Metro is at the Precipice. Declare Bankruptcy.

Recent ridership figures for Metro. Source: WMATA Click for larger view.

By Derrick Max

Tuesday, the Washington Metropolitan Area Transit Authority (WMATA) warned that without substantially greater subsidies from DC, Maryland, and Virginia, they would be facing a $750 million annual shortfall that would require draconian cuts in services, including closing 10 stations, cutting 67 bus lines, and laying off 2,000 employees.  They would also freeze salaries, raise fares and parking fees, reduce bus and train frequency, and close all stations at 10 p.m.

The threat of such cuts was meant to be a bargaining chip for more funding rather than a true plan to save WMATA, as any such cuts would just accelerate, not slow, the demise of WMATA.  It is time for Governor Youngkin and the two other regional funders, all of whom are facing reduced federal aid in their own budgets, to seriously consider forcing WMATA into bankruptcy.  And if WMATA’s unique structure as a bi-state compact agency makes it ineligible for Chapter 9 bankruptcy — a complete restructuring and rethinking of WMATA along a similar line as Chapter 9 bankruptcy are in order.

The truth is that bankruptcy is not a new idea.  In 2016, WMATA hired one of the nation’s top bankruptcy lawyers, Kevyn D. Orr, to advise the agency on fixing its troubled finances.  At the time, WMATA had a $1.8 billion operating deficit (a loss of over 200 percent of operating revenue) with $917 million in long-term debt (not counting pension and other benefit liabilities).  The hope was that Mr. Orr’s expertise would help WMATA restructure its debt without resorting to bankruptcy, take a tougher line on labor negotiations, and wrest more money from the three Washington-area funding jurisdictions.  Sadly, whatever reforms were implemented have had little, if any, impact on WMATA’s financial situation today.

Metro at the precipice, with deficit beginning in FY 25. Source: WMATA

Even before the pandemic, WMATA continued to run massive operating deficits.  In 2019, the year before the pandemic, WMATA’s deficit had ballooned to 291 percent of operating revenue, and revenue from passengers had dropped to 25.1 percent of total revenue.  Ridership had dropped in seven of the eight years before the pandemic.  Then came Covid-19.

WMATA rail ridership dropped from 505,903 average daily rail entries in 2019 to a low of 121,544 in 2021.  While WMATA brags that 2023 rail ridership more than doubled from the pandemic low, it is still only 289,151 daily entries now.  For perspective, passenger revenue (both rail and busses) now only accounts for 4.8 percent of total revenue of $364 million, with expenses of $3.7 billion.  Annual operating losses are now $3.3 billion or 916 percent of operating revenue.  Debt has risen to $3 billion, again, before counting pension and benefit liabilities.  This is not just unsustainable — it is a bankruptcy-level failure.

Of course, operating revenue is only a small part of WMATA’s finances.  The vast majority of WMATA revenue comes from state and local subsidies.  The best way to understand this is to look at a chart in WMATA’s planning document.

As you can see, WMATA’s operations have always relied on a growing base of government subsidies — subsidies that grew substantially during the pandemic (yellow Federal Relief on the above chart, plus the grey base).  More interesting is that expenses barely went down during the pandemic, despite ridership collapsing.  Worse, as the chart shows, due to the historic inflation of the last two years, labor costs (which under union contracts rise with inflation and currently make up 48 percent of WMATA expenses), grew by 20 percent over the last two years.  This growth in wages will drive up expenses, as seen in the chart, and will carry forward indefinitely.

While Governor Youngkin and others have urged the Office of Personnel Management to issue a “return to work” order for Federal employees in hopes of driving ridership back up, as this chart shows, even if ridership returns to pre-pandemic levels, 75 percent of WMATA’s deficit will remain.  In fact, you could double pre-pandemic ridership and WMATA would still be in financial deficit.  Ridership was trending down before the pandemic, and realistically, the world today is far different.  The odds of ridership hitting 2019 levels are very low.  If you drew a trend line from the prior 8 years of pre-pandemic ridership, the 2023 level is only slightly lower than would have been expected absent the pandemic.  It is also important to know that the miles of rail in WMATA have increased with the addition of phase two of the Silver Line, meaning ridership per station or per mile of track has tanked.  WMATA has yet to learn it can’t build itself out of financial collapse.

Setting aside the growing issues of fare jumping, crime, broken 7000-series train cars, and resigning Inspector Generals — the issues with WMATA are far deeper than can be explained by those headline-grabbing problems.  The Washington Metropolitan Area Transit Authority is a failing institution in need of a bankruptcy filing if possible, or, at a minimum, a total restructuring.

At a minimum:

  1. WMATA must find authority to restructure its debts and negotiate new labor contracts which account for almost half of all their expenses;
  2. WMATA must shed its old management and start over with new leadership;
  3. WMATA must free up resources for greater innovation and restructuring in line with the post-pandemic transportation needs of the region (more buses, less trains?);
  4. WMATA must halt all expansion plans, like the tunnel to Georgetown and the Blue Loop that were designed for a different time;
  5. WMATA must take time to value its assets and ensure it is maximizing income from both operating and non-operating income;
  6. Any investments in expensive and unreliable electric buses and charging stations must be put on hold until the system can sustain the buses it has (it is a curious fact that the most recent study of Metrorail showed that its carbon-reducing benefits were outweighed substantially by the carbon expended to run the system. Metro stopped producing this statistic after the pandemic, as I am sure Metro’s carbon reduction estimates have crashed with reduced ridership).

Governor Youngkin, with his background in private equity, surely understands the power of bankruptcy as a means of saving important businesses.  Let’s hope he applies this wisdom to WMATA before it is too late.

Derrick Max is President and CEO of the Thomas Jefferson Institute, which first published this yesterday.

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58 responses to “Metro is at the Precipice. Declare Bankruptcy.”

  1. William O'Keefe Avatar
    William O’Keefe

    The notion that coercion is a solution runs counter to our system that values individual freedom. Metro will never be solvent as long as it can count on large subsidies from three jurisdictions.
    Just say no to more subsidies and mandate that Metro develop a plan that will get it to breakeven by a date certain.

  2. If WMATA cannot solve its union problem it will not be able to solve its problems.

  3. And how does the new sports arenas in Potomac Yard work with no metro trains in the future? What will traffic be like if everyone has to drive down Route 1? Where the parking buildings go in the future that are not part of the current design.

    Also, how do the Nationals function with no metro trains? How does the Washington Football TEam move back into the district with no metro trains.

    1. DJRippert Avatar

      Teddy! Good question. The proposed new sports arena in Potomac Yard will work as well without mass transit as FedEx Field works without accessible mass transit. In other words, it won’t work worth a damn.

      DC sports should stay in DC.

      1. Can anyone image a Maryland resident purchase season tickets to watch a game in Virginia. The Washington Post claims this is about Ted Leonsis holding a grudge that he does not make money off the real estate around the Capital One Arena. Now all of that real state will become cheaper because many of the restaurants will not survive without the 90 dates a year from the Capital and Wizards. The Georgetown Hoyas and the Washington Mystics do not bring in enough fans to justify having a restaurant down there. And if the restaurants close, then what happens to the theaters and hotels.

  4. The problems with WMATA show the issues that management cannot really function with long planning and construction horizons. There is no business case today to justify the Silver Line or other expansions. Also, how many business plans are built on the idea that there will always be metro trains such as all of that real estate in Clarendon, Ballston, Crystal City, Potomac Yards etc.

    1. Kathleen Smith Avatar
      Kathleen Smith

      Keeping up with growth in NOVA is difficult for the Metro system.

      1. WMATA was trying until the pandemic and the push to let more people work from home. Now people can be more productive without two long commutes each day. However, if WMATA closes down, there is not enough parking in the areas where the most people still commute to work such as the Pentagon.

        1. Kathleen Smith Avatar
          Kathleen Smith

          Right. They will have to additional lots and shuttles.

        2. DJRippert Avatar

          There also not enough parking at Metro stations.

          NoVa (and the DC area) isn’t Manhattan.

          Even if people want to use Metro, they have to first get to the station. That means either adding one or more Metro bus rides to the Metro ride unless you use your car. And if you use your car, there will be no place to park once you get to the Metro station.

          1. I have never seen the Vienna metro or the Springfield Parking lot full in more than a decade. I doubt the Dunn-Loring parking lot fills up either.

  5. LarrytheG Avatar

    So, here’s a question. .3% of the general sales tax is dedicated to transportation. Amounts to about a billion dollars per year .

    Why can’t the Nova share of that be dedicated to METRO instead of roads?

    1. Bingo – let each county decide how it wants to spend that .3%

      1. DJRippert Avatar

        Exactly. In Virginia, Metro only benefits NoVa. Let NoVa keep all the taxes raised in NoVa and decide how those tax dollars should be spent.

        1. LarrytheG Avatar

          except – it should be mandated by the state – money goes to Metro or we shut it down.

          Don’t let the localities take the tax money then ask the state/feds to give them more for METRO.

    2. DJRippert Avatar

      Because that’s not what the citizens of NoVa want. I think most NoV citizens would support Metro being torn down and the tracks repurposed for biking and running trails.

      The freed up money could be used to build overpasses so that major roads flow freely.

  6. I doubt WMATA will declare bankruptcy. Title VI doesnt allow transit systems to close stations or cancel bus routes without public hearings and justification — but it’s a good idea. Metro also could make their trains run faster above ground , but that takes more money. Faster service may attract riders. Main thing Virginia needs to do is abolish the NVTC and have DRPT take over and have the state pay the subsidy instead of the counties and cities in NoVa. I served on NVTC for four years and it’s nothing more than a shill for WMATA. They don’t do any decent oversight, yet they get to appoint one of thee Va. Reps. to the Metro board. They are all local elected officials who have other duties. Maryland pays their subsidy from MTA, not from the citizens of Montgomery and Prince George’s. The Montgomery and PG Executives appoint their reps. Unsure if they are any better or worst than the DC or Va. reps. A dedicated funding source for metro would be better than the 2.5% NVTC stealth gas tax, too. Feds should help fund the subsidy, but the best way out is to allow competitive tendering for labor and ratchet down the overly generous unionized benefits and overtime payments. Doubt this will happen since Lcoal 689 of the Amalgamated Transit Workers Union helps a lot of Democrat campaigns, and Democrats control the WMATA Board. Metro board members should get a salary and access to state oversight staff. WMATA should be subject to audit by teh Maryland, DC and Virginia auditing arms of government. If anyone is interested, I can send you a WMATA reform memo a number of us citizens drafted for former Rep. TOm Davis back in 2005 and it was updated, but of course, nobody listened to us

    1. energyNOW_Fan Avatar

      Thanks Ken for the insights

    2. LarrytheG Avatar

      re: ” A dedicated funding source for metro would be better ”

      there needs to be a dedicated source that works just like fuel taxes , i.e. essentially built-in and “stealth”.

      If you asked anyone buying fuel at a service station how much they were paying in taxes, they’d have no clue. METRO needs to work
      the same way IMO.

      Cannot understand for the life of me how and why the jurisdictions that METRO serves are so fiscally irresponsible about METRO funding.

      1. there needs to be a dedicated source that works just like fuel taxes , i.e. essentially built-in and “stealth”.

        The fuel taxes are buried in the price of fuel. In what commodity would you bury the “METRO tax”?

        1. LarrytheG Avatar

          Like they do in Asia or for that matter in special tax districts in Va to pay for infrastructure. set the boundaries around business close to Metro , 1/4 mile or so… and add .25 or .5 to the sales tax dedicated to METRO.

          1. I can live with that.

          2. how_it_works Avatar

            Should happen with property taxes. Some of the additional taxes a property generates because of the higher value a property has because of Metro should be captured and used to fund Metro.

          3. LarrytheG Avatar

            Agree. They’re called special tax districts and they have supplemental taxes added to the
            base rate and the money pays for the operation and maintenance of the infrastructure.

            I can’t imagine METRO going forward originally without that kind of funding source but
            even now I cannot understand the the localities that benefit from METRO won’t set up
            Mechanisms to pay their fair share of the costs and instead expect the Feds or the State
            to pay, i.e. to get all taxpayers who get no benefit from METRO to pay.

            No question the pandemic did great damage to ridership. VRE has not recovered either.

        2. LarrytheG Avatar

          well first, recognize that the general sales tax funds transportation. The three “prongs” are
          general sales tax, fuel tax and sales tax on vehicles:

          Have you seen this?

  7. Kathleen Smith Avatar
    Kathleen Smith

    Great report. I didn’t realize how bad it really is.

    Comments are good too!

    1. LarrytheG Avatar

      not an unfamiliar story with inter-city rail in most urban areas of the country.

      No two ways about it , inter-city rail is expensive!

      1. Kathleen Smith Avatar
        Kathleen Smith

        It is. In Portland I rode the rail. You bought your ticket and got on. No stalls packed. I asked the kid next to me what to do with the ticket. He said nothing, it is the honor system. I don’t see that working in DC

        1. It doesn’t even work in Portland:

          1. LarrytheG Avatar

            eh… ” Welcome to the Antiplanner, a blog dedicated to ending government land-use regulation, comprehensive planning, and transportation boondoggles. ”

            pretty wide net there…

            mass transit “works” pretty good apparently in most of Europe and Asia but it “fails” here?

            I wonder if he thinks highways are boondoggles also?

            Comprehensive Planning, rezoning? etc?

          2. Kathleen Smith Avatar
            Kathleen Smith

            Probably why.

  8. Stephen Haner Avatar
    Stephen Haner

    One more reason for Virginia Democrats to use their new majorities to accelerate the deadline for banning the sale of new ICE vehicles. 🙂 That will force more back on the subway….

  9. Some things never change.

    From 2016:

    In the above article, the link to the 1986 Report is broken, so:

  10. Eric the half a troll Avatar
    Eric the half a troll

    Remind me how much of the Virginia surplus Youngkin just spent in his failed attempt to buy votes…?

    1. James Kiser Avatar
      James Kiser

      Since he isn’t running and can’t for reelection your comment makes no sense. Besides pols on both sides love either supporting big business (Leonis) or big labor (metro)

      1. Eric the half a troll Avatar
        Eric the half a troll

        He wasn’t running … for governor that is… but he was surely campaigning and, yes, buying votes…

    2. DJRippert Avatar

      If returning money that built up as a result of over-taxation is buying votes, Youngkin just successfully bought mine.

      1. LarrytheG Avatar

        returning money that is needed for existing unfunded/underfunded projects is not exactly a virtuous thing either though especially if those projects do have to be funded and the money given back has to be clawed back.

        The problem is folks who want services and infrastructure but don’t want to pay for it… they want “THEIR” money but they want free stuff also!

        1. DJRippert Avatar

          Free stuff is what Metro riders are getting. Their fares don’t even come close to covering the costs of the system.

          1. LarrytheG Avatar

            does ANY subway ANYWHERE?

  11. Matt Adams Avatar

    For all of WMATA’s faults, they are a large employer in the region and operate like all other transit agencies. The notion that there is any solvent transit agency using fares alone, is a fools errand.

    1. WMATA must find authority to restructure its debts and negotiate new labor contracts which account for almost half of all their expenses; Restructuring debts is a good suggestion, but the notion that they have any leverage with labor contracts, indicates zero understanding of the topic.
    2. WMATA must shed its old management and start over with new leadership;They just got a new GM less than a year ago, a vast majority of the upper management are new. The revolving door effect of management doesn’t make it any better.
    3. WMATA must free up resources for greater innovation and restructuring in line with the post-pandemic transportation needs of the region (more buses, less trains?);First and foremost, this suggestion is laughable, the notion that you’re going to do anything efficient on the roadways in the District and NOVA smacks of someone who doesn’t live or work there.
    They operate on their of right of away and not at grade, rail is more efficient, but the technology to move to the future CBTC is expensive and takes time.

    4. WMATA must halt all expansion plans, like the tunnel to Georgetown and the Blue Loop that were designed for a different time.Apparently the author didn’t read the budget
    5. WMATA must take time to value its assets and ensure it is maximizing income from both operating and non-operating income.Deferred maintenance is the driver for most issues with transit, it is see on every property Nation wide. That is because the public cries afoul when maintenance is done, because it slows or impacts service.

    Any investments in expensive and unreliable electric buses and charging stations must be put on hold until the system can sustain the buses it has (it is a curious fact that the most recent study of Metrorail showed that its carbon-reducing benefits were outweighed substantially by the carbon expended to run the system. Metro stopped producing this statistic after the pandemic, as I am sure Metro’s carbon reduction estimates have crashed with reduced ridership).

    You are a customer driven entity when you’re in transit. Electric busses are debatable, but the notion that installing chargers in parking structures isn’t an investment in its ridership, is short sighted. Also, transit operating using DC electrification (be it 3rd rail or overhead catenary), they operate their own substations and it is the standard world wide.

  12. f/k/a_tmtfairfax Avatar

    Bankruptcy is the only reasonable path forward. WMATA’s cost structure is unsustainable. There is public benefit in operating a transit system such that some tax contributions are warranted most especially to keep bus service operating. Many low-income people rely on buses. But it’s unreasonable to expect taxpayers to prop up an entity that has virtually uncontrolled costs.

    Metrorail expansion has been a tool of large landowners and developers. The Silver Line was supposed to be built in the median of the Dulles Access and Dulles Toll Roads with two stops on the northern edge of Tysons. But the monied interests persuaded Fairfax County and WMATA to move the line through Tysons and built three stations. Then, Gerry Connolly who was both Chairman of the Fairfax County Board of Supervisors and an SAIC VP, persuaded decision-makers to add a fourth station in front of SAIC’s HQ building on Route 7.

    Governor Kaine, sans legislation, transferred the DTR to MWAA for the Commonwealth’s required share of funding. MWAA raised tolls to fund the state’s share and also agreed to pay any cost overruns.

    Fairfax County’s share was funded through a special real estate tax district that exempted some properties closer to the station sites than some other properties included in the district. Why? Some of the former made contributions to the nonprofit advocating for the Silver Line and some of the latter were vocal opponents.

    The Sliver Line could not meet relaxed federal funding standards. It could not be funded with the original requirements. Senator John Warner obtained an amendment that relaxed the requirements, but the Silver Line still could not pass. But the monied interests pressed the Virginia congressional delegation to pressure the GWB administration to waive the requirements.

    What about further expansion? We’ve seen a steady drop in Metrorail ridership even before COVID. COVID was disastrous and the number of work-at-home days is very high and will likely stay that way for the foreseeable future. This means lower commercial occupancy and lower real estate and sales tax revenues. Localities are struggling to reverse the trend. Meanwhile, other monied interests are lobbying for Metrorail expansion to increase the value of their real estate and to open new areas to dense development. With public subsidies, more development becomes feasible in the face of too much empty space today.

    Also, consider the recent announcement by the Federal Transit Authority that it will no longer fund heavy rail projects because they are not cost-effective. Will that stop the monied interests and their elected officials?

    1. LarrytheG Avatar

      What Japan and other Asia does according to my reading is add a tax to the businesses that
      serve the Metro riders.

      but not sure where you got your “news” about rail…

      1. LarrytheG Avatar

        VPRA Receives Federal Grant in Support of Transforming Rail in Virginia Initiative
        NEWS RELEASE – December 8, 2023

        Grant will fund Long Bridge and Phase II Projects
        RICHMOND – The Virginia Passenger Rail Authority (VPRA) today announced it has been awarded a $729 million grant by the Federal Railroad Administration (FRA) through its Federal-State Partnership for Intercity Passenger Rail Program (FSP-National). The grant will aid VPRA in completing the final design and construction of Long Bridge and all Phase 2 projects of the Transforming Rail in Virginia (TRV) initiative.

      2. Perhaps he meant to write ‘commuter rail’ instead of ‘heavy rail’?

        The funding you note in your comments is for intercity rail, not commuter or intracity rail.

        1. LarrytheG Avatar

          I believe I’ve read that the funding will upgrade tracks from DC to Richmond which both Amtrak and VRE use. The funding is supposed to provide better separation between the two so they don’t have to share tracks as much (the “long” bridge). Other funding goes to improve the tracks and related so that higher speed and more frequent trains between Richmond and Raleigh.

          just google and read all about it!

          1. Like I said, intercity rail.

          2. LarrytheG Avatar

            … so you got, METRO, then VRE, then Amrak?

            any more?

            We got folks down Fredericksburg way that commute on I-95 and when asked about what improvement, they want METRO from NoVa to Fredericksburg. “free” or “cheap” , of course!

            VRE is heavily subsidized I believe.

          3. Dick Hall-Sizemore Avatar
            Dick Hall-Sizemore

            The idea is to separate the passenger trains (Amtrak and VRE) from the freight trains that now have to share tracks to cross the Potomac.

      3. f/k/a_tmtfairfax Avatar

        Can you imagine NoVA’s real estate crowd accepting direct or indirect taxes on their property to fund Metrorail? (Til Hazel (RIP) once told a group of people in Richmond that it was the public’s job to pay taxes to support the infrastructure needed by his development. While most in the industry are not that outrageously open, many think the same.)

        The Feds are still funding inter-city trains. As Wayne suggested below, I should have used the term commuter rail. They probably would not have funded the Silver Line today. But BRT is still eligible for funding. Interestingly, Frank Wolf pushed for BRT for the Dulles Corridor but BRT cannot support the density given to Metrorail so it was dead.

        1. LarrytheG Avatar

          inner city rail and dense(r) development are chicken/egg. Each needs the other. The high
          dollar commerce real estate “needs” the rail.

          A place like NYC clearly shows the nature of it with lots of businesses near where the
          subways stations are. What happens to urban locations if they don’t have subway?

          In many other countries around the world – inner city rail meshes quite well.

          How can they do it and not us?

          1. f/k/a_tmtfairfax Avatar

            Yes, mass transit (subways, Metrorail) and density go together. NYC without the subway would have collapsed decades ago. And putting density around Metrorail stations makes sense.

            But the fact remains that the Silver Line was created and funded to give density to connected landowners and developers on the backs of Dulles Toll Road users.

            Also, the project could not meet weakened federal standards for funding. Even with massive construction in Tysons, the 4 stations were projected to have ridership below the Bethesda station.

          2. LarrytheG Avatar

            well in terms of “connected” , been that way for all transportation projects for a long time, not anything unique and specific to just Metro and if you think about it, it’s not necessarily a nefarious thing that one a property owner or developer knows about a potential transportation project that they will position themselves and become involved in the process. Just normal.

            Any toll road is at the option of the user. They don’t have to use it and that would include
            if they don’t like how the projects was funded or uses tolls revenues. You’ll find that for
            the I-95 Express lanes, there is a private for-profit operator and yes, some of the revenues
            do go to pay for non-highway transportation.

            If not mistaken, tolls over bridges in NY go to their mass transit projects.

            None of this is unique to METRO.

      4. DJRippert Avatar

        The population density of Tokyo is wildly greater than the DC area. There comes a point where a high density area needs a subway. NoVa may have jumped the gun though.

        1. LarrytheG Avatar

          chicken and egg? Was NYC once the density of NoVa and then “grew”. Does subway enable
          density and growth or do we expect density/growth first then add subway?

  13. energyNOW_Fan Avatar

    Feds need to consider subsidy to account for their lack of fortitude making workers return. Also Maryland should get a kick-up in their %share due to stealing the FBI HQ project.

  14. James Kiser Avatar
    James Kiser

    The individual counties and cities in the area also pay metro subsidies on top of what the states and feds give them.

  15. Randal O'Toole Avatar
    Randal O’Toole

    Why should Metro declare bankruptcy? Everyone else whose revenues declined during the pandemic responded by reducing expenses. Metro instead increased its spending. The idea that reducing expenses will lead to some sort of spiraling decline only shows how worthless Metro’s services are. Most of Metro’s costs are paid by taxpayers. If riders aren’t willing to pay even a minority of costs, then why should everyone who doesn’t ride it pay anything at all?

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