Maryland is withholding $55.6 million from Metro because the transit system has been “stonewalling” on audits and refusing to account for money received earlier from Annapolis, state officials said Monday.
The unexpected action signaled that the administration of Maryland Gov. Larry Hogan (R) plans to take a more aggressive posture toward Metro on its financial performance and governance.
By blocking capital funds — which Metro uses to buy new rail cars, buses and other equipment — the move also was a setback for last year’s historic agreement in which Maryland, Virginia and the District agreed to provide $500 million a year in dedicated funding for the transit system.
And it revived concerns about Metro’s financial management, which is generally considered to have improved in recent years as the agency received a series of clean audits.
Maryland stated that it would not provide the capital funds, which were scheduled to be delivered Monday, in a strongly worded letter from Maryland Transportation Secretary Pete K. Rahn. The operating subsidy that Maryland provides will not be affected.
The letter arrived days before Rahn is scheduled to be sworn in as a member of the Metro board, where he is expected to play a high-profile role as the first Cabinet-level official in memory to represent either Maryland or Virginia.
Metro declined to make available a representative to respond in detail to Maryland’s charges.
“We will meet with Maryland officials as soon as possible to fully understand and address the issues raised in their letter,” spokesman Ian Jannetta said.
Rahn said that the state has increased its annual subsidy to Metro from $467 million in 2017 to a proposed $741 million in 2020 but that Metro “has failed to demonstrate how past allocations were spent and how additional funds will be spent in the future.”
The letter went on: “The continued stonewalling by [Metro] on compliance audits prevents the State from seeing what is occurring with the funds Maryland taxpayers provide.”
It accused Metro of “an ongoing pattern of fiscal obfuscation and a lack of cooperation.”
Hogan, who won office in 2014 while campaigning in favor of shifting state spending from transit to roads, has had an up-and-down relationship with Metro. Hogan was the most outspoken critic of former Metro board chairman Jack Evans, who just left the board in an ethics scandal.
But despite initial skepticism, Hogan ultimately supported the dedicated funding deal.
The withholding of funds thrust to public attention a dispute between Maryland and Metro that has been simmering for years.
In 2018, Maryland withheld $2.4 million from Metro as a result, but the action drew little notice.
The current dispute began with a legislative audit of the Maryland Department of Transportation (MDOT) in February 2016. Although the Democratic-controlled General Assembly in Annapolis has been at odds with Hogan over whether to spend money on transit or roads, the legislature also has pressed for more financial transparency from Metro.
The audit, which looked at the period from 2011 to 2015, found “a lack of assurance” that Maryland’s contributions to Metro were being allocated properly, Rahn said in the letter. The transit system has a complicated formula for dividing up how much each of the three jurisdictions pays.
As a result, MDOT launched an audit of Metro’s subsidies for 2016 and 2017, but the transit agency “was unwilling to comply with these audits,” Rahn said.
As the audit process continued in 2019, Metro “refused to offer details of the methodology they used to calculate the operating subsidy and has not provided requested information on the capital program,” he said.
Maryland also complained that it lacked an overall capital funding agreement with Metro, similar to one that Virginia has negotiated. Michael Goldman, who represents Maryland on the Metro board, said he understood that the state believes Virginia was able to obtain such an agreement by threatening to withhold funds as Maryland is doing now.
Noting that Metro’s requested capital contribution from Maryland for the current year is $259 million, Rahn said, “It is unthinkable for the State of Maryland to provide $259 million without a legal agreement with [Metro]. It is as if [Metro] expects the State to simply deliver the cash in a briefcase and walk away, no questions asked.”
Metro has had serious problems in managing its finances in the past. In 2014, the Federal Transit Administration restricted Metro’s ability to draw federal funds after a management oversight review questioned its handling of billions of dollars in federal grant money. The following year, Rahn called Metro’s financial mismanagement “unforgivable.”