Metro’s Other Funding Crisis

Washingtonians are finally showing top-of-mind awareness of the looming pension crisis at the Washington Metropolitan Area Transit Authority. The Metro’s nearly $3 billion in unfunded retirement and health care costs “threaten its future operating position, potentially hampering its ability to provide service,” reports the Washington Post, citing a Government Accountability Organization report.

Coverage of the Metro’s financial condition to date has focused mainly on the political drama associated with finding funding to meet the bus and heavy-rail system’s long-term capital spending needs. Far less attention has been given to the reckless underfunding of the employees’ retirement benefits.

Metro’s annual pension costs grew by an average of nearly 19 percent from 2006 to 2017, the federal report said, making pensions the agency’s fastest-growing workforce cost as its total labor costs grew about 3 percent a year.

With the scale of the obligations, the report posits that in the event of an unfavorable financial market, Metro could be backed into a corner to cover its obligations. The scale of the pension liabilities means that a drop of less than one percentage point in Metro’s investment return on its pension fund could squeeze its operating budget to the point that the agency would need to reduce service or ask the jurisdictions that fund it to cover the shortfall.

“Due to their relative size, proportion of retirees compared to active members, and investment decisions, these pension plans pose significant risk to [the Washington Metropolitan Area Transit Authority’s] financial operations, yet WMATA has not fully assessed the risks,” the GAO concluded. … WMATA may not be prepared for economic scenarios that could increase its required contributions to an extent that might jeopardize its ability to provide some transit service.”

One of the easiest ways ever invented to buy labor peace is to pump up retirement benefits, incurring future liabilities, in exchange for wage moderation today. Metro’s current management does deserve credit for at least trying to address the issue. Leadership tried to engineer a shift from a defined benefit plan to a less expensive defined contribution plan, but an arbitration panel rejected the agency’s proposal last month.

“I’ve been telling you guys this since I became chairman 2½ years ago,” Metro chairman Evans Jack Evans said. “In five to 10 years, the amount of money that we have to pay out of the operating budget to fund the pension will be so high that we won’t be able to run the system.”

Bacon’s bottom line: It is all but pre-ordained that Metro will be back in a few years begging for another bail-out, this time to cover its retirement obligations. Virginians, prepare to open up your pocketbooks yet again for the mass transit system that never stops taking.

By the way, if you think Metro is uniquely irresponsible in its pension policies, think again. Pension underfunding is widespread in governmental and quasi-governmental agencies across Virginia. Virginia Retirement System liabilities of about $20 billion may be the tip of the iceberg. Perhaps Secretary of Finance Aubrey Layne, a voice of fiscal probity, could assign one of his minions to compile a list of all public pension funds in the Commonwealth and tote up their unfunded liabilities.

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5 responses to “Metro’s Other Funding Crisis”

  1. LarrytheG Avatar

    One of the interesting things one can learn when listening to mundane budget discussions, for me, was this: The presenter showed the increase number to go to VRS for pensions and informed everyone that the School Board had “no choice” that VRS dictated how much had to be paid.

    So.. I kind of like that concept. The School Board is still free to hire as many as they want – and to pay them what they want but they cannot take money from pensions to spend on other stuff.

    I have no clue how Metro does pensions – but I also have no clue how other govt/quasi govt agencies fund their pensions. For instance, how does Fairfax fund pensions for their police department or fire/ems departments where (I think) folks can retire with full pensions and benefits after 20 years of service?

    When we choose to look at METRO – do we really know what their costs SHOULD BE? Are the pensions for METRO out of line with respect to other govt entity pensions?

    I DO have a suggestion.

    Since Virginia got into the business of collecting sales taxes from online sales and then allocating them out to the 133 jurisdictions – why not take that money for NoVa and using it to pay the pensions for METRO?

    Actually even without the internet sales taxes – just sales taxes on bricks and mortar businesses – makes up fully 1/3 of the total state transportation and I think can and should be used for transit especially if the region itself cannot take responsibility for their funding responsibilities.

    I’m of the view that any/all pension funding in the State by any level of govt needs to be mandatory… by law.

    1. TooManyTaxes Avatar

      One of things WMATA does with pensions is base them on compensation that includes overtime. No one does that. It’s totally beyond the pale. That needs to be cut from the pension plan as one of many reforms. Just like VRS and FERS, the WMATA pension plan needs to be converted, at a bare minimum, to a hybrid plan and post haste.

      What should Metro’s costs be? Less. Metrorail continues to lose riders. To get capital funding from the District, Maryland and Virginia, it’s board had to agree to hold budget increases to 3% per year. Fairfax County officials have said that WMATA’s ever-growing need for more subsidies threatens county programs. WMATA needs to cut costs and improve service now.

      Raising fares must always be considered but if riders are already leaving, the impact of fare increases on ridership needs to be evaluated. Metrorail is still not in a state of good repair. Employee compensation cannot be sustained. Either concessions need to be negotiated or work functions need to be contracted out. If changes are not made, WMATA will be in bankruptcy in the foreseeable future. And then pension payments can take a hair cut. That’s the worst outcome.

      1. Steve Haner Avatar
        Steve Haner

        Gee, Larry, Virginia is not even ready to start collecting that on-line sales tax (need some legal tweaks) and here you are with about the fourth or fifth suggestion on how to spend it. It’s like Monty Woolley’s sherry glass – just fills right back up.

        1. LarrytheG Avatar

          well I ALSO said for the EXISTING sales tax already collected and allocated to Transportation – that when Virginia allocates that tax – that they mandate it go for certain things – like transit and pensions for transit workers.

          If what TMT says is actually true – that’s an issue. Is it true for METRO with respect to overtime? How about Police officers? In other words what is the actual standard. I KNOW that overtime for Federal workers DOES count for things like accrued leave but the bigger problem here is that we look at METRO in isolation rather than comparing it’s pension practices to other govt employers.

          If it is out of line – compared to other govt pensions then we need to know that – if it’s not and others like public safety officer overtime counts toward pensions we need to know that.

          When we selectively criticize METRO AND that criticism is coming from people who do not support the concept of transit to start with – it’s not credible. I’m all for a fair and objective evaluation but these things that happen now days with critics going after things they don’t like and essentially attacking them in isolation – I do not support at all.

          It’s sort of like attacking schools for pensions… because we think schools have too many employees , too high salaries, etc.. in other words – it’s a generalized attack on public schools by …critics… and if we really want fair and objective analyses that actually are credible – it has to come from folks who are not critics – nor supporters.

  2. sharks2th Avatar

    TooManyTaxes is correct in that Metro bases their retirement pay on total pay, including overtime. I also am not aware of any other pension plans which do things this way. This is why the Metro maintenance force wants lots of overtime – to pad their retirement. In many cases you will see retirees making more retired than their base pay amount.

    Most pension systems use the employee’s base pay to determine their retirement pay. The formulas generally average the highest X number of months, multiply this by a preset multiplier and then multiply by the number of years worked (example using the VRS formula for Plan 1 members – $50,000 annual pay (average of highest 36 months on an annual basis) x .017 (1.7% per year) x 30 years (generally the time required for unreduced benefits). This example would provide $25,500 annually as a pension. I do not know the specific Metro formula, but it would pay out significantly more than a Commonwealth of Virginia employee would get for the same base pay amount.

    I have seen where Metro maintenance personnel are making in excess of $150k with their over time so they are raking in the benefits with their pension upon retirement.

    Metro can’t afford to be paying retired median income workers more than their base pay was when they were working and expect to sustain the system. It is outrageous they are allowed to count overtime pay in their pension calculations when most, if not all, pensions do not calculate things this was. This is just another Gross example of how Metro has been mismanaged (Unmanaged?) by the Metro Board over the last 40 years.

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