The House Government Operations Subcommittee held a hearing on February 9 to conduct oversight of the DC-area transit system, the Washington Metropolitan Area Transit Authority (WMATA). The subcommittee is chaired by Gerry Connolly (D-VA), who represents the Fairfax County portion of WMATA’s service area. Also on the subcommittee: Rep. Eleanor Holmes Norton (D-DC), and Rep. Jamie Raskin (D-MD), who represents the part of Montgomery County on DC’s northern border. All three have a large vested interest in WMATA. (Back in the day when there were Republicans elected to Congress from within the WMATA service area, former Rep. Tom Davis (R-VA) chaired this subcommittee).

Witnesses were (click on their name to read their prepared testimony):

• Paul Wiedefeld, General Manager, WMATA
• Paul Smedberg, Chair, Board of Directors, WMATA
• Geoffrey Cherrington, Inspector General, WMATA
• David Mayer, CEO, Washington Metrorail Safety Commission
• David Ditch, Policy Analyst, The Heritage Foundation

WMATA has suffered under COVID. The system had 302 million riders during its fiscal year 2019 and this dropped to 231 million in FY 2020 and bottomed out at just 81 million in FY 2021. WMATA projected last month that this would only rebound to 105 million in FY 2022 (which for WMATA ends on June 30) and then only t0 167 million in FY 2023. By June 2025, WMATA predicts that total ridership will still be only 78 percent of the 2019 level.

COVID was hard on all transit systems, but harder on rail systems (whose ridership tends to be more white-collar and thus more likely to be able to work from home, as well as being based more on the traditional suburb-to-urban-core traffic pattern) than on bus systems, whose ridership is more blue collar and less concentrated in downtown cores. In WMATA’s case, July-September 2019 ridership on the bus system was 31.6 million, and that dropped to 18.8 million in July-September 2021 (down 41%). But ridership on WMATA’s rail system at the same time dropped from 46.9 million in 2019 to 14.0 million in 2021 (down 70 percent).

WMATA has been caught in a downward spiral – the sudden drop in ridership caused a corresponding drop in train and bus frequency, and then to compound that, Metrorail had to take most of its new cars out of service last year to fix a system problem from the manufacturer (more on that below). As a result, WMATA has been forced to reduce fares to try to draw riders back to the system, which makes the revenue problem worse.

Congress provided almost $70 billion in emergency COVID aid to mass transit systems across the country in three different bills enacted in 2020 and early 2021. For the first time since 1998, federal aid could be used in large cities to subsidize operating losses. WMATA has received $2.45 billion of this money, but they currently project that most of it will be gone by the end of 2023, and there will be a budget gap exceeding $500 million in 2024. In millions of dollars:

At the hearing, much was made of the 7000-series rail cars purchased from Kawasaki. There are almost 750 of these cars, now the bulk of the WMATA fleet. In 2017, WMATA inspectors began to notice that the wheels on some of the cars were spreading apart and getting farther apart on the axles. They took this up with Kawasaki and determined that it was covered by the warranty, so apparently they treated it like a warranty issue (the focus of which is, who pays for the repair?) instead of a safety issue, the focus of which is, what’s the worst that could happen if this defect is not fixed immediately?

The defect caused a derailment on October 12, 2021, near Arlington Cemetery. Per the new safety compact, the accident was investigated by the new joint DC-MD-VA safety oversight board (which did not exist in 2017 when the original defect was recorded). When the Commission found out that the train that derailed had derailed twice earlier on that same day (but “re-railed itself” both times), and the extent of the annual inspection failures (between two and six failures per year from 2017-on), the Commission hit the panic button and pulled the 7000-series from service, rendering WMATA Metrorail service even more sparse.

Commission CEO Mayer’s testimony provides a nice, concise explanation of this whole process. At the hearing, there was a lot of criticism about the lack of a “safety culture” at WMATA, as embodied by the engineers who treated the axle problem as a warranty issue and the operations staff who didn’t sound a gigantic alarm after either of the first two times that Train 407 derailed on that October day last year. Everyone involved promised to improve, via better communication.

But there was a looming sense at the hearing that ridership might never get back to the pre-COVID normal, and thus the old financial model no longer holds.

• CEO Wiedefeld: “Simply put — The Pre-Pandemic financial model for Metro is no longer sustainable. Given the changes in ridership and revenues that have been the backbone of Metro’s operating budget the current funding model is broken.”
• Board chair Smedberg: “Additional federal operating assistance for FY 2024 is something Metro would strongly welcome.”

This problem is in all major urban areas to some extent, not just DC. If transit ridership, especially in and out of the downtown core, never again gets back to the pre-COVID level and instead settles at a “new normal” level that is significantly lower, who should bear the financial responsibility for the changes that have to be made?

Which is why this author thinks that the big debate in mass transit over the next decade will be whether or not to bring back federal operating subsidies for large mass transit systems, which were abolished (except for “temporary” COVID aid) in 1998. And, since this will probably be the big topic, it’s worthwhile to refresh everyone’s memories on why those operating subsidies were created in the first place, and why they were later killed off.

A Thumbnail History of Federal Operating Subsidies for Mass Transit

In the beginning, the mass transit program proposed by Presidents Kennedy and Johnson, and brought to life in the 1964 act, did not include operating subsidies. (The Kennedy Administration insisted – no operating subsidies.) The scope of the transit program was dramatically expanded under Richard Nixon in the 1970 law, but Nixon as well insisted on no operating subsidies.

Transit interests tried to get the Highway Trust Fund opened up to mass transit spending, including operating subsidies. Nixon supported using HTF money for transit capital, but not operating assistance, but Congress was divided. When the 1972 highway bill was in House-Senate conference, an OMB Assistant Director wrote “The current positions on the mass transit provisions are bizarre. The Senate and the supporting interest groups which basically favor operating subsidies are now opposing them for fear of a veto of any bill which contain them. The House conferees who basically oppose operating subsidies are willing to include them in an effort to avoid mass transit capital expenses from the highway trust fund and perhaps to defeat or embarrass the Administration. Signs of weakness in this area are already apparent, and it is doubtful hat we can get any bill dealing with mass transit that does not include operating subsidies.”

The dispute killed the 1972 highway bill, the first time since World War II that Congress had failed to pass a highway bill in an even-numbered year. In 1973, Nixon held his veto threat strong and got a bill that opened up the Trust Fund to transit capital, but continue to forbid federal dollars from being used for operating subsidies. Once this bill had been enacted in August 1973, transit supporters passed a separate operating subsidy bill ($400 million per year for two years, relying on general revenues), through the Senate by a 53-33 vote in September 1973 and then through the House by a 219-195 vote in October 1973. Nixon’s veto threat meant that the bill did not move for a while.

October 1973 was also the Yom Kippur War, with its associated OPEC oil embargo that set off massive gasoline shortages across the U.S., resulting in a lot of people turning to mass transit very suddenly, prompting the need for increased service. At the same time, the OPEC shock accelerated the Great Inflation, increasing the cost of everything and driving up wages. Inflation had already caused New York City to increase the price of a mass transit token from 20 cents to 30 cents in January 1970, and then to 35 cents in January 1972. New York transit managers threatened that if they didn’t get federal operating aid, they would be forced to go to a 50-cent token, pricing many poor New Yorkers out of necessary transportation.

In February 1974, Nixon proposed his own transit plan in a message to Congress. It would have combined the non-Interstate urban highway program with the transit program in a Unified Transportation Assistance Program (UTAP), which would, according to Nixon, allow recipients to “spend the money not only on capital improvements, such as new buses, new rail cars, new rapid transit systems, and non-interstate highways, but also on other transit needs. Broadening the law in this way would permit local tradeoffs between capital investments and costs to improve services. I believe this is the most effective way for the Federal Government to provide transit assistance, and I will continue my strong opposition to any legislation which establishes a new categorical program solely for local operating assistance. Such a program would unnecessarily inject the Federal Government into decisions which can be far better made by State and local governments.”

In other words, local governments could choose whether to spend their federal dollars on capital or operations.

Nixon was gone within a few months. In his second month in office (September 1974), President Ford said that he had always opposed federal operating subsidies but had come to understand that if the federal government only provided capital aid, it might “encourage cities to adopt what you can call capital-intensive solutions, such as subways, as a response to their transportation problems.” So, he said, he would change his position on operating subsidies in the hopes that they might encourage expanded bus service instead of rail (remember that the 1973 highway bill let highway money be used to purchase buses instead of subways).

The House-Senate conference committee on the operating subsidies bill then held an unprecedented, formal joint hearing to talk about what to do with the bill. They produced a bill creating a new formula program for urbanized areas, where the local government could either spend its formula money on capital (at an 80 percent federal share) or on operating assistance (at a 50 percent federal share). The bill provided $4 billion in general fund contract authority over six years (this was after Congress had passed the Budget Act banning new general fund contract authority, but before the Budget Act took effect).

(The 1974 bill also included a provision that only applied to New York City that let them borrow from their discretionary capital money to fund operating expenses as long as they paid it back within two years. And the NY Metropolitan Transportation Authority wound up increasing the price of a token from 35 cents to 50 cents in September 1975, despite all the operating subsidies.)

During the first three years of the formula program, local governments chose to use 94 percent of the money on operating expenses. As the size of the program grew, and more money was available, this dropped a bit, so in 1979, only 78 percent of the formula money was used for operating assistance, and in 1980, that dropped to 72 percent.

But it also became clear that the operating assistance program, adopted as an emergency, was on its way to becoming permanent. The 1978 and 1982 surface transportation acts extended the program. Ronald Reagan proposed an “orderly phaseout” of operating assistance over four years, but Congress never went along. However, Reagan’s efforts did succeed in setting a maximum share of the total formula program that could go towards operating assistance each year (administratively for the first year or two, then in the text of the annual appropriations bills).

The size of the total formula grant program fluctuated each year, but the operating assistance ceiling stayed fairly constant (in the $800 million per year ballpark) until Republicans took control of both chambers of Congress following the 1994 elections. Congress cut the operating subsidy ceiling down to $400 million per year in 1996 and 1997.

The death knell for operating subsidies actually came from the Clinton Administration. Realizing that they had to negotiate a surface transportation reauthorization with a Republican Congress, the Administration’s NEXTEA reauthorization bill proposed to get rid of federal operating subsidies entirely for urbanized areas with a population over 200,000. In exchange for restricting the formula grant aid to over-200K areas to capital-only, the proposal also rewrote the defintion of “capital” to add “preventive maintenance,” which had previously been classified as capital. Bus refits in particular would now be considered capital, not operating.

This was controversial with their stakeholders. Ed Wytkind from the transportation trades told a Senate hearing that “We do support the expanded definition of capital, but let’s not lose sight of the fact that it is not an alternative to crucial operating subsidies.” But the Clinton proposal was adopted largely intact in the 1998 TEA21 law, and large urban areas ceased to receive federal operating aid (except for paratransit to meet the Americans with Disabilities Act, which also got classified as capital.)

Two questions for those who would propose to bring back federal operating subsidies for all providers:

• If you resurrect operating subsidies, do you also resurrect the different cost share of 50 percent for a federal operating grant versus 80 percent for a federal capital grant?
• If you resurrect operating subsidies, do you then also have to undo the preventive maintenance amendment and classify PM as operating once again? (A deal is a deal, after all.)