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LaHood report on Metro urges dedicated funding, bus fare hike, trim in pension costs

The long-awaited report on Metro by former U.S. transportation secretary Ray LaHood urges the region’s three jurisdictions and the federal government to provide the agency with permanent, dedicated funding, but it sidesteps the politically charged question of what kind of tax or other mechanism should be adopted for that purpose.

The study also calls for replacing Metro’s entire, 16-member board with a five-member “reform board” for three years. LaHood has aired the proposal previously, but the report says explicitly a new board is needed to make “tough decisions” such as cutting pension benefits and reducing bus service.

The 24-page report, a copy of which was obtained by The Washington Post in advance of its release later this month, was commissioned in March by Virginia Gov. Terry McAuliffe (D). The study provides a foundation for the next phase of an intense debate in the region over how to restructure Metro’s governance and meet its funding needs.

The study is the most comprehensive independent analysis of Metro’s structure and finances in years. It finds that Metro suffers financial pressures partly because it provides about 20 percent more service per rider than other large transit agencies.

It urges raising bus fares from a base level of $2 to $2.10, which is closer to the average of $2.16 among peer agencies. It also calls for a major overhaul of bus routes to “offer service that matches actual demand.” The combined savings could be $38 million a year.

Comparable reductions in rail service could be necessary as well, the study says, if rail ridership fails to rebound as Metro hopes.

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The report finds Metro’s overall labor costs are average compared with similar transit systems — with the exception of some pension benefits that are too generous and should be trimmed. For example, hourly workers who contribute about 3 percent of their paychecks to pensions should be required to raise that closer to the national average of 7 percent. That would reduce the need for subsidies by $25 million per year.

The report endorses the leadership of Metro General Manager Paul J. Wiedefeld, who is about to complete his second year in the position.

“Wiedefeld has not shied away from taking on the problems that have plagued [Metro] for years,” it says. It praises him for closing lines temporarily to ensure safety, for terminating low-performing employees and for reducing service to manage costs.

“He is the right person for the job at hand,” LaHood says in the report.

The centerpiece is a five-page cover letter from LaHood to McAuliffe outlining seven key findings and six recommendations. The letter is supplemented by a 19-page review of Metro’s “operating, governance and financial conditions,” done in large part by the consulting group WSP.

Together, the documents lay out a detailed argument for how to make Metro more efficient and why it needs at least $500 million more per year in dedicated funding from the District, Maryland and Virginia.

It suggests ways to save money on service and labor costs to show the governments that fund Metro they’re not throwing good money after bad. The call for a radical restructuring of the board is also designed to demonstrate to funders that it’s no longer business as usual at the agency.

Among other things, the report says Metro could save $18 million a year by reducing fare evasion. Another $7 million a year could be saved by curbing absenteeism.

Metro’s advertising revenue is “proportionally the lowest among the large transit agencies studied,” the report says. Metro could reap an additional $10 million a year from advertising if it matched the performance of Chicago’s system, for example.

Metro’s capital program has suffered not only from inadequate funding but also from the agency’s failure to spend allocated funds.

“For much of the last decade, [Metro] was rarely able to spend more than 80 percent of the capital funds it budgeted for a given year,” the report says. Performance has “improved markedly” under Wiedefeld, but investment will have to continue rising.

At current funding levels, however, the report says Metro would not even have enough to address the new needs that arise each year, let alone tackle the backlog that has accumulated.

WSP, the consultant, estimates that Metro needs an additional $540 million a year in dedicated funding for capital expenses, but LaHood says the target should be $500 million — because the gap can be covered by savings in operating costs.

Metro’s “problems will never be solved without this new money,” LaHood says. “[Its] infrastructure is aging and needs renewal, and the funding it receives today is not enough to get this done. Not even close.”

McAuliffe, Hogan, Bowser agree with LaHood that Metro board should shrink.

The report also provides background on how Metro suffered from years of underinvestment, especially after many parts of the rail system began to reach the end of their 30-year useful life around 2006.

“The system is now 40 years old and much of it needs renewal or replacement,” the study says. “Unfortunately, the funders that pay for [Metro’s] capital program have grown accustomed to contributing at a level adequate for a new system, but far too low for an aging system.”

LaHood says the extra revenue should come in the form of dedicated funding — a reliable stream of earmarked revenue. That allows the funds to be pledged to repay bonds and thus allow Metro to borrow more easily on financial markets.

However, in an omission that will disappoint many Metro supporters, LaHood declines to endorse a particular tax or other instrument to provide such funding. The decision reflects his inability to find a consensus within the region, whose top officials are sharply divided over the issue.

“I am not proposing a specific method because many different arrangements would work,” ­La-Hood says.

Each funding partner “can generate its share in a way that makes sense for them. The methods can be different so long as the key criteria are met: the total is sufficient, the funds are dedicated, and they arrive soon,” the report says.

In reversal, Hogan offers $500 million extra for Metro if Virginia, D.C. and feds match it.

LaHood also calls for the federal government to increase its contribution to Metro. In an unforeseen recommendation, he says Congress should provide it in dedicated funding, rather than annual appropriations as at present.

The current federal subsidy, which expires in two years, provides Metro with $150 million a year in capital funding. Some politicians and Metro observers have said the most the agency can expect from Congress is an extension of that subsidy, rather than an increase.

“Achieving an increase in federal funds will be difficult, but I trust that the members of the House and Senate that represent this region will do all they can to make it happen,” LaHood says.

If LaHood’s proposals are to be adopted, the initial goal, once the report is released, will be to persuade the District, Maryland, Virginia and the federal government to replace and shrink the board.

LaHood declined to comment for this story, saying he was awaiting the report’s official release. But he has said in the past that major changes in governance are necessary to persuade local governments and Congress to contribute more money.

“The agency’s board is too large, too fractious and too oriented toward interests of the region’s individual jurisdictions rather than the needs of the region as a whole,” LaHood says in the report. “For the next several years, the board will need to focus on one thing: making the system safe and reliable. This will require tough decisions, and jockeying for position among the region’s jurisdictions will need to take a back seat.”

Lahood’s report says the change should be accomplished without revising the Metro compact, which spells out how Metro is governed and funded. Amending the compact is a lengthy, cumbersome process, and LaHood says the agency can’t afford the time it would take.

The report does not spell out how the board would be replaced. The most probable scenario is that McAuliffe, Maryland Gov. Larry Hogan (R), D.C. Mayor Muriel E. Bowser (D) and U.S. Transportation Secretary Elaine Chao would all ask their representatives on the board to resign. They each would then appoint a single representative to the reform board, and those four would select a chairman.

McAuliffe strongly supports a board overhaul, and his newly elected successor, Gov.-elect Ralph Northam, is expected to do so as well. Hogan recently said he would back LaHood’s plan to overhaul the board, while Bowser has been less supportive. Chao’s position is uncertain.

Toward the end of his report, LaHood sums up his position by saying he can be “optimistic” about Metro’s future only if his recommendations are followed.

“The last decade has not been a good time for [Metro], and we need to make major changes to its leadership, operations and funding to turn this around,” he says.