Reston Spring

Reston Spring
Reston Spring

Thursday, March 12, 2015

"The draft (financial management) report commissioned by the Federal Transit Administration paints a damning picture of Metro officials' management of billions of dollars in federal grant money," Washington Post, March 11, 2015

 UPDATE:  In a March 27 follow-up article in WaPo, reporter Lori Aratani writes that Moody's downgrades Metro's bond ratings.   The article notes that WMATA's rating has been downgraded from Aa3 to A1 in large part because of its need for additional short-term financing and limited reserves discussed below.  The only reason an "A" can be attached to these bonds at all is the backing of localities in all three area jurisdictions--DC, MD, and VA.  In other cases like this, we would be looking WMATA bonds at junk ratings.  And who will pay the extra interest created by this management mess?  Taxpayers in all participating locations.

. . . not to mention billions of dollars of state and local funds as well as the fares paid by Metrorail riders and the tolls paid by Dulles Toll Road users.

This year-old draft audit of WMATA's financial management systems, presented by the Washington Post, paints a picture of a nearly bankrupt, utterly incompetent, and potentially corrupt regional transportation system.  It is one of the bleakest assessments of any government financial management system at any level of government we have ever seen.  “It’s an incredible lack of management for such an important public agency. Yet no one seems to be held accountable for it,” said (DC council member Elissa) Silverman (I-At Large) , a member of the council’s finance and revenue committee."  We think that is an understatement. 

And how has WMATA leadership responded:
  • It has blamed the failures on previous managers--again and again and again ad nauseum . . .
  • It has hired not one, but TWO, public relations firms to polish its image--we kid you not!  (Ummm, how about hiring a financial expert or two to fix WMATA's pathetic financial management systems and identify those who should be summarily fired instead?  Just a thought....)

And now WaPo ( reports that some of financial consequences are coming home to roost with a half-billion dollars in short-term debt due by October, and more money will be needed before year-end.
Metro officials want permission to borrow $220 million to cover a loan coming due in October, as the transit agency continues struggling under restrictions imposed last year after a federal audit found numerous instances of financial mismanagement. . .
If Metro obtains the $220 million loan, it would still need an additional $208 million to cover loans due later this year. It could tap cash reserves, obtain other financing or persuade some of its lenders to extend credit terms.
In documents prepared ahead of the Metro board’s meeting Thursday, Metro staff said that despite cash-flow improvements, “pressures remain on the amount and availability of cash in the near term.”
Metro’s total short-term debt amounts to $502 million, money that Metro Board Chairman Mortimer Downey said has been used primarily for building projects and improvements. . . .
And WMATA's own audit of finances that ended June 2014 is four months overdue and won't be completed until April according to WMATA's acting GM.  By our calculation, that's at least five months and maybe a half-year overdue--if the forecast is remotely accurate.

As you might expect, the shortfalls in short-term financing are affecting WMATA's ability to borrow long-term for needed capital investments in the Metrorail system.
“Until there is comfort that the financial management systems and processes are in order, the [chief financial officer] cannot recommend long-term borrowing or additional capital requests beyond safety needs for WMATA,” David Umansky, a spokesman for D.C. Chief Financial Officer Jeffrey S. DeWitt, said later in an e-mail.
OK, let's say WMATA puts its horribly mis-managed financial house in order.  That doesn't mean it will have more financial reserves.  Even if it has a good financial management system, that will not address the availability of long-term capital to fulfill WMATA's planned Metrorail (NOT bus) capital improvements in its "Momentum:  Strategic Plan for 2013-2025."   Those total about $4.9 billion in 2012 dollars (which is about $5.9 billion in future dollars over the 12-year period).  

How does WMATA expect to gain access to twelve times as much long-term capital as it now has outstanding in short-term debt if it cannot pay off its short-term debt, but needs to roll it over routinely--and add to it--even if financial controls are in place?

The question is especially salient for those who live or work near the new Silver Line, which County officials see as the driver of economic growth at Tysons, Reston, Herndon, and on into Loudoun County for decades to come. 

We've already documented that the 64 scheduled new Kawasaki Series 7000 railcars for Phase 1 of the Silver Line (to Wiehle/Reston) are overdue with little reasonable explanation of why or when they might be put in service.  Maybe they are overdue at least in part because WMATA can't pay for them, and not the incomplete safety tests as reported by WaPo.  What does that forebode for the second delivery of 64 Series 7000 railcars when the Silver Line's Phase 2 to Loudoun County is put into operation in 2018?  And that doesn't consider the 620 other railcars at a total cost of $2 billion that WMATA is plans to have in operation by December 2018. 

Yet WMATA can find money to spend on two public relations firms.  Who makes up these priorities?

We have no idea how WMATA will dig itself out of this huge financial hole.  Indeed, WMATA appears to be digging the hole deeper as its Board decides not to raise fares this year to stop declining usage (because of declining service quality and safety concerns) at a time when it needs to borrow more to cover short-term funding needs.  The fear--and we don't think that is an exaggeration--is that WMATA will turn first once again to state and local governments beyond Washington, DC, to bail it out again. Until WMATA has its financial house in order, there is no legitimacy to ANY government--federal, state, or local--providing it additional funding. 

And, oh yes, here is that awful audit of WMATA's financial management system:

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