Mass Transit: Preliminary Views on Options for Additional Fiscal Oversight of the Washington Metropolitan Area Transit Authority
Released: 2005-07-28T00:00:00

Letter

Background

WMATA was created in 1967 by an interstate compact that resulted from the enactment of identical legislation by Virginia, Maryland, and the District of Columbia, with the concurrence of the U.S. Congress. WMATA began building its Metrorail system in 1969, acquired four regional bus systems in 1973, and began the first phase of Metrorail operations in 1976. In January 2001, WMATA completed the originally planned 103-mile Metrorail system, which included 83 rail stations on five rail lines. The transit system encompasses (1) the Metrorail subway system, which now has 86 Metrorail stations on five rail lines and a fleet of about 946 rail cars; (2) the Metrobus system, which has a fleet of about 1,447 buses serving 350 routes; and (3) the MetroAccess ADA complementary paratransit system, which provides specialized transportation services, as required by law, to persons with disabilities who are certified as being unable to access WMATA’s fixed-route transit system.

Congress and the executive branch have supported considerable federal funding for WMATA since its inception in the 1960s, citing several reasons including (1) the federal government’s large presence in the area, (2) the attraction of the nation’s capital for tourists, (3) the overlapping needs of adjacent jurisdictions, and (4) the limitations faced in raising other revenue for transit needs. This federal funding has taken several forms over the years. First, WMATA relied on federal funding to pay for nearly 70 percent of the costs to build its Metrorail subway system. From 1969 through 1999, the federal government provided about $6.9 billion of the approximately $10 billion that WMATA spent to construct the original 103- mile system, according to WMATA officials. Second, WMATA has also relied on federal funding to cover more than 40 percent of its capital improvement costs during the last 10 fiscal years. Of about $3.5 billion that WMATA received from all sources for capital improvements during fiscal years 1995 through 2005 (as of February 2005), about $1.5 billion, or about 43 percent, came from the federal government, with the remaining $2 billion, or about 57 percent, coming from the state and local jurisdictions that WMATA serves and from other sources. Most of this federal funding has come through grants administered by FTA. Finally, WMATA received about $49.9 million for congressionally designated projects, including a new Metrorail station at New York Avenue in the District of Columbia, during fiscal years 1995 through 2005.

WMATA operates in a complex environment, with many organizations influencing its decision-making and funding and providing oversight. WMATA is governed by a board of directors—composed of individuals appointed by each of the local jurisdictions WMATA serves—which sets policies and oversees all of WMATA’s activities, including budgeting, operations, development, expansion, safety, procurement, and other activities. In addition, a number of local, regional, and federal organizations affect WMATA’s decision-making, including (1) state and local governments, which subject WMATA to a range of laws and requirements; (2) the National Capital Region Transportation Planning Board of the Metropolitan Washington Council of Governments, which develops the short- and long-range plans and programs that guide WMATA’s capital investments; (3) FTA, which provides oversight of WMATA’s compliance with federal requirements; (4) the National Transportation Safety Board, which investigates accidents on transit systems as well as other transportation modes; and (5) the Tri-State Oversight Committee, which oversees WMATA’s safety activities and conducts safety reviews.

WMATA’s combined rail and bus ridership totaled about 343.8 million passenger trips in fiscal year 2005. WMATA operates the second largest heavy rail transit system and the fifth largest bus system in the United States, based on passenger trips, according to WMATA. WMATA’s fiscal year 2005 budget is $1.29 billion. Of the total amount, about 76 percent, or $977.9 million, is for operations, including maintenance activities, and the remaining 24 percent, or $314.1 million, is for capital improvements. WMATA obtains its funding from a variety of sources, including the federal, state (Virginia and Maryland), District of Columbia, and local governments; passenger fares; and other sources. In general, WMATA relies on passenger fares and subsidies from its member jurisdictions to cover the majority of its operating costs. Its capital funds are obtained from other sources, including the federal government and the state and local jurisdictions that it serves. Of all WMATA’s funding, less than 2 percent is from a dedicated source.

WMATA Supports Federal Government Operations by Providing Transportation and Security and by Supporting Emergency Preparedness

As the major transit agency in the national capital area, WMATA provides transportation to and from work for a substantial portion of the federal workforce and is also integral to the smooth transportation of visitors to the nation’s capital. WMATA also assists federal law enforcement agencies by providing security for high-profile events and other security-related expertise and services. Furthermore, the emergency transportation plans of the District of Columbia and the Washington region both rely heavily on Metrorail and Metrobus for transportation in an emergency scenario requiring evacuation.

WMATA’s Transit Services Affect Daily Federal Government Operations

According to estimates prepared by WMATA, a substantial share of Metrorail’s riders, particularly at peak commuting periods, are federal employees. Using data from its 2002 passenger survey (the most recent data available), WMATA estimates that approximately 35 percent of all Metrorail riders were federal employees in 2002. WMATA’s estimates are higher for peak period times, when the system faces capacity constraints: according to the survey, approximately 41 percent of the morning peak period riders and approximately 37 percent of the afternoon peak period riders are federal employees. The federal employees who ride Metrorail to and from work each day represent a substantial share of federal employees in the Washington, D.C., region. Using an estimate based on its 2002 passenger survey data on the number of federal employees who are Metrorail passengers, together with data from OPM on the number of civilian federal employees in the Washington, D.C., region, WMATA estimated that in 2002, approximately 40 percent of federal employees used Metrorail.

WMATA’s operating status is an important factor in OPM’s decisions about the day-to-day operations of the federal government. OPM officials told us that WMATA is a key stakeholder in OPM’s decision to have an early dismissal, late arrival, or closure of the federal government, since a substantial portion of the federal workforce rides WMATA’s transit system to and from work. Those officials said that they are aware of WMATA’s operating constraints and take them into account when deciding to close the federal government. However, the officials told us that OPM makes the final decision and uses the safety of employees as the sole factor in its decision. OPM officials further noted that the functioning of the federal government is not dependent on WMATA’s operating status and that employees have other options, such as flexible work schedules and teleworking, available should they not be able to get to their usual workplace.

Federal Guidance Provides Incentives for Federal Employees to Use Mass Transit

Executive Order 12072, issued on August 16, 1978, instructs federal agencies to consider such factors as the availability of public transportation and parking as well as accessibility to the public when evaluating and selecting federal facilities. The General Services Administration (GSA)—which has overall responsibility for reviewing and approving the acquisition of federal facilities—created a Site Selection Guide for federal agencies that implements the provisions of this executive order, as well as other public laws and executive orders. Within the National Capital Region, the National Capital Planning Commission also has review and approval authority over federal building construction, renovations, and transportation plans in the District of Columbia, and it has review authority only over federal sites in the Virginia and Maryland areas of the region. Both GSA and the commission instruct federal agencies to locate their facilities near mass transit stops whenever possible.

The Federal Employees Clean Air Incentives Act of 1993 also encourages the federal use of mass transit, with specific provisions for the National Capital Region. The purpose of this act was to authorize agencies to create programs for federal employees to encourage their use of alternatives to single-occupancy vehicles for commuting. Under the act, the heads of agencies were authorized to establish programs for agency employees that would provide, for example, transit passes, space for bicycles, and nonmonetary incentives.

WMATA Provides Transportation to Special Events in the Nation’s Capital

WMATA’s services are integral to the smooth operation of the myriad of special activities that occur in Washington, D.C., as the nation’s capital and its “seat of government.” According to a visitor transportation survey administered for the National Park Service, 61 percent of visitors used Metrorail during their visit to Washington, D.C. In several instances, ridership has been highest on days when events (1) were sponsored by the federal government, such as the first and second inaugurations of President George W. Bush and the grand opening of the National Museum of the American Indian or (2) occurred in Washington because it is the seat of government, such as political rallies. On June 6, 2004, the date of former President Ronald Reagan’s state funeral ceremony, WMATA marked its highest ridership day ever, with more than 850,000 riders.

The federal government also relies on WMATA to provide transportation services outside its normal hours and routes. Some examples follow: In May 2004, WMATA, along with other regional transit agencies, provided buses to shuttle attendees from Metrorail stations to the World War II dedication ceremony on the National Mall.

Metrobuses ran overnight between RFK Stadium and the U.S. Capitol for 2 nights in June 2004 to enable people to pay respects to former President Ronald Reagan.

On Inauguration Day, in January 2005, WMATA opened Metro 2 hours early and closed it 3 hours later than normal, at the request of the Presidential Inaugural Committee.

WMATA Assists Federal Law Enforcement Agencies in Providing Security for High-Profile Government Events

WMATA’s Metro Transit Police supports the U.S. Secret Service by making available its officers who have expertise in areas such as explosives detection and civil disturbance management to help ensure a safe and secure environment before and during events involving the President, the Vice President, or high-level foreign dignitaries. For example, when events are held in venues located above Metrorail stations, Metro Transit Police’s explosive ordnance detection team inspects the stations to ensure they are free from explosives. The Metro Transit Police deployed its civil disturbance team at the 2005 presidential inaugural parade at the request of the Secret Service, which had received specific intelligence that protestors might attempt to breach the parade route. The Metro Transit Police received $299,371 in Department of Homeland Security (DHS) Urban Area Security Initiative (UASI) grants for overtime associated with providing security for the 2005 presidential inauguration. In commenting on the importance of the Metro Transit Police’s security expertise, Secret Service officials told us that they consider the Metro Transit Police to be a full law enforcement partner, along with the District of Columbia’s Metropolitan Police Department, the U.S. Capitol Police, and the U.S. Park Police.

The Metro Transit Police also provides enhanced security throughout the Metrorail and Metrobus system when DHS raises the threat level, which is communicated through the Homeland Security Advisory System. Since DHS implemented the color-coded system in March 2002, the Metro Transit Police has spent about $2.7 million on overtime related to increased threat levels, for such activities as increasing patrols of Metrorail stations, trains, and buses. WMATA received $632,356 through a DHS UASI grant for overtime costs in 2004; this grant was WMATA’s first reimbursement for costs associated with increased threat levels, according to a Metro Transit Police official.

WMATA also supports federal law enforcement efforts by providing Metrobuses to the U.S. Capitol Police to establish security perimeters, block intersections, and reroute traffic for events that take place on the grounds of the U.S. Capitol, such as presidential inaugurations and State of the Union addresses, and at other locations where presidential and vice presidential events occur. The Secret Service also uses Metrobuses periodically to establish temporary security perimeters; for example, it did so along the 2005 presidential inauguration parade route. The law enforcement agencies that use Metrobuses are charged the same standard charter rate that WMATA charges all parties to rent its Metrobuses for special events.

WMATA Supports Emergency Preparedness by Providing First Responder Training, Early Warning Sensors, and Emergency Evacuation Infrastructure

WMATA supports homeland security efforts for the Washington region and the federal government through a variety of efforts. It provides training for local and federal first responders at its tunnel training facility and has deployed early-warning systems to detect chemical and radioactive contamination in some of its underground Metrorail stations. WMATA’s infrastructure is key to emergency evacuation of the region, including the evacuation of workers in federal buildings concentrated in downtown Washington, D.C.

First Responder Training

WMATA’s emergency response training facility in Landover, Maryland, provides a realistic setting for fire, police, emergency, and transit personnel to learn how to respond to events such as collisions, fires, and weapons of mass destruction incidents that occur in a transit or tunnel environment. The facility includes a 260-foot tunnel that houses two subway cars positioned to resemble a wreck, as well as simulated electrified third rail, cabling, and lighting that appear identical to those in a real tunnel. Emergency personnel from across the region train at the center. The training center’s federal clients include the Federal Bureau of Investigation’s Hostage Rescue Team, the Federal Protective Services, and the U.S. Marines’ Chemical-Biological Incident Response Force. Additionally, according to WMATA officials, FTA’s Transportation Safety Institute plans to use the Emergency Response Training Facility as a host site for the counterterrorism training it plans to provide to transit agencies’ law enforcement and safety personnel. WMATA funds this training facility entirely out of its regular operations budget.

WMATA is also introducing a training course on managing Metrorail emergencies, which will address emergency management concepts, techniques to respond to weapons of mass destruction attacks, and emergency traffic control. The course, which WMATA is funding with a $335,261 DHS UASI grant, will be available to first responders from the region, transit agencies nationwide, and FTA.

Early Warning Sensor Systems

Metrorail is equipped with a permanent chemical detection system to help detect hazardous substances in selected stations in the Metrorail system. This system, known as the Program for Response Options and Technology (PROTECT), acts as an early warning to safeguard first responders, employees, and Metrorail customers and is installed in selected locations in underground Metrorail stations. WMATA had assistance from the U.S. Departments of Transportation, Energy, and Justice in developing the sensor system. It received $15 million in federally appropriated funds in fiscal year 2002 and $1.4 million in additional funds in fiscal year 2004 through a direct grant from DHS’s Office of Domestic Preparedness to pay for the installation of the sensors.

Additionally, Metro Transit Police has distributed pager-sized devices to about 100 officers to wear in the Metrorail system to detect radiation. According to the Metro Transit Police, these pagers are worn mostly by officers in the downtown core because this area is considered to be at higher risk for attack. WMATA paid for about half of the radiological pagers, and the Department of Energy furnished the remainder.

These early warning devices are important to the area’s first responders because if a high reading of a chemical or radioactive substance is detected, it is considered a potential hazardous materials or “hazmat” incident. In such an event, the portion of the Metrorail system involved could be temporarily closed, affecting traffic in the area, and local emergency management agencies would be notified and become responsible for coordinating any additional response.

Emergency Evacuation

The local emergency response officials we interviewed generally prefer using Metrorail and Metrobus in an emergency scenario that requires evacuation because mass transit can move large numbers of people efficiently and help keep roadways clear for first responders and other emergency vehicles. To assist in coordinating evacuation planning across jurisdictions, the region’s metropolitan planning organization, the Metropolitan Washington Council of Governments, has developed guidance on emergency evacuation that includes the use of Metrorail and regular Metrobus routes as well as Metrobuses on special evacuation routes. The District of Columbia’s emergency evacuation plans also rely heavily on WMATA. Additionally, because the federal presence in the District is so large, the District Department of Transportation consulted with federal agencies in developing its emergency transportation plans.

Options for Addressing Anticipated Future Funding Shortfall Would Likely Include both Local and Federal Contributions

Over the years, WMATA has faced funding challenges, and options have been proposed to address them. Although WMATA has taken steps to improve its management, such as prioritizing its planned capital improvements, it lacks a dedicated funding source and must rely on variable, sometimes insufficient contributions from local, regional, and federal organizations to pay for its planned capital improvements. A report published by a regional funding panel estimated that, over the next 10 years, under its current revenue structure, WMATA will face a $2.4 billion budget shortfall, due largely to expenditures planned for capital improvement projects—an estimate that may not fully reflect the magnitude of the anticipated budget shortfall. Proposed options would provide a dedicated funding source, such as a local sales tax, and would increase federal funding for capital improvements.

Estimated Costs of WMATA’s Planned Capital Projects Exceed Anticipated Funding

WMATA and others have projected continuing shortfalls in its capital and, to some extent, its operating budgets. For example, in 2001, we reported that WMATA faced uncertainties in obtaining funding for planned capital spending for two of its capital programs, discussed below, the Infrastructure Renewal Program (IRP) and the System Access and Capacity Program (SAP). At that time, WMATA anticipated a shortfall of $3.7 billion in the funding for these programs over the 25-year period from fiscal year 2001 through fiscal year 2025.

Since that time, in response to recommendations that we and others made, WMATA created a strategic plan, which it issued in October 2002. In November 2002, it documented and prioritized its planned capital projects in a 10-year capital improvement plan that called for spending $12.2 billion over the period from fiscal year 2004 through fiscal year 2013. Then, in September 2003, WMATA launched a campaign called “Metro Matters” to obtain $1.5 billion in capital funding over a 6-year period to avert what WMATA believed was a crisis in its ability to sustain service levels and system reliability and to meet future demands for service. In response, WMATA and its member jurisdictions approved a $3.3 billion funding plan for fiscal years 2005 through 2010 to help pay for WMATA’s most pressing short-term capital investment priorities.

As concerns about WMATA’s anticipated funding shortfall grew, a regional funding panel known as the Metro Funding Panel—cosponsored by the Metropolitan Washington Council of Governments, the Greater Washington Board of Trade, and the Federal City Council—was convened in September 2004 to study the magnitude of the shortfall, identify sources of funding, and evaluate options for generating additional revenues to address that shortfall. The panel estimated that under its current revenue structure, WMATA would have a total funding shortfall of about $2.4 billion for fiscal years 2006 through 2015 for maintaining and upgrading its existing system, assuming that Metro Matters was fully funded. As shown in table 1, the panel attributed nearly 80 percent of the total estimated shortfall of $2.4 billion to WMATA’s capital activities (IRP and SAP) and the remainder to operations activities associated with future capital projects as they are completed.

Funding for the following projects and activities is included in the shortfall estimate: IRP projects: The IRP projects occur in fiscal year 2011 through 2013, after the Metro Matters funding agreement expires. These projects, which provide ongoing maintenance and renewal of the Metrorail and Metrobus systems, include replacing and rehabilitating buses and rail cars, rehabilitating escalators and elevators, rehabilitating Metrorail stations and parking lots, renovating rail car and bus maintenance facilities, and rehabilitating electrical systems, among other things.

SAP projects: These projects, which are intended to increase the capacity of the current Metrorail and Metrobus systems to handle increased passenger levels, include the purchase of 130 new rail cars and 275 new buses; a variety of improvements to four maintenance facilities, two storage facilities, two new bus garages, and one replacement bus garage; enhancements at Metro Center, Union Station, and Gallery Place Metrorail stations; the construction of pedestrian connections between two pairs of Metrorail stations (between Farragut North and Farragut West and between Metro Center and Gallery Place); and 140 miles of bus corridor improvements, such as signal priority for buses, route delineation techniques using pavement materials and painted markings, and passenger waiting area enhancements.

Operating activities: Finally, the panel included a relatively small portion of WMATA’s operating budget in the shortfall estimate. This portion consists of some additional operating costs associated with some of the capital projects. According to WMATA, these are mostly preventative maintenance projects, such as bus engine overhauls, bus tire replacements, bus parts, rail parts, and labor costs.

Appropriately, the panel’s budgetary shortfall estimate did not include the portion of WMATA’s capital improvement plan that involves expanding the system—by adding new rail lines, for example. The projects in this portion of the plan, known as the System Expansion Program, are estimated to cost roughly $6 billion. WMATA officials told us that these projects would be paid for by the local jurisdictions and businesses where they would be built, as well as by federal grants for new transit expansion.

In preparing its estimate of WMATA’s budgetary shortfall, the panel did not evaluate the need for, or priority of, individual projects in SAP and IRP. Likewise, we did not independently assess the suitability of including these projects, as a whole or individually, in the shortfall estimate. However, when WMATA developed its 10-year capital improvement plan in 2002, the projects were approved by its board of directors, which includes representatives from all of WMATA’s member jurisdictions. In addition, the IRP projects and some of the projects in SAP have been incorporated into the region’s Constrained Long-Range Plan for transportation improvements over the next 20 years by the Transportation Planning Board of the Metropolitan Washington Council of Governments.

Estimates of the Magnitude of WMATA’s Funding Shortfall May Not Be Comprehensive

In estimating WMATA’s budgetary shortfall, the panel did not include a major cost category and, thus, may have significantly underestimated the shortfall. The panel did not include the costs of providing paratransit services as required under ADA. Compliance with the act’s requirements may result in significant costs over the next 10 years. The panel recognized that including these costs, which are included in WMATA’s operating budget, would result in a greater budgetary shortfall. In fact, the panel estimated the shortfall from MetroAccess, WMATA’s paratransit system, at about $1.1 billion over the 10-year period from 2006 through 2015, thus raising the total anticipated shortfall to $3.5 billion for that period. However, the panel stated that funding for these services should be provided through a creative packaging of social service, medical, and other nontransportation resources in the region, rather than by WMATA. We believe that any estimate of WMATA’s funding shortfall should include the costs associated with MetroAccess because WMATA is required by ADA to provide paratransit services.

Options for Addressing WMATA’s Funding Challenges Would Generally Establish a Local Dedicated Revenue Source and Include a Federal Contribution

In our 2001 report and testimony, we noted that WMATA’s funding comes from a variety of federal, state, and local sources, but that unlike most other major transit systems, WMATA does not have a dedicated source of nonfarebox revenue, such as a local sales tax, whose receipts are automatically directed to the transit authority. As far back as April 1979, we reported on concerns about the lack of a revenue source dedicated to pay the costs of mass transportation for the Washington region. Concerns about WMATA’s lack of dedicated revenues surfaced again in reports issued by the Brookings Institution in June 2004 and by the Metro Funding Panel in January 2005. According to the Brookings report, WMATA’s lack of dedicated revenues makes WMATA’s core funding uniquely vulnerable and at risk as WMATA’s member jurisdictions struggle with their own fiscal difficulties. The Brookings report and the Metro Funding panel report both state that the Washington region needs to develop a dedicated source of revenue, and they evaluate the advantages and disadvantages of a menu of revenue options that could support the dedicated revenue source—specifically, gasoline taxes, sales taxes, congestion charges, parking taxes, land-value capture, and payroll taxes.

Observing that WMATA has provided numerous benefits both to the Washington region and the federal government over the years, the Metro Funding Panel also concluded that WMATA will require a commitment of new revenue sources to sustain those benefits. Accordingly, the panel recommended, among other things, that (1) WMATA’s compact jurisdictions of Virginia, Maryland, and the District of Columbia mutually create and implement a single regional dedicated revenue source to address WMATA’s budgetary shortfalls and (2) the federal government participate “significantly” in addressing WMATA’s budgetary shortfalls, particularly for capital maintenance and system enhancement.

In the current situation of large budget deficits, any additional federal funding for WMATA would need to be considered along with the many other competing claims for federal resources. To the extent that the federal government cannot provide significant additional support to WMATA, and WMATA’s current revenue structure continues to be insufficient to support its planned capital projects, WMATA may need to reassess its capital improvement plan to determine which projects could be undertaken within a more constrained funding level. WMATA also may need to consider how it will meet its obligations under ADA.

WMATA Is Subject to Oversight from Multiple Entities Whose Reviews Address a Wide Range of Issues

WMATA is subject to oversight from multiple entities that have issued numerous reports on the agency since 2003. The scope of the reports varies and includes compliance reviews of specific statutory requirements, monthly assessments of major construction projects, and reviews of WMATA’s overall bus and rail operations. Specifically, WMATA’s Office of Auditor General has issued nearly 500 reports, including internal and investigative audits and reviews of contracts and pricing proposals. In addition, an independent external auditor, which reports to WMATA’s board of directors, annually reviews WMATA’s financial statements and related internal controls. FTA oversees WMATA’s major capital projects through its project management oversight program and assesses its compliance with a wide range of requirements through its Triennial Review process. In 2005, at WMATA’s request, transit industry panels conducted peer reviews of WMATA’s bus and rail operations. Details on these entities and the types of oversight they provide are presented in table 2. All of these entities included recommendations in their reports, and, in general, WMATA implemented them or has plans to implement them. As part of our ongoing work, we plan to analyze these reviews in greater detail, together with other specialized FTA reviews and safety reviews conducted by external and internal entities.

WMATA’s Auditor General

WMATA’s Auditor General is responsible for planning and implementing operational, financial, and information system audits, as well as for carrying out investigations to prevent or detect mismanagement, waste, fraud, or abuse. The Office of Auditor General also conducts audits of contracts to ensure they are being done in accordance with WMATA policy and cost-effectively. The Auditor General reports directly to the General Manager/Chief Executive Officer and briefs the audit committee of the board of directors quarterly. The Auditor General prepares an annual audit plan that covers most aspects of the agency.

When deficiencies in a program are found, the Office of Auditor General makes recommendations for corrective actions to be taken and follows up on the implementation status of recommendations with the executive manager responsible for the program or office to which the recommendations were directed. If the recommendations are not implemented in a timely fashion, the Chief Executive’s office may intervene to ensure that appropriate corrective action is taken. For the most part, WMATA management implements these recommendations.

The following are examples of audit reports issued by the Office of Auditor General in recent years: Contract/Procurement Oversight. Since January 2004, the Office of Auditor General has issued five internal audit reports on contracting processes and the documentation of contracting activities. Recommendations were made to improve the documentation process, improve the administration of the cost-estimating process, and develop procedures to document the cost-estimating process.

Information Technology (IT) Renewal Program. The IT Renewal Program is a multiyear, multimillion-dollar initiative to renew WMATA’s IT systems for the next generation of service. The Office of Auditor General has issued six reports during the past 3 years on the implementation of this program, with suggestions for improving communication and ensuring that appropriate security measures are in place.

Audit of Cell Phone Usage. This review of employee cell phone plans and usage made recommendations for more efficient and effective cell phone use, which resulted in potential savings of approximately $300,000 per year. Additional recommendations were made to improve the administration of the cell phone program.

Single Audit Act

WMATA is subject to federal financial reporting requirements under the Single Audit Act as amended. Under this act, nonfederal entities that expend more than specified amounts of federal awards (currently $500,000) are subject to either a single audit or a program-specific audit, which must be performed by an independent external auditor in accordance with generally accepted government auditing standards. The purpose of the Single Audit Act was to streamline and improve the effectiveness of audits of federal awards and to reduce the audit burden on states, local governments, and nonprofit entities receiving federal awards by replacing multiple grant audits with one audit of a recipient as a whole (or, for entities receiving federal awards under one program, an optional audit of that program only).

In conducting WMATA’s annual audits under the act’s requirements, an independent auditor is required to (1) provide an opinion on WMATA’s financial statements and the Schedule of Expenditures of Federal Awards, (2) report on WMATA’s internal controls related to the financial statements and major programs, and (3) report on WMATA’s compliance with laws and regulations that could have a material effect on WMATA’s financial statements and major federal programs.

For fiscal years 2003 and 2004, WMATA’s independent external auditor found no reportable conditions or material weaknesses in WMATA’s internal controls over financial reporting and the major programs receiving federal assistance. The independent auditor’s reviews of WMATA’s financial statements and internal controls did, however, note several areas of noncompliance related to requirements for grants for both years. When such areas of noncompliance are found, the auditor recommends steps for WMATA to take to correct the noncompliance. WMATA generally concurred with the auditor’s recommendations and agreed to implement them. The following are examples of noncompliance and recommendations for corrective action found at WMATA during fiscal years 2003 and 2004: Property records for equipment purchased with a federal grant did not include serial numbers or prices for the equipment—as required by federal law. The auditor recommended that WMATA revise the records to include the required information, and WMATA agreed to do so.

WMATA did not correctly submit federal grant expenditure status reports.

The auditor recommended that WMATA revise and resubmit its financial status reports to include total expenditures, which WMATA agreed to do.

FTA’s Project Management Oversight Program

FTA oversees the progress of WMATA’s major capital projects through the project management oversight (PMO) program, which we discuss in greater detail later in this statement. To receive financial assistance, FTA’s grantees must develop and implement a project management plan that address each project’s scheduling, budget, performance, and other issues. FTA retains engineering firms to review and recommend approval of the plans, monitor the progress of each project against its plan, and issue monthly monitoring reports. The purpose of the monthly PMO monitoring reports is to determine whether the projects are proceeding in accordance with the terms of the federal grant agreements, including whether they are meeting standard project management requirements, such as having a project management plan and a quality assurance plan, meeting schedule milestones, and being on budget.

WMATA’s major capital projects that are subject to PMO review collectively represent a substantial portion of WMATA’s capital budget. We reviewed PMO reports that were issued from January 2003 through May 2005. During that time, WMATA had seven capital infrastructure projects that were subject to the requirements of the PMO program, including IRP, which, as discussed earlier, provides ongoing maintenance and renewal of the Metrorail and Metrobus systems; the rail car procurement program; and the construction of the New York Avenue Metrorail station. The total cost of the projects under review was about $5 billion, according to data provided by WMATA.

The monthly PMO monitoring reports that we reviewed identified concerns and recommended corrective actions for each of WMATA’s major projects under review. The concerns most commonly cited in the reports were related to schedules, project management plans, and quality assurance activities. Details on these concerns—which WMATA has taken steps to address—follow: Schedules. The reports cited concerns pertaining to schedules for some of the contracts within three of WMATA’s projects. For the New York Avenue Metrorail station and the Largo Metrorail extension, the reports stated that individual components of the projects were behind schedule; however, the two projects—as a whole—were both completed ahead of schedule. The PMO reports also found that components of the rail car procurement program, including the rehabilitation of the 2000/3000 Series rail cars and the delivery of new 5000 Series rail cars, were behind schedule.

Project management plans. The reports stated that WMATA needed to submit or update project management plans for three of its projects—the rail car procurement program, Metro Matters, and the Infrastructure Renewal Program.

Quality assurance activities. The reports stated that procedures related to quality assurance required updating for three projects: Dulles Corridor rapid transit, the Largo Metrorail extension, and the Branch Avenue storage and maintenance yard. Some examples of quality assurance activities include having (1) written procedures that describe how to conduct reviews of contractor’s quality programs and (2) quality control coordination meetings with contractors.

FTA’s Triennial Review

At least every 3 years, FTA is required to review and evaluate transit agencies receiving funds under its Urbanized Area Formula Grant program. The reviews focus on compliance with statutory and administrative requirements in 23 areas, and if grantees are found not to be in compliance, their funding can be reduced or eliminated. In 2002, FTA found that WMATA was deficient in the following three areas: Technical. Grantees must implement the Urbanized Area Formula Grant Program of Projects in accordance with the grant application master agreement. WMATA had not been updating the milestones in its Milestone Progress Reports, nor had WMATA been reporting all required information for its Job Access and Reverse Commute grants.

Buy America. Certain products used in FTA-funded projects must be produced in the United States. WMATA’s procurement files for buses and rail cars did not include required certifications indicating that these procurements complied with Buy America requirements.

Half-fare. Grantees must offer reduced fares to elderly or disabled riders or to those who present a Medicare card. WMATA’s system maps specified the base fare but did not indicate that a half-fare was available.

FTA made recommendations for addressing the specific areas of noncompliance; WMATA implemented the recommendations, and the findings were closed in 2004.

Transit Industry Association Peer Reviews

The American Public Transportation Association (APTA) offers peer reviews as a service to transit agencies to help enhance the efficiency and effectiveness of their operations. At the request of transit agencies, the association convenes panels of experts from within the transit industry, who travel to the transit agency under review to physically tour the operations, meet with staff and senior management, and review documentation in order to develop findings and recommendations on the transit agency’s operations. Following the site visit, the peer review panel issues a written report to the transit agency under review.

At WMATA’s own request, APTA conducted peer reviews on WMATA’s bus and rail operations earlier this year, and WMATA is currently considering its response to the recommendations made in the peer review reports. The peer review panels developed recommendations to improve the effectiveness and efficiency of bus and rail operations in multiple areas, including staffing, organization, maintenance and technology. For example: Findings and recommendations in the rail peer review report focused on the selection, training, and certification of employees, with recommendations on improving training for track and train employees and implementing a new reporting structure for the training department; operations, with recommendations on increasing reliance on line supervisors in dealing with in-service problems and restructuring the current organization to create distinct line ownership functions and responsibilities; and track maintenance, with recommendations on recertifying track walkers annually and increasing the number of track walkers to reduce the daily inspection distance to industry standards.

Findings and recommendations of the bus peer review report focused on operations and service, with recommendations for increased street supervision and re-evaluation of bus route service; facility maintenance, with recommendations on consolidating bus shop maintenance and improving follow-up procedures for bus defects; staffing and training, with recommendations on eliminating high vacancy rates and improving training; and safety, with recommendations on adhering to basic safety programs and enforcing personal protective equipment policies.

Additional GAO Work Remaining on WMATA’s Oversight

As part of our ongoing work, we plan to analyze these reviews in greater detail to determine whether, taken as a whole, they point to any systemic problems and are sufficiently comprehensive to identify and address overall management and operational challenges. We will also broaden the scope of our analysis to include additional oversight reviews; specifically, we plan to analyze FTA’s in-depth reviews of program or system compliance. These include, for example, financial management oversight reviews, which assess grantees’ financial management systems and internal controls; procurement system reviews, which evaluate grantees’ compliance with federal procurement requirements; and drug and alcohol oversight reviews, which assess grantees’ compliance with FTA’s regulations on substance abuse management programs and drug and alcohol testing for transit employees. We also plan to review safety audits of WMATA that were conducted by internal and external entities, including the following: WMATA’s Office of System Safety and Risk Protection. This office, which reports to the Department of Audit and Safety Oversight, performs internal safety reviews of WMATA’s operations.

Tri-State Oversight Committee. This committee, which is the designated state safety oversight agency for WMATA, requires WMATA to develop and implement system safety and security program plans, report accidents and unacceptable hazard conditions, and conduct safety reviews. The committee meets with WMATA quarterly to discuss safety issues and has the authority to mandate corrective action.

APTA. APTA’s bus and rail safety audits review the adequacy of transit agencies’ system safety program plans and the extent to which the plans have been implemented.

FTA. FTA performs audits of the Tri-State Oversight Committee to determine whether the state oversight agency is carrying out its safety oversight program and to examine ways in which the overall program can be improved.

National Transportation Safety Board (NTSB). NTSB has the authority to conduct investigations of accidents and make recommendations. The NTSB is currently investigating a November 2004 crash involving two Metrorail trains; it expects to issue a report on the results of this investigation in the fall of 2005.

In addition, we plan to review the role of WMATA’s board of directors in providing oversight of WMATA’s management and operations. As noted earlier in this statement, WMATA is governed by a board of directors— composed of individuals appointed by each of the local jurisdictions WMATA serves—which sets policies and oversees all of WMATA’s activities, including budgeting, operations, development, expansion, safety, procurement, and other activities.

Spending Safeguards and Management Oversight Have Helped Recipients of Federal Transportation Assistance Control Costs and Ensure Results

To control costs and ensure results—especially for high-cost transportation infrastructure projects—Congress, the administration, and GAO have long recognized the importance of instituting spending safeguards and management oversight for the state and local governments and transportation agencies that receive federal funding. For example, certain federal policies have historically controlled the uses of federal transportation funds, prohibiting the use of these funds for operating expenses and requiring that the federal funds be matched to ensure the use of some local funds for capital infrastructure projects. In addition, a number of past, ongoing, and planned federal and local efforts provide insight into the benefits of management oversight and how it can be carried out. For example, in the 1980s, state legislation enhanced opportunities for New York City’s ailing Metropolitan Transit Authority to generate additional revenue while providing increased oversight to ensure accountability. Furthermore, FTA’s PMO program is designed to help ensure that grantees building major capital projects have the qualified staff and procedures needed to successfully plan and carry out those projects. We have also reported that safeguards should accompany any increased federal funds provided to the District of Columbia to address the structural imbalance between its costs and revenue-raising capacity. Finally, the surface transportation reauthorization bills currently before Congress include provisions to enhance management oversight controls for projects receiving federal funds, including establishing a new program to monitor the use of federal highway funds. Although we have not evaluated the application of these oversight mechanisms to WMATA, we believe they provide a number of options for Congress to consider as it weighs the question of providing additional federal funding to WMATA.

Federal Programs Restrict Use of Funds for Operations and Encourage State and Local Spending through Matching Requirements

The federal government has generally discouraged federal transit grants from being used to fund transit operating expenses, although policy in this area has shifted over time. Landmark legislation in 1964 established a program of federal capital expenditure grants to state and local governments. At that time, no grant money could be used for operating expenses because of concerns that such grants would discourage efficient operations of transit agencies and might even have the perverse effect of rewarding inefficient operations with funding assistance. However, that act was amended in 1974 to authorize federal subsidies to pay transit operating expenses, reflecting the alternative concern that limiting federal assistance to capital grants created incentives for local governments to inefficiently waste capital, such as by prematurely replacing buses.

During the 1990s, views on how federal transit grants could be used shifted again, and limits were placed on the total amount of transit formula grants that could be used for operating expenses. In 1998, with the passage of the Transportation Equity Act for the 21st Century (TEA-21), transit agencies serving urban populations of 200,000 or more could no longer use funding from FTA’s Urbanized Area Formula Grants for operating expenses. According to FTA officials, this prohibition was instituted in part because federal policymakers believed that the federal government should pay only for the construction and maintenance of mass transit systems, not for their operation. However, TEA-21 did allow capital funds to be used for preventive maintenance, which included routine maintenance on rail cars and buses—activities that were previously classified as operations activities. After the events of September 11, 2001, we recommended a legislative exception to the prohibition on operations funding that would allow transit agencies to use Urbanized Area Formula Grants for security-related operating expenses. Transit agencies can spend 1 percent of formula funds on security-related operating expenses.

The federal government has also historically used matching requirements in its transit and other transportation programs to stimulate local investment in transportation infrastructure and equipment. Currently, major capital transit investment programs—including the New Starts and Rail and Fixed Guideway Modernization programs—provide grants that fund up to 80 percent of a project’s total costs while requiring a local match of at least 20 percent.

Assistance to the New York City Transit Agency in the 1980s Was Tied to Oversight Requirements

During the late 1970s and early 1980s, the New York State Metropolitan Transit Authority (MTA), which includes New York City Transit’s subway and bus systems and the Long Island Rail Road, was in a state of fiscal crisis and operational decay. To help salvage the system, the state legislature passed legislation that provided MTA with the flexibility to generate additional revenue—through issuing bonds and notes and through the creation of a special tax district—needed to rebuild its aging infrastructure. The legislation also established several oversight bodies— which are still in place at MTA today—to help ensure that MTA’s funds would be well spent. They are as follows: The Metropolitan Transportation Capital Review Board. Appointed by the governor and composed of two members recommended by the New York State legislature and one each recommended by the governor and the mayor of New York City, this board reviews and approves, once every 5 years, MTA’s capital program plans for transit and railroad facilities. The plans include goals and objectives for capital spending, establish standards for service and operations, and include estimated costs and expected sources of revenue.

The MTA Committee on Capital Program Oversight. This standing committee of MTA’s board of directors has various oversight responsibilities, including monitoring the (1) current and future availability of funds to be used in the capital program plans and (2) contract awards made by MTA. The committee issues quarterly reports on its activities and findings.

The MTA Office of the Inspector General. This office was created as an independent oversight agency to investigate allegations of abuse, fraud, and deficiencies in the maintenance and operation of facilities. The Inspector General may also initiate other reviews of MTA’s operations and can recommend remedial actions to be taken by MTA and monitor their implementation. The Inspector General is appointed by the governor and submits annual reports of findings and recommendations to the governor. MTA is required to report quarterly to the Inspector General on the implementation status of all recommendations made in final reports.

Since these oversight bodies were established, and with increased funding, MTA has improved its on-time performance and reliability. For example, the mean distance between failures has increased from less than 7,000 miles in 1981 to nearly 140,000 miles in 2003, according to MTA.

FTA’s PMO Program Helps Protect Federal Funds Spent on Major Capital Projects, Including WMATA’s Projects

FTA’s PMO program was established in the 1980s to safeguard the federal investment in major capital transit projects, which require large commitments of public resources, can be technically challenging, and often take years to construct. This program provides a continuous review and evaluation of the management of all major transit projects funded by FTA. Through provisions such as the following, the PMO program is designed to help ensure that grantees building major capital projects have the qualified staff and procedures needed to successfully build the projects: To receive federal financial assistance, grantees must develop and implement project management plans that address quality, scheduling, the budget, and other issues.

Contractors monitor grantees’ projects to determine whether grantees are progressing on time, within budget, and according to approved plans and specifications.

The contractors periodically report their findings and recommendations for any corrective actions that may be needed.

In 2000, we reported and testified that FTA had improved the quality of the PMO program since the early 1990s, when we designated it as high risk because it was vulnerable to fraud, waste, abuse, and mismanagement. We concluded that the program had resulted in benefits for both grantees and FTA. Grantees have improved their controls over the cost, schedule, quality, and safety of their projects. FTA has gained a better understanding of the issues surrounding complex construction projects and an increased awareness of potential problems that could lead to schedule delays or cost increases. As contractors have brought cost and schedule issues to FTA’s attention, FTA has taken actions to help protect the federal investment and control projects’ costs and schedules.

FTA officials told us that any additional federal funding provided to WMATA would be subject to the PMO program’s requirements only if those funds were distributed to WMATA through the U.S. Department of Transportation and FTA. Otherwise, WMATA’s spending from the additional funding would not likely be subject to any federal program oversight.

We Have Suggested Spending Safeguards for Any Increase in Federal Funds Provided to Address the District of Columbia’s Structural Imbalance

In June 2004, we testified on the structural imbalance between the District of Columbia’s costs and revenue-raising capability, stating that if the federal government chooses to provide additional funding to the District to compensate for this imbalance, the government should implement safeguards to ensure that the funds are spent efficiently and effectively. In that testimony, we stated that such safeguards should be written into any legislation providing additional federal assistance to the District and could include the following: District officials should be required to report to Congress on how they plan to spend the federal assistance and regularly report on how it is being spent.

Congress may consider further specifying the types of projects for which federal funds could be used or including a matching requirement to ensure that some local funds continue to be used for infrastructure and capital requirements.

Surface Transportation Reauthorization Bill Would Enhance Management Oversight Controls for Projects Receiving Federal Funds

The House and Senate versions of the surface transportation reauthorization bill that are currently in conference committee contain provisions aimed at improving the financial integrity and project delivery times for surface transportation projects that receive federal financial assistance. For example: On the transit side, both the House and Senate versions of the bill would increase the amount of funds available to the Secretary of Transportation for management oversight of mass transportation construction projects receiving federal funds. The funds would be used to review and ensure compliance with federal requirements for project management. To support the need for such enhanced oversight, the committee report accompanying the House bill notes that comprehensive agency oversight, compliance review, and technical assistance are necessary for all major grant programs.

On the highway side, both versions of the bill would require the Secretary of Transportation to establish an oversight program for the Federal-Aid Highway Program to promote the effective and efficient use of federal highway funds. As part of this new oversight program, the Federal Highway Administration (FHWA) would (1) review states’ financial management systems, (2) develop minimum standards for estimating project costs, and (3) evaluate state practices for awarding contracts and reducing project costs. In addition, highway projects receiving a certain amount of federal assistance—$500 million or more in the House bill and $1 billion or more in the Senate bill—would be subject to an increased level of FHWA oversight, including submitting a project management plan and an annual financial plan to FHWA documenting the project’s procedures for managing costs and schedules.

Concluding Observations

WMATA’s service to the nation’s capital and its associated additional responsibilities need to be considered when determining whether a greater federal role in providing financial assistance to, and oversight of, WMATA is warranted. In the end, it is up to Congress to decide whether or in what form to provide WMATA with additional federal funding in recognition of its support of the federal government. In addition, if Congress decides to provide WMATA with the additional funding, it is important for there to be reasonable assurances that the funds will be spent efficiently and effectively. WMATA is already subject to oversight from multiple entities, but it is unclear whether this oversight is sufficient to provide such assurances. WMATA’s existing oversight could be supplemented by including safeguards in any legislation that provides additional federal funding. Our research has shown that a number of options are available for such safeguards, although we have not fully analyzed their applicability to WMATA or their relative merits. The options include the following: Require WMATA officials to report to Congress on how they plan to spend the federal assistance and regularly report on how it is being spent. For example, Congress could require officials to submit a plan to Congress on how they intend to spend the federal assistance—before any funds are obligated—and update this plan as circumstances or priorities change.

Further specify the types of projects for which federal funds could be used or include a matching requirement to ensure that some local funds continue to be used for infrastructure and capital requirements.

Require that any additional funding provided to WMATA be administered through DOT and FTA and therefore be subject to the PMO program.

Institute additional oversight bodies for WMATA, either through or independent of its board of directors.

Mr. Chairman, this concludes my prepared statement. I would be pleased to respond to any questions that you or the other Members of the Committee may have.

GAO Contacts and Staff Acknowledgments

For further information about this testimony, please contact me at (202) 512-2834 or siggerudk@gao.gov. Individuals making key contributions to this testimony include Seto Bagdoyan, Mark Bondo, Christine Bonham, Jay Cherlow, Elizabeth Eisenstadt, Edda Emmanuelli-Perez, Rita Grieco, Heather Halliwell, Maureen Luna-Long, Susan Michal-Smith, SaraAnn Moessbauer, Katie Schmidt, and Earl Christopher Woodard.

Appendix I: Objectives, Scope, and Methodology

To determine the Washington Metropolitan Area Transit Authority’s (WMATA) responsibilities for supporting the federal government, we interviewed a wide array of federal and local officials including those from WMATA, the Federal Transit Administration (FTA), the Office of Personnel Management, the General Services Administration, the National Capital Planning Commission, the Metropolitan Washington Council of Governments, the U.S. Secret Service, the U.S. Capitol Police, and the District of Columbia Department of Transportation. We reviewed federal guidance on employees’ use of, and the placement of federal buildings near, mass transit and local and federal emergency planning guidance. We also used WMATA’s estimates of federal Metrorail ridership based on its 2002 passenger survey. Through our review of the survey methodology, and use of other corroborating evidence, we determined that the ridership estimates were sufficiently reliable for our purposes.

To determine the current funding challenges facing WMATA and the options proposed to address these challenges, we reviewed and analyzed the budgetary shortfall estimate prepared by the Metro Funding Panel, budget documents from WMATA, and prior GAO reports. We interviewed officials from WMATA and local transportation experts who served on the funding panel.

To determine the entities that currently provide oversight of WMATA and the focus of their recent reviews, we interviewed WMATA officials and reviewed selected reports and audits that have been issued by WMATA’s oversight bodies since the beginning of calendar year 2003. Our review included the following: FTA’s Project Management Oversight (PMO) program contractor reports FTA’s most recent Triennial Review The independent external auditor’s review of WMATA’s financial statements and internal controls as required under the Single Audit Act The American Public Transportation Association’s peer review reports Although FTA carries out a number of reviews of transit agencies in addition to the Triennial Review and the PMO reports, we selected the Triennial Review because it covers grantees’ compliance with a wide range of statutory and administrative requirements, and we selected the PMO reports because this program provides oversight of WMATA’s major capital projects, which represent a significant part of WMATA’s budget. For this statement, we did not analyze any oversight entities or reports related to safety, such as those of the Tri-State Oversight Committee, the National Transportation Safety Board, or the American Public Transportation Association. We plan to address these, as well as FTA’s additional compliance reviews, as part of our ongoing work.

To identify applicable examples of spending safeguards and management oversight of any additional federal assistance provided to WMATA, should Congress decide to provide such assistance, we reviewed prior GAO work on surface transportation funding and management oversight, as well as other documents on transportation planning and finance, and interviewed officials with expertise in the transit industry, transportation finance, and transportation planning.

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