Metro must borrow $250 million to keep its capital projects moving ahead and to avoid possible staff cuts because of a cash-flow crisis created by increased federal scrutiny of its spending.
This year, Metro was prohibited from automatically tapping federal funds to pay its bills after a harsh review of its contracting and procurement practices by the Federal Transit Administration. As a result, Metro is required to document expenses upfront before federal money is released for its nearly $1 billion capital program. Metro is one of a small number of transit agencies in the country operating under such restrictions.
The resulting cash-flow problem means that in some instances, Metro doesn’t have the money to pay contractors as bills come due. The funding issues do not affect the agency’s operating budget.
“These restrictions have had a substantial impact on our cash flow,” J. Blair Fishburn, Metro’s deputy chief financial officer, told Metro board members this summer. An example of how the flow of federal dollars has slowed: As of June 30, Metro had submitted paperwork for $11 million in expenditures but had received reimbursement for $6 million, Fishburn said.
By comparison, Metro requested and received $192 million in reimbursements in the fourth quarter of fiscal 2013, he said.
Without a loan, Metro faces the possibility of canceling contracts, shelving projects or cutting staff — all of which could have an impact on customers, according to a staff report.
The cash squeeze, coupled with other general concerns about federal funding for transit, also has prompted Metro to delay some projects by a few months, including plans to replace the Southern Avenue bus garage.
Metro officials said the $250 million loan is a one-time request. Spokesman Dan Stessel said officials do not expect to have to ask the board for additional borrowing authority. “This is nothing that should make anybody nervous,” said Tom Downs, the Metro board’s chairman.
The federal audit found that Metro violated federal contracting and procurement rules, and it questioned the agency’s handling of billions in federal dollars. The report found at least two instances in which the transit authority overcharged the federal government. In one case in which the federal share of a project was $451,812, Metro billed the FTA double the amount. In the other, Metro overbilled the FTA by nearly $800,000. Metro has since returned the money.
“It’s frustrating,” Downs said. “We all wish that we had had better control systems in place.”
Metro officials have promised to address the management and billing issues raised in the audit. At a board meeting on Thursday, agency officials told members that they had submitted plans to address 60 of 65 recommendations in the FTA report. Officials also said they have hired a forensic accounting firm to review major capital project expenditures for fiscal 2014.
Money to repay the loan will come from the federal grants the transit agency would have received if the drawdown restrictions were not in place. But it will have to pay interest on the borrowed money. Officials said the interest rate would not exceed 1.5 percent a year — which would mean an interest payment of roughly $3.75 million. The interest payments would come from the capital budget, which is funded in part by contributions from the District, Maryland and Virginia, Stessel said.
“WMATA must get their financial house in order as quickly as possible and regain the trust of customers, Congress, FTA and their regional partners,” said Maryland Deputy Transportation Secretary Leif Dormsjo.
In May, when the board voted to increase an existing line of credit by $75 million (it ultimately used $52.5 million), that was also attributed to the slowdown in reimbursements tied to the federal drawdown restrictions.
And it is the latest in a series of problems the agency has had related to financial management and its contracting and procurement practices.
Last month, Metro agreed to pay nearly $5 million to settle a whistleblower lawsuit after a former employee alleged that the transit authority violated federal rules by awarding a $14 million contract without seeking competitive bids.
The suit was filed in February 2012 by Shahiq Khwaja, who led an upgrade of the authority’s troubled integrated financial management system before he was allegedly fired in retaliation for his complaints about government waste.
Carol Kissal, who was Metro’s chief financial officer during the period covered by the audit and was a defendant in the whistleblower lawsuit, resigned in April after the audit’s findings were made public. Metro officials said her departure was not tied to oversight report. Dennis Anosike, a former chief financial officer of the Chicago Transit Authority, was hired to replace her.
“We all wished that it had never happened,” Downs said, referring to issues raised in the audit.
He added: “We’re not a perfect authority, but we’re trying to become one.”