Prompted by the District's inability to pay $19.8 million it owes Metro, the transit system's board agreed yesterday for the first time in its history to borrow money for operating expenses because a local government failed to pay on time.
In the 17 years that the Maryland, Virginia and District governments have helped finance Metro operations, the agency has never before had to borrow money because one of the governments couldn't make its payments. The board will borrow $25 million to be sure it can pay any unanticipated expenses.
The District will owe Metro an additional $29.5 million on Oct. 1, and also may miss that deadline, the board was told.
Beyond underscoring the severity of the District's budget crisis, the city's delinquency shows how vulnerable Metro can be to the financial troubles facing state and local governments.
Metro officials said they don't expect the District's inability to meet its obligations to be repeated by other local governments even though the area has headed into an economic downturn.
"It's unlikely there will be more of it," said board Chairman Mary Margaret Whipple of Arlington. "The District's unique circumstances account for this."
Fares alone don't cover Metro's operating costs, so the agency relies on other income and contributions from federal, state and local governments to make up the difference.
Of the $265 million contributed by those governments in the fiscal year that began July 1, the District's share is $117 million, paid quarterly. Metro's total operating costs this fiscal year are $612 million.
The District is having cash-flow problems primarily because of a leveling off in tax revenue and continued overspending in several large city agencies such as the corrections and human services departments. The city is expected to end its fiscal year on Sept. 30 with a $93 million budget shortfall.
Anticipating these troubles, city officials told Metro in June they would not be able to pay the $28.1 million due July 1 until the middle of September. Counting credits, that amount has been reduced to $19.8 million.
On Aug. 17, Robert Pohlman, deputy mayor for finance, told Metro that the city's cash constraints were worse than expected, delaying the September payment until the week of Oct. 1, when the city can borrow against anticipated property tax revenue.
Another quarterly payment of $29.5 million is due Oct. 1, and the city also may miss that deadline, Pohlman said. That payment depends on the District's receiving a $430 million payment from Congress, which may not arrive until late October.
While the city already has borrowed $250 million to cover short-term costs, it must pay that back by the end of September and does not have the capacity to borrow more, officials said.
To get through the rest of the fiscal year, the city has not only delayed its Metro payment, but also put off paying $52 million owed the D.C. Retirement Board and other bills to contractors and vendors.
Even with the infusion of $430 million next month from the federal government, the city still will face a cash shortage. Mayor Marion Barry said this week the city would have to cut spending and raise taxes to avoid running out of money sometime next year.
Without the District's payment, Metro General Manager Carmen E. Turner said yesterday, the transit agency's cash flow has been adequate to underwrite its operating costs, but cash will run out by Sept. 14.
For this reason, she said, Metro wants to borrow $25 million. To keep fees and interest costs down, the agency will establish a $25 million line of credit at a local bank. This will enable Metro to draw on the line of credit only as money is needed -- possibly as little as $15 million until money from other sources becomes available, Turner said.
As required by Metro policy for delayed payments, the District will pay the agency an interest penalty and will absorb all of the borrowing fees and costs. This lowers the risk to Metro for borrowing the $25 million, and puts the burden on the District government to meet its obligations. "We're satisfied with the guarantees the District government has made," Whipple said. "Metro will be made whole."
William A. Boleyn, Metro's assistant general manager for finance, said the District's unusual budget cycle makes it unlikely that other state and local governments would be tempted to delay making payments to Metro.
He said the District's budget year begins Oct. 1, which means the city government is experiencing its cash-flow problems during the fourth quarter of the fiscal year when it is most prone to financial difficulty.
Metro and most other local jurisdictions begin their fiscal years on July 1, meaning those governments are still in relatively good financial shape because their fiscal years have just begun.
Also yesterday, the board agreed to boost the salary scales of some of its top managers, bringing sharp criticism from board member Richard J. Castaldi of Prince George's County. He said higher salaries for Metro's senior staff would "send the wrong message" to the public at a time when most agencies are suffering from a budget crunch.
Staff writer Michael Abramowitz contributed to this report.