with a one-time infusion of another $10 million in stimulus funds that had originally been designated for capital projects that came in under budget. All these actions had the unanimous support of the Board, who either voted for the final budgets or did not object to the use of stimulus funds.

The Federal Transit Administration formula funds that WMATA receives permit the use of capital funds for "preventive maintenance." Preventive maintenance is regularly scheduled based on the projected useful life of components or parts. Instead of waiting for something to fail and then fixing or replacing it, preventive maintenance changes out the parts or components on a schedule tied to their expected useful life. In theory, this smooths out maintenance costs over time and provides better service to the public due to less failure during operations.

WMATA has projected that it needs $11.4 billion in capital funds for things like buying new railcars and buses, rehabilitating bus garages and rail yards, replacing track and wayside equipment, maintaining stations and other infrastructure projects. If WMATA received local contributions and federal aid in the same amount it receives today over the next ten years plus the new $150 million per year in so-called federal dedicated funds matched by VA, DC & MD, it would generate about $8 billion, leaving it about $3.4 billion short in identified capital needs. These figures do not include any capital upkeep for rail or bus expansion projects nor do they take into account any new safety requirements recommended by the NTSB or any other unforeseen needs.

So what happens if Metro uses $10 or $20 million more to help balance the FY11 $191 million budget gap? There are several issues:

1. It may actually be useful to utilize capital money for preventive maintenance if this were new preventive maintenance. In other words, if there are areas where the scheduled change-out of parts will reduce failures but where WMATA is not currently performing this, it would make sense to do so. It would have the effect of reducing long-term operating maintenance costs and providing better service to the public by not operating to failure. Doing so may also extend the useful life of some capital assets and the identified capital needs could be re-adjusted accordingly. Over the past 20 years, WMATA has implemented preventive maintenance in most areas. It's not clear how much more new preventive maintenance there could be.

2. If it is simply replacing operating funds currently used for preventive maintenance with capital funds, it should first be evaluated in terms of the impact on the project(s) deferred or cancelled. The capital project chosen for potential postponement in FY10 was the rehabilitation of one railyard. If the effect of the postponement only moved it from the end of one fiscal year to the beginning of the next, it would not have a significant impact. This is Jim Graham's point. But it's not completely free. It would have a ripple effect in the coming fiscal years unless more money was ultimately added to the capital budget to replace this use.

3. The impact over time must be considered. This is Chris Zimmerman's point. In other words, does the use of capital money create an ongoing "hole" in next year's (or subsequent) budget(s)? WMATA is already using $30 million in capital funds annually for preventive maintenance. If it continues over ten years, this would amount to $300 million, or the equivalent of one year of the so-called "dedicated funding." Utilizing more capital money could create an ongoing problem that carries into the next year.

Some advocates have recommending paying back any use of capital money by reducing future operating subsidies through bus priority measures. A similar approach could be taken in rail operations by using more eight car trains during rush hour, reducing overall trains but retaining the same capacity per hour. Such a plan would likely have to be phased in over time as WMATA would need to address issues caused by manual operation of trains and its current power capacity that it continues to work to upgrade.

The WMATA Board will decide whether to use any capital funds for operations by weighing these factors and measuring them against the consequences of service reductions, higher fare increases and administrative reductions as well as the possibility of more jurisdictional contributions. There will also be political considerations and significant "horse trading" between jurisdictions in order to reach the compromises necessary to pass a final budget.

In the end, who's right—Graham or Zimmerman? Perhaps they are both right... and wrong.

Craig Simpson is the Legislative and Political Representative for ATU Local 689, the union representing most WMATA employees. Opinions in this article are entirely his own and not the official position of ATU Local 689.

Those needs are enormous. Metro has to replace its aging and unsafe 1000-series railcars, for example. But there's so much more. Metro estimated they need $7.6 billion over the next 10 years. If all the federal and local matching money goes to the capital program, that will cover $3 billion of the $7.6 billion. That means to keep the system from crumbling, governments will somehow need to come up with $4.6 billion more—"with a B."

Graham opened his remarks by saying, "The District of Columbia disagrees [with Benjamin]." Does the District of Columbia really disagree? If you live in DC, tell Jim Graham what you think, one way or the other, at grahamwone@gmail.com.