We’ve all heard that the WMATA rate hikes are coming for riders based on the recent impact softening surveys, discussions, reports, and interviews with WMATA officials. These rates hikes are anticipated to increase the typical traveler’s fare 15-25 cents on Rail and 10-20 cents on Bus transit. The need for more revenue is due to the anticipated $50 to $100 million budget shortfall for 2012. Many rider’s frustration levels have been compounded by the ongoing track repairs and maintenance events, that like one painful rip of a band aid, should be out of our way sooner than later. To understand this budget shortfall we have to understand the budget components, costs, revenues, and subsidies.
WMATA’s budget in 2010, the most reliable total budget information to date, shows an $86.3 million shortfall (later determined to be $154 million) which was blamed on the slower economy, increased capital costs, and increased operation costs. A few things that stand out from this data is the huge discrepancy in the operation cost and revenue from Bus Transit. A nearly $390 million bust between revenue and operations shows that the system may be over extended and under utilized. The focus of any adjustment to the budget for WMATA should clearly review the sustainability of this system which has only been worsened by rising fuel costs. This system should be reviewed for those corridors that are currently under utilized to reduce schedule availability significantly. By simply reducing the frequency of bus trips in these corridors, for example from every 10 minutes to 12 minutes in the lower 50 percentile of bus routes, a reduction of 5 to 8% can be attained, accounting for $15 to 25 million in savings.
Beyond the savings available from re-distributing the bus network, the second most glaring statistic of the 2010 budget is the percentage of operation cost attributable to employee wages and benefits (69.3%). Even more alarming, by taking the wage/benefit cost on a per employee basis for each transit type we find that the average Rail Transit worker (which includes Metro Police) is approximately $105,000, and for Bus Transit nearly $77,000. Based on the 2009 benefits/salary report for all employees, 36% of this employee cost is attributed to benefits including pensions, PTO, and health insurance. As a whole WMATA employees average a total cost of $91,228. By comparison, Chicago Transit, which also includes a significant police presence, averages only $87,981 per employee cost including all benefits. A reduction in benefits which would include a 12% reduction in PTO (still above private industry standards) and a 10% contribution from employees to pensions (In line with many police and firemen in several states) would put the average employee cost in line with Chicago Transit. This reduction of benefits would account for $34 million in savings.
In the most aggressive employee cost reduction concept, by utilizing the upcoming universal healthcare availability, the same reduction in PTO, and the requirement for a 25% employee contribution to the pension the average employee cost would be lowered to $82,500. This level of benefits would remain at 32% beyond the typical employees salary, a level which is 2% higher than the average non-government union employee, and nearly 3% than the typical private industry employee. Transit employees should understand that their salary/benefit cost of $43.86 per hour puts them above the salary/benefit cost of all major private industry positions and occupations except for management level employees. The key is also to note that while many corporations have management level employees, typically at a cost of $50.00 an hour, these employees do not account for the mean or median employment base for any industry. Businesses can not remain sustainable if their average employee attains the same salaries and benefits of managers, who should account for 20 to 30% of any organizations employment base.
WMATA must recognize that a cultural change in their employment is needed, from top to bottom. While arguments can and should be made as to why subsidies from Federal, Virginia, and Maryland sources are crucial to capital improvements of the system, this same argument becomes invalid if WMATA can not even carry the weight of its own operation costs (currently a deficit of $394 if subsidies are removed). The specter of a future removal in the subsidy level of $150 million, attributed to Federal budget cuts, only amplifies the need for this change. By starting this shift in 2012, accelerated by the introduction of universal healthcare in 2014, and bolstered by the necessary rate increases for bus and rail to cover rising energy, operations, and depreciation costs WMATA could be fiscally solvent in operations by 2015. This increased rate would be accomplished in three incremental increases of 10% per year, accounting for approximately 20 cents on the average fare per year. While this increase in cost will be a difficult sell, when viewed relative to the rise in fuel costs since 2010 (hovering between 25 and 35% rise) this rate increase becomes more reasonable. Additionally, this rise in fuel cost is a significant cause of the widening gap in revenue and cost in Bus Transit.
The final argument to these aggressive financial maneuvers remains the public, municipal, and private benefit of a healthy and more interconnected WMATA system. The financial benefits of metro to the local economy is a difficult value to quantify, but direct tax revenue benefits alone between 1977 and 2010 have been $2.1 billion (approximately $65 million per year), and indirect tax revenue benefits of $25 billion (approximately 750 million per year). With the shifting of local subsidies from the sustaining of operation cost to additional capital capabilities, on the order of 400 million dollars a year, projects such as the long awaited WMATA beltway which could promote better inter-connectivity and non-commute metro usage. Just as importantly, the additional subsidy money could be contributed to a dedicated depreciation fund which will ensure adequate upkeep of the multi-billion dollar system, a cost factor which was not fully anticipated and has led to the need for immediate capital assistance through the last 2 years.
All of us, from the daily metro rider to the average transit operator to the typical tax payer and the highest management of WMATA must recognize that certain inefficiencies must be corrected in the metro system. This requirement can not change the reality that energy costs have skyrocketed in comparison to WMATA fare rates, and these corrections to cost budgeting must be done in coupling with more reasonable fare rates, capable of sustaining Metro as a whole. While WMATA has made steps in the past few years has decreased costs over $100 million, the looming weight remains wage costs. The funding options to close the deficit such as Station naming rights, preventative maintenance, and the $74.2 million in operation savings allows WMATA to avoid impacts to service level for one more year. However, to stay one step ahead of future budget crises WMATA should institute far greater measures that will not require the annual plea to DC, Maryland, and Virginia for continued or increased subsidization.
Source of Information