Loudoun Leaders Propose Way Out of Metro Funding Hole

Metro is more than a little short on cash for maintenance and construction—to the tune of about $15.6 billion over the next 10 years.

Loudoun County supervisors have joined a chorus of voices opposing the idea of a regional sales tax to fill that gap, and the idea is considered mostly dead on arrival in Virginia politics. That still leaves the question of how to come up with upwards of $1.5 billion in capital costs every year to get Metro back to a state of good repair. But Loudoun’s leaders think they have a better idea for the various governments contributing to the system anyway.

“We, as jurisdictions, if we were to continue on the path that we are currently on, we would be contributing altogether about $900 million into Metro a year,” said Supervisor Matthew F. Letourneau (R-Dulles). “So the conversation has largely been, how do you fill that roughly $500-600 million gap?”

One of the problems is that, because of its funding structure, which depends on budget allocations from a great number of localities and doesn’t guarantee money from one year to the next, Metro cannot issue debt.

Most large government organizations issue bonds and other debt to spread out the cost of major infrastructure investments. For example, last year, Loudoun voters overwhelmingly approved issuing nearly $350 million in bonds for schools, parks, roads, fire stations, and other facilities.

But Metro would have to cough up that $1.5 billion a year up front. Localities have balked at pouring millions more into Metro.

The solution, say Letourneau and Loudoun County Administrator Tim Hemstreet: create an organization that can issue debt.

“What we’re trying to do is leverage a portion of those contributions and be able to issue debt off of those contributions, which then gets to the other $600 million that you need to get from $900 million to $1.5 billion,” Hemstreet said.

A service contract would be drawn up among all the governments that pay into Metro except the federal government: DC, Maryland, Virginia, and Northern Virginia’s rail counties. That organization would have a credit rating based on the ratings of its member jurisdictions, which Loudoun leaders say could be AA+. The federal government would be assumed to still pay as it goes.

The service contract would let Metro issue debt.

But while the service contract’s credit rating would be based on the jurisdictions’ credit ratings, as long as Loudoun meets its obligations, its credit rating is not expected to be impacted if Metro goes bankrupt or defaults on its debts. The debt Metro issues would not be considered indebtedness by the contributing jurisdictions.

Letourneau compared the service contract to a regional jail. He said it’s “something that’s been used before, albeit not quite at this scale.”

“The beauty of this approach is that it’s very elastic, so we would not disagree with those who would say that the state needs to contribute more money or the federal government needs to contribute more money,” he said. “If those things happen, then it would only reduce the amount that the jurisdictions would have to do.”

And unlike a sales tax—which would put about half the burden of the extra funding on Virginia alone—the service contract splits the burden about evenly among Virginia, Maryland, and DC, based on what they’re already contributing.

The county has already reviewed the strategy with a financial advisor and the county attorney.

The solution is short term. After 10 or 12 years, either localities have to start putting in more than they plan to right now, or another source of funding will have to be found.

rgreene@loudounnow.com
@RenssGreene

6 thoughts on “Loudoun Leaders Propose Way Out of Metro Funding Hole

  • 2017-08-09 at 10:57 am
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    Bait and switch. Government pushing yet another one of their ponzi schemes by “creating organization that can issue debt.” Who will pay for this “short term” debt? Loudoun Homeowners will. Except we won’t get a single school, firehouse, library, or even a new stop sign to show for it. Nothing.

    Loudoun Homeowners will be subsidizing yet another public transportation scheme for everyone else in exchange for just two metro stations that may, or may not, actually run. Meanwhile, Mr. Hemstreet and Supervisor Letourneau will move on to lunch with their back slapping Wall Street bank buddies, while some future Board hands Loudoun Homeowners a big ole’ tax increase to cover this scheme.

    Millions for getting Loudoun tax payers out of the entire Metro fiasco — not a penny more in support. This gets worse and worse every month.

    • 2017-08-10 at 3:34 am
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      Ditto. Just passing the buck for 10 years and trying to lock in Metro as it will be too expensive to pay off those bonds all at once to escape from the Metro hole.

      Are there any conditions at all in which the Loudoun BoS will admit a mistake and cancel Metro? If ridership is half of expectations, will they reconsider? Or are we doomed to suffer Metro because of their arrogance and pride regardless of what the facts reveal?

  • 2017-08-09 at 6:23 pm
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    Who will buy into this “creative financing” scheme unless there is collateral? So what will be the collateral? Loudoun County’s tax receipts?
    What is Loudoun’s obligatory share of the $1.5 billion?
    One cent of our real property tax rate generates about $8,000,000; homeowners can calculate what they may owe to fund Metrorail deficits.
    Loudoun did not need Metrorail; its financial and funding problems were made known at the time of adoption. It is too far for most of us to use conveniently. (Look at a map.) It was the darling preservationists and “smart growthers” for high-density development to preserve much of Loudoun for estate living.

  • 2017-08-10 at 9:56 am
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    Who is their right mind thinks giving Metro a credit card backed by localities is a good idea? Drug test, please!

  • 2017-08-10 at 11:08 am
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    First, what everyone else has said. This is the same logic that gave us the failing WMATA (and MWAA). They created entities to which jurisdictions could offload financial responsibility. This (aptly called) Ponzi scheme just kicks the can down the road and make the jurisdictions lives easier so folks like Letourneau don’t have to answer the hard questions and engage in budget battles (Sorry, pal. That’s your job). WMATA has capital funding issues because their operational expenses, mainly caused by unionized labor, are too high. WMATA has been moving funds from capital items to operational expenses for decades and it has finally caught up to them. This Loudoun scheme does nothing to address the fundamental operational shortcomings. In fact, the Loudoun plan enables it to continue.

    Second, I keep hearing that “Metro cannot issue debt.” That simply is not true. Metro is run by WMATA and has hundreds of millions of dollars in debt. Perhaps what they mean is that their finances are so poor that they are having difficulty financing debt, but MWATA certainly can issue debt. I’ll go find their latest downgrade and post it. It is a good synopsis of the WMATA/Metro situation.

  • 2017-08-10 at 11:16 am
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    Here is an excerpt from Moody’s. Note the very last line, “Proceeds of the bonds will be used to finance capital cash flow needs associated with the current capital plan.” Clearly, WMATA has the ability to issue bonds. I’m baffled why people keep saying they can’t.

    New York, May 05, 2016 — Issue: Gross Revenue Transit Bonds, Series 2016A; Rating: A2; Rating Type: Underlying LT; Sale Amount: $220,000,000; Expected Sale Date: 05/17/2016; Rating Description: Revenue: Government Enterprise;

    Summary Rating Rationale

    Moody’s Investors Service has downgraded the Washington Metropolitan Area Transit Authority’s (WMATA) Gross Revenue Transit Bonds to A2 from A1. Concurrently, we have assigned an A2 rating to its $220 million Gross Revenue Transit Bonds, Series 2016A. We have also revised the outlook to stable from negative. The downgrade and outlook change affect $494M of outstanding parity debt, including the new sale. The new bond sale was initially scheduled to price on May 17th, but is subject to change.

    The downgrade reflects ongoing restrictions that limit WMATA’s timely access to federal capital grants; declining ridership the result of weakened public confidence in the system; the expectation that WMATA’s large capital plan will increase as it addresses system safety and performance challenges; the magnitude of system’s deferred maintenance needs; and large unfunded pension and OPEB liabilities that add to WMATA’s financial challenges. The A2 rating also reflects the service area’s wealthy economic base; strong history of support from member jurisdictions rated Aa1 or better; a farebox recovery ratio higher than the sector median; a 4 times additional bonds test; a sum sufficient rate covenant for debt service and operations; and a relatively low bonded debt burden.

    Rating Outlook

    Revision of the outlook to stable reflects resolution of near-term renewal and refinancing risk related to WMATA’s lines of credit; somewhat improved liquidity, which had been particularly challenged in recent years; and new leadership that will more cohesively guide WMATA through its operating and funding challenges.

    Factors that Could Lead to an Upgrade

    A sustained trend of improved management and governance that helps improve WMATA’s financial position and meet its capital needs

    Stronger reserves relative to operating costs

    Establishment of a dedicated funding source that reduces revenue uncertainty

    Factors that Could Lead to a Downgrade

    Weakening of political support from participating jurisdictions that impacts operating or capital subsidies or ability to raise fares

    Inability to repay, roll, or renew lines of credit

    Continued reliance on short-term debt to relieve liquidity strain

    Legal Security

    WMATA’s gross transit revenue bonds are secured by a pledge of gross revenues, including farebox revenues and operating subsidies from participating jurisdictions. WMATA plans to pay debt service on the 2016A bonds, which have a three-year maturity, with future FTA grant receipts.

    Use of Proceeds

    Proceeds of the bonds will be used to finance capital cash flow needs associated with the current capital plan.

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