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Metro’s financial projections not as grim as first predicted

Despite losses of commuters to telework, ridership has outpaced expectations, potentially helping Metro avoid major service cuts

Metro General Manager Randy Clarke speaks at a news conference in July during his first week on the job. (Gaya Gupta/The Washington Post)

Metro officials have been bracing for what some have called a “fiscal cliff,” when the reality of slow-returning ridership would catch up with the agency’s finances, possibly forcing it to consider cutting service or raising fares.

That day might not come as soon as initially expected, according to a snapshot Metro released Monday of the transit system’s financial information. The transit agency will need to bridge a roughly $185 million budget gap in the next fiscal year to continue operating at current service levels and — at some point in the coming months — pay for increased Metrorail train frequencies when its full fleet becomes available.

Transit officials say riders likely will not see significant service reductions or station closures in the fiscal year that begins in July, although that ultimately will be up to Metro’s board. The transit agency’s outlook provided a first glimpse at how Metro plans to navigate a pandemic-era future upended by commuter losses to telework as future federal aid starts to dry up.

The funding gap is smaller than the $500 million annual operating budget shortfall officials had predicted more than a year ago, a gap diminished with the help of federal leftover coronavirus relief money, funds from the infrastructure law, federal grants, reduced expenses and fare revenue that has outpaced Metro’s conservative projections.

The budget reprieve is likely to be temporary. Metro is projecting budget shortfalls of $527 million in fiscal year 2025 that could grow to $731 million in four years without significant increases in revenue or funding. The transit agency is proposing to ask D.C., Maryland and Northern Virginia jurisdictions to increase their annual subsidies to help close the gap, according to the budget outlook.

“I think we’ll have enough tools — or I’m hopeful we will have enough tools with the [Metro] board to be able to avoid things like a fare increase or service cuts,” Metro General Manager Randy Clarke said in an interview last month. “If we can do that, I think the following year is where we have to just get to a point where we have to do something. And that’s not just us. It’s big agencies all over the country. ”

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With the help of nearly $2.4 billion in federal coronavirus relief aid over three years, Metro has maintained an annual operating budget surpassing $2 billion despite historical losses of fare-paying riders that began early in the pandemic. While the Metrobus system is nearly back to pre-pandemic passenger levels, the number of trips taken by Metrorail passengers still has yet to reach half of the numbers seen before the pandemic.

Decreasing fare revenue between 2020 and this fiscal year, which ends June 30, have been buffered by between $500 million and $700 million annually from three rounds of federal aid during the pandemic. Maryland, the District and jurisdictions served by Metro in Northern Virginia subsidize most of Metro’s operating expenses while also contributing to Metro’s separate annual capital budget, which the federal government also contributes to. That budget also totals more than $2 billion.

Offices have reopened. Persuading commuters to fill them isn’t so simple.

For the past two years, federal stimulus payouts saved Metro from making severe service cuts. Before the first stimulus was approved in December 2020, board members began offering employees buyouts and proposed laying off several thousand workers, shutting down some stations and eliminating weekend rail service.

Instead, the federal money allowed Metro to refocus its service away from office commuters, redirecting resources from weekday rush hours to times that better serve part-time and night-shift workers. At the same time, teleworkers are using transit for more nonwork-related trips throughout the day.

As part of that shift, the Metro board made weekend, one-way Metrorail fares a flat $2, hoping the change would persuade more families to ride. This summer, Metro expanded the flat fare to weekday trips after 9:30 p.m.

Metro also erased a $2 bus-rail transfer fee by discounting transfers to Metrobus, and transit officials began offering cheaper seven-day regional bus passes and monthly unlimited passes.

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Metro officials hope the fare cuts, discounts and service changes — including later rail service that went into effect this year — will attract fare-paying riders, but growth has been slow as federal money has begun to dwindle. The transit agency will carry over about $627 million of the remaining stimulus money starting next fiscal year, which begins in July.

Metro in March was awarded an extra $120 million in pandemic aid through a U.S. Department of Transportation grant for agencies affected by the pandemic. Revenue from fares, parking and other sources, meanwhile, is outpacing projections. The agency expects to bring in at least $380 million this fiscal year, increasing to $465 million in the next fiscal year.

Money from the infrastructure law is also expected to help Metro pay for preventive maintenance, which can cost more than $650 million a year, transit officials said.

Metro will also take on additional expenses, consisting of about $120 million a year, to operate the 11.5-mile Silver Line extension that transit officials have tentatively pledged to open this year.

In the end, that leaves Metro with a $184.7 million gap to bridge next year.

Officials say that is achievable through employee attrition, position eliminations, selling or leasing unused Metro land for development, service changes and possible fare changes. The agency has been running reduced service with long waits for nearly a year after its regulatory agency suspended more than half of Metro’s rail cars over a wheel safety concern.

Clarke said he plans to consider restructuring fares to erase or reduce peak-hour pricing.

“I think we have to have an honest conversation of fares,” he said. “We probably have the most complicated fare table in the history of time.”

Other ideas that could be discussed include phasing out distance-based charging, reducing bus fares to $1 to help low-income residents and encourage more riders, and lowering parking fees to encourage more rail riders.

Metro has also proposed asking Maryland, D.C. and Northern Virginia communities served by Metro to increase their annual subsidies up to 2 percent. That would raise about $24 million more but require support from state legislatures and the D.C. Council.

Maryland Del. Marc A. Korman (D-Montgomery County), who chairs the transportation and environment subcommittee, said politics in Maryland and Virginia have shifted since the jurisdictions increased their subsidies four years ago, making it difficult to know if such a request would be successful.

“Maryland has an election to get through and Virginia is in a different place now than when dedicated funding was done,” he said in a statement. “Folks should recognize the importance of Metro to the riders, the environment and the economy and have those conversations.”

Metro records show how transit use has shifted into the pandemic’s third year. The proportion of riders using Metrorail during peak periods has dropped 8 percent since 2019, while peak-hour fare revenue has fallen 5 percent — signs that office commuters have become a smaller part of Metro’s customer base. At the same time, the proportion of revenue from Metrorail trips of more than 10 miles has dropped by 5 percent, highlighting an increase in the number of suburban residents who are working from home.

Service shifts that Metro officials say they could consider to better fit new travel patterns include increasing service on core and southern segments of the system to serve fast-growing parts of the region, such as the Navy Yard neighborhood, around sports stadiums and airports. Metro leaders could also consider reducing service at some stations, opening the transit system earlier on weekends and closing later on Friday and Saturday.

Michael Goldman, a former Metro board member who now chairs the Washington Suburban Transit Commission, recommended that Metro leaders reduce costs by up to $300 million annually and “right-size” the transit system to better match demand. Goldman said Metro could consider reducing service hours, lowering train frequencies to outer suburban stations and cutting underused Metrobus routes while proposing a “modest” fare increase.

He also suggested Clarke build support for a regional sales tax to fund Metro.

Kate Mattice, executive director of the Northern Virginia Transportation Commission, said Virginia leaders are encouraged by recent ridership growth. The coming months will also include the opening of the second phase of the Silver Line, the Potomac Yard station in Alexandria and possibly the return of Metro’s suspended rail cars, boosting Metro before difficult budget decisions in 2024.

“While we can hope that the projected gap will shrink, there are important debates and discussions that will need to take place across the [Metro] funding partners in Virginia, Maryland, and the District,” Mattice said in a statement. “Any actions done to shore up the funding for Metro operations will require both regional momentum and consensus on next steps.”

Clarke is expected to release his proposed budget in November. Board members will then review the spending plan and hold public hearings early next year to get responses from residents. A final vote is planned for March.

Clarke has said it will be up to Metro’s board and regional leaders to help decide the type of service it wants from Metro and how to pay for it. One thing the region has to acknowledge, Clarke said, is that fare revenue and ridership might never get back to pre-pandemic levels.

“The question of how best to fund Metro is an important one that requires thought leadership and extensive community input,” Clarke wrote in a Washington Post opinion piece published Friday. “It begins with ‘What do we want Metro to be?’ ”