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 consent of Congress. The Compact also created the Washington Metropolitan Area Transit Zone, shown in figure 1, where WMATA provides its transit services, including the District of Columbia; the cities of Alexandria, Falls Church and Fairfax; the Virginia counties of Arlington, Fairfax and Loudoun; and the Maryland counties of Montgomery and Prince George’s. WMATA is unusual among transit agencies in that it was created by an interstate compact; moreover, it has unique demands placed on it because it serves the national capital area and the federal government, as we discussed in a July 2005 testimony. WMATA provides transportation to and from work for a substantial portion of the federal workforce, and federal employees’ use of WMATA’s services is encouraged by General Services Administration guidelines that instruct federal agencies to locate their facilities near mass transit stops whenever possible. WMATA also accommodates increased passenger loads and extends its operating hours during events related to the federal government’s presence in Washington, D.C., such as presidential inaugurations and funerals, and celebrations and demonstrations on the National Mall. WMATA’s Metro Transit Police assists federal law enforcement agencies such as the Secret Service by making available its officers who have expertise in areas such as explosives detection and civil disturbance management. WMATA also provides Metrobuses to be used as a security perimeter on the grounds of the U.S. Capitol and other public places for events such as inaugurations and State of the Union addresses. WMATA began building the 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. As of March 2006, the transit system encompasses (1) the Metrorail subway system, which now has 86 Metrorail stations on five rail lines and a fleet of about 948 railcars; (2) the Metrobus system, which has a fleet of about 1,451 buses serving 340 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. WMATA funds its operations through a combination of revenues from passenger fares, nonfare revenues such as parking and advertising fees, and payments from state and local governments. It funds its capital program primarily through grants from the federal government and contributions from state and local governments, and by borrowing from the private sector through the issuance of bonds. WMATA’s funding sources for operations and capital are shown in figure 2. The operating costs for bus, rail, and paratransit that are allocated to the Compact jurisdictions are determined by a set of formulas that take into consideration factors such as population, ridership, number of Metrorail stations, and miles of bus routes. The formulas for determining capital cost allocation—other than for extension projects, which are paid for by the sponsoring jurisdiction—are based on the amount that the jurisdictions pay for operating costs. Under these formulas, jurisdictions with higher populations and service levels (indicated by factors such as the number of Metrorail stations and miles of bus routes) generally pay more than jurisdictions with smaller populations and lower service levels. The operating subsidy and capital program payments for 2006 as determined by the formulas are shown in figure 3. The Compact jurisdictions of the District of Columbia, Maryland, and Virginia vary in the sources they use for payments to WMATA: District of Columbia. Payments to WMATA are provided by the District’s Department of Transportation every quarter. Operating costs are paid for from the District of Columbia’s general fund and capital costs are funded by general obligation bonds. Maryland. Payments to WMATA for Montgomery and Prince George’s counties are made from the Maryland Transportation Trust Fund. The trust fund’s revenue sources include a gas tax, vehicle title tax, and other motor vehicle taxes and fees, along with other sources such as federal aid. Trust fund revenues are also used for operating and capital expenses for various modes of transportation in the state including transit, ports, and aviation, as well as for local road construction. Maryland is required by state law to make payments for the share of WMATA’s operating expenses, capital equipment replacement, and debt service for which Montgomery and Prince George’s Counties are responsible. Virginia. The individual cities and counties are responsible for making payments to WMATA. A portion of these localities’ payments are made through the Northern Virginia Transportation Commission (NVTC). NVTC holds, in trust, funds from a variety of sources that are used to pay for its members’ public transit systems—including WMATA and local bus systems such as the Fairfax Connector and Alexandria’s DASH bus. Sources include a 2 percent Northern Virginia retail motor vehicle fuel tax and state sources such as transit assistance grants and state bonds issued for WMATA. NVTC sources accounted for about two-thirds of payments to WMATA from Northern Virginia counties and cities in fiscal year 2006. The portion of the localities’ obligation to WMATA that is not covered by NVTC sources is usually paid directly by the localities from their general funds. In 1980, federal legislation required that for WMATA to receive additional funding for construction of the Metrorail system, the WMATA Compact jurisdictions had to demonstrate that they had “stable and reliable” sources of revenue sufficient to pay for the principal and interest on bonds and the local share of the operating and maintenance costs of the transit system. The District of Columbia, Maryland, and Virginia took the following actions to comply with the requirement: District of Columbia. The city adopted a law in 1982 to earmark funds for WMATA by establishing a Metrorail/Metrobus account within its general fund. The account was supported by earmarking existing revenues that came from sources receiving direct or indirect benefits from mass transit, including sales taxes on hotels, meals, and gasoline, as well as vehicle registration fees and parking meter fees. The earmarked revenues were sufficient to cover the District of Columbia’s share of WMATA’s operating, debt service, and capital expenses. This account is no longer the source of WMATA payments. As described above, the District of Columbia now provides payments to WMATA from its general revenue fund and general obligation bonds. Maryland. The state enacted legislation in 1980 to require the Maryland Transportation Trust Fund to assume a portion of the costs WMATA allocated to Montgomery and Prince George’s Counties. The legislation also provided the trust fund with new sources of revenue, including motor vehicle fuel taxes, a portion of the corporate income tax, and all revenues of the state motor vehicle administration. The trust fund was used to pay all of Montgomery and Prince George’s Counties’ share of WMATA’s capital costs, and 75 percent of the counties’ share of operating costs and debt service. Montgomery County provided for the balance of its obligation to WMATA through a property tax earmarked for mass transit, and Prince George’s County met the remainder of its obligation by establishing the Mass Transit Special Revenue Fund and earmarking revenues from the state real property tax grant program in the event that county appropriations to the fund fell short. State legislation in 1992 and 1998 made the state’s transportation trust fund the source of all payments to WMATA. Virginia. In 1980, the state enacted a 2 percent sales tax on the retail price of gasoline within the Northern Virginia counties and cities in the WMATA service area and dedicated the proceeds of the new tax to WMATA, effective in July 1982. The state also increased its biennial appropriation to NVTC, increasing the amount of state money available for payment to WMATA. At the same time, the Northern Virginia counties and cities enacted local ordinances stating their intention to fund WMATA’s debt service and operating assistance on an annual basis and designating their general fund revenues as the source of funding for what the gasoline tax and state aid did not cover. In 2005, the Metro Funding Panel estimated that under its current revenue structure, WMATA would have a total budgetary shortfall of $2.4 billion during fiscal years 2006 through 2015 if it went forward with the projects remaining in its 10-year capital improvement plan, not including those that involved expanding the current system. The panel’s report noted that WMATA—unlike almost all other large transit systems—does not have a substantial dedicated source of revenue, such as a local sales tax, whose receipts are directed to the transit authority. As a result, the panel concluded that the Washington, D.C., region needs to develop a dedicated source of funding for WMATA, and recommended specifically that a regionwide sales tax be implemented. In the course of its work, the panel analyzed a number of revenue options for dedicated funding for WMATA, including estimating the tax or fee rate that would be required to raise sufficient revenue to address the projected shortfall. In our July 2005 testimony before the House Committee on Government Reform, we stated that the actual projected shortfall could, in fact, be much greater because the Metro Funding Panel did not include in its estimate costs associated with providing paratransit service, which is required by the Americans with Disabilities Act. These costs are significant; in fact, the panel estimated that these services could result in an additional shortfall for WMATA of about $1.1 billion over the 10-year period. The Brookings Institution in June 2004 issued a report that similarly concluded that WMATA’s lack of dedicated revenues makes its core funding uniquely vulnerable and at risk as WMATA’s member jurisdictions struggle with their own fiscal difficulties.