Mass Transit and Unfunded Pension Liabilities

It has long been known that the Washington Metropolitan Area Transit Authority, which operates the Washington region’s commuter rail and bus systems, has unfunded retirement-benefit costs approaching $3 billion (on top of its multibillion-dollar unfunded maintenance backlog). While the Commonwealth of Virginia is not legally obligated to made good Virginia’s share WMATA’s shortfalls, as a practical matter it may have to eventually or risk — again — Metro collapsing into fiscal insolvency.

What I have not reported in past posts is the magnitude of that liability in relation to the size of the enterprise. A new Moody’s Investors Service report has the answer: Adjusted net pension liabilities plus adjusted net “other” retirement benefits (primarily health care) amount to 305% of WMATA revenues. For the uninitiated, that’s a lot. It’s the highest ratio of the nation’s ten largest mass transit agencies.

Another cause for concern. According to Moody’s, “WMATA has greater than a 10% one-year probability of experiencing pension investment losses that amount to 25% or more of its revenues, a threshold known as our “pension asset shock indicator.”

Despite the vulnerabilities, Moody’s does give WMATA an “A2 positive” investment rating.

The report, “Pensions and retiree healthcare challenge some of the largest mass transit enterprises,” covers only the nation’s ten largest transit operations. WMATA is hardly unique. The problem of unfunded liabilities appears to be endemic among big transit systems. The report does not tell us if underfunding is typical of all transit systems. We are left to guess about the condition of Virginia’s other 28 mass transit operations.

I ask the same question about Virginia’s transit enterprises that I asked about its industrial and economic development authorities in the previous post: How big are the hidden liabilities? How much exposure do state and/or local governments have to increasing operating deficits and unfunded pension liabilities? Indeed, we should be asking the same information of Virginia’s tolling authorities, both public and private, water-sewer authorities, port and airport authorities, housing authorities, and other quasi-independent entities.

Hopefully, the smaller transit agencies have demonstrated more responsibility than WMATA about allowing massive unfunded retirement liabilities to accumulate. The data is (or should be) public information, but no one knows how exposed Virginia governments are because no one has checked.

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17 responses to “Mass Transit and Unfunded Pension Liabilities

  1. New York City seems to think they have solved this problem:

    ” During a March 31, 2019, Sunday vote, the New York State legislature agreed to a $175 billion budget that included congestion pricing for a large swatch of Manhattan. Vehicles traveling below 60th Street will have to pay, and that money will help fund subways and other regional transportation needs.

    New York’s congestion pricing will be the first in the US, but it has become a staple in places like London, Stockholm, and Singapore. Details about the plan, costs, and potential exemptions for drivers will be developed by the Triborough Bridge and Tunnel Authority and a traffic mobility review board.”

    • New York City thinks it has “solved” the problem because NYC is using the liberals’ definition of “solved”. They “solved” the problem by raising taxes. What else is so-called congestion pricing other than a tax? So, one of the most heavily taxed places on Earth “solved” its problem by raising taxes. What could possibly go wrong?

      https://www.investors.com/politics/editorials/cuomos-budget-rich-high-taxes/

      • That an IBD Editorial and standard fare for the narrative about taxes and the rich.

        What does New York gain ? The gain less crowded streets and ironically the rich will benefit because they will pay the tolls and deduct them from their taxes while the lower income schmucks will not be able to and will be forced onto transit.

        So yes.. the rich will fund the tolls and the transit but then they get to write it off on their taxes….

        hmm.. what does that mean?

        At any rate – just like the tolls on I-95 – you want to drive solo at rush hour – pay up. If you want to ride HOV/slug/transit – you go free. And yes, part of those tolls also go for transit, park and ride lots, VRE, etc…

        I know the critics don’t like it. I’ve never heard a real alternative ..just whining …

        • Tax write off? Only as a business expense and commuting is not tax deductible.

          https://www.cnbc.com/2019/03/08/tax-collectors-chase-rich-new-yorkers-moving-to-low-tax-states.html

          I don’t have a problem per se with tolls. But congestion pricing at this level may not be sustainable. I’d start low and gather data.

          • Rich folks have CPAs and do what the tax code requires to minimize their taxes.. ordinary schmucks use tax software.

            The reason I support congestion tolls is the same reason I support the airlines charging according to demand, the same reason I support gasoline prices adjusting according to demand, the same reason I support the same entrees for lunch cheaper than for dinner, etc.

            If you want to “fix” congestion – you price the road according to demand. There is no way we can build enough road capacity for rush hour in our urban areas. It’s not possible. No where has it been demonstrated this works.

            So you price the roads according to demand and when demand is highest – and the roads most congested and wait time the longest – you charge extra – the very same way the airlines do.

            I’ve NEVER heard DJ – a world traveler – complain about the way the airlines price seats… so I presume he’s okay with it. He just needs to expand his thinking and realize road capacity and airline seating capacity are about the same issue.

        • As Gov Cuomo understands, the rich will leave. They already are leaving New York. Nobody is debating that. Maybe read the article instead of complaining about the journal that wrote it.

          TMT is right – you can’t deduct commuting costs. And even if you can define congestion pricing as a tax the rich in New York City are already capped on SALT deductions.

          A real alternative? Charge enough for the subway rides to pay for the subway. I’ve read the Constitution pretty carefully. I never saw a right to subsidized mass transit.

          The airline seat comparison is flawed. When certain routes become more popular (like trips to fast growing metropolises such as Nashville) the existing airlines fly more flights, they fly bigger planes and new airlines start serving the city pairs. The idea that capacity remains capped and the airlines just charge evermore for the flights is economic hallucination. The average flight from L.A. to Boston in 1941 cost $4,539.24 per person in today’s money, and it would have taken 15 hours and 15 minutes with 12 stops along the way. By comparison, a nonstop flight in 2015 cost $480.89 and takes only six hours. Thanks to intensifying low-cost competition, you can find airfares as cheap as $283 today.

          The difference is that airlines are run by private companies while roads are managed by our incompetent and largely crooked political class.

          The only way to fix the road problem is to charge every car for the total costs of every mile the car drives on public roads. All cars, all drivers, all public roads. If Rt 95 needs to be expanded then the cost of expansion needs to be built into the per mile cost. If some rural stretch of road costs $100,000 per year to maintain and there are 100,000 car-miles driven on it per year then I guess it’s going to cost $1 per mile. I have no problem paying the direct costs of my driving so long as everybody else pays for the direct costs of their driving too. Just like electricity, and water, and natural gas.

          • I don’t think the rich will leave over congestion tolls because they will not be affected by it at their income levels – it’s a gnat on a dogs butt for the rich.

            I don’t complain about IBD – but I DO recognize the same old, same old narrative that comes from those kinds of folks.

            No – the tolls are done by Transurban in NoVa and they are accused of nefarious conduct that those critics say would not be so if it were VDOT. Ya’ll talk out of both sides of the mouth on this.

            Calling the DOTs “corrupt” and “crooked” – calling VDOT corrupt and crooked… I don’t agree.. where’s is calling that justified – and no don’t bring up the snow plow scandal. That is not the problem with NoVa congestion. Be on topic here.

            I AGREE about charging everyone for the same mile – for uncongested roads but road congestion is a lot like too many folks who want seats on the airliner at prime hours. You cannot fix that by charging the same price for all per mile.

            That’s NOT a solution. It won’t touch the congestion.

            If the airlines did that – they’d have to have more aircraft and those aircraft would sit idle much of the time outside of peak hour.

          • re: ” The airline seat comparison is flawed.”

            not so much. Have you tried to fly at major holidays or on certain days of the week? Fares for the same exact flight on the same exact route can be dramatically different.

            Airfare sites actually show you calendars that allow you to choose the lowest fares for the same fights.

            The point here is that the airlines cannot buy extra planes that will sit idle when not flying – that costs more to do and that cost actually gets put on customers.

            This is common throughout the industry.

            Here’s an example:

            Roads have the same exact problem. You can charge each person the same amount per mile but the congestion levels will change according to demand with almost no cars on a lot of roads at 2am and at 7am gridlock ensues… not just in Washington – in every single metro area in the US – in the world. It’s people coming and going to work exasperated by people who prefer to drive solo.

            there are only two ways to respond to varying congestion levels. 1. build as much capacity as will be needed by the highest congestion levels or 2. manage the congestion by encouraging people to drive HOV or drive outside of peak hour.

            The first way – you have excess capacity outside of peak hour and that’s if you have the money and the available right-of-way to build those extra lanes. In NoVa , where is the unbuilt land available to build long segments of additional lanes? It’s not there. NoVa is primarily built-out when it comes to major regional-scale roads. You can put additional lanes here and there but all that does is move traffic to the next place where no additional lanes can be built.

            It’s a fools errand. Nova and the exurban counties will continue to grow and building extra lanes if you could – only encourages MORE solo commuting!

            I’ve heard no one “solution’ to this issue other than congestion tolling. There is not a single urban area in the US that does not have this problem – none have “fixed” it despite billions of dollars of more lanes.

  2. >>Rich folks have CPAs and do what the tax code requires to minimize their taxes.. ordinary schmucks use tax software.

    This is the problem with liberal thinking, Larry. Class envy combined with incorrect assumptions about what the rich can do will lead to very poor logical results. Unless the CPAs or their clients are going to cheat, they will get the same result as your “ordinary schmucks” every time. The schmucks can cheat just as well as the rich guys if they want to. As usual, your just plain wrong.

    • It’s not liberal thinking Crazy. I actually do taxes for folks. I understand the tax code and why there is a need for “professional preparers”.

      The tax code favors those in the higher income categories – if you have income, you can, for instance, buy stocks and hold them and long term capital gains are not taxed at all below 400K and above that – the rates
      are lower than the regular tax rates – taxed at the lowest rates in fact and the stepped-up basis for inheritance means no tax on inherited stocks/bonds/real estate, etc…

      People with higher incomes can put their money in more tax-advantaged accounts like ROTHs and Archer MSAs, etc.

      There are myriad ways for higher income folks to pay less taxes –
      even for tolls if they want – if the tax preparer really understands the tax code. If you get paid – just one job – as an independent contractor, you can file Schedule C and claim tolls as expenses and the right CPA knows how to advise you to do that.

      But tolls are chump change for the rich anyhow. They spend far more than that on parking garages and business lunches.

      • $400,000??? No way. If you are in the lower 12% and below income tax brackets, then LT gains are tax free to a point, and not tax free on the state return…we hit you full force there.

      • Clearly, if one is traveling by personal vehicle from one’s office in Long Island to a business meeting in Manhattan below 60th Street, the congestion toll can be deducted as a business expense but only if the individual is self-employed. And if the individual has her/his office in Manhattan but lives in Long Island, the congestion toll cannot be deducted. Right?

        • Sounds right to me. LG says, “If you get paid – just one job – as an independent contractor, you can file Schedule C and claim tolls as expenses” — but that comes with an important caveat: the particular trips involved must be related to the business which is the subject of that Schedule C (e.g., going to and from business meetings with clients; simply getting from home to the office is commuting, which is not deductible).

          There are people who’ve established an office at home, then claimed the cost of every daily commute to a regular client (where they may even have a second office) as a tax deductible business trip. It is hard to police but my understanding is, that’s viewed as a scam if the IRS becomes aware of it.

          • Well, like I said – if you consult a competent CPA, she will advise you on how to structure the arrangement to get the advantages.

            The tolls will be chump change for the rich and will have a much more significant effect on lower income folks who drive solo – they’ll get whacked.

  3. yup, I did get it entirely right – here’s the way it works:

    but the essential point is that higher income folks pay much less tax on the same thing.

    • Seems to me your chart proves the opposite of what you say. The higher the income, the higher the marginal tax rate. Note, there have been a few changes since 2017.

      • yes – but compared to the regular marginal rate – it’s way lower – someone in the 39% bracket pays a marginal rate on long term cap gains of what someone who earns 37K would pay – 20%.

        but yes I think I got it wrong and here’s the 2018 chart:

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