Photo by jcolman on Flickr.

Yesterday, WMATA announced in a press release that its expenses were lower than predicted during the 2012 fiscal year, which ended in June. The transit system took in $2 million less in fare revenue than it expected, but spent $30 million less.

The savings comes in part from lower fuel and energy costs and an audit of which Metro workers’ dependents were eligible for health care. The agency also spent less on MetroAccess after recent moves cut down on how many people use paratransit service.

WMATA proposes applying this surplus, plus other reductions in costs, to reduce the amount of funding it will need from jurisdictions. The last estimate put its funding need for FY2014 (July 2013-June 2014) at $76 million, and along with other savings and expected funding grants, this reduces it to $27 million.

Nearly every year, labor and benefits costs increase based on WMATA’s labor agreements, determined by arbitration, and some other costs like fuel and energy have also often increased. Meanwhile, fares don’t automatically increase, and area jurisdictions don’t automatically promise to put in more money each year to cover rising costs.

This creates a small projected deficit in the first public iterations of the WMATA budget. Most years, the jurisdictions have agreed to increase the amount of operating funding they provide, but that is always in doubt until they pass their final budgets in the spring, and in some years executives of Virginia, Maryland or DC have threatened to withhold funding.

The current WMATA board policy states that fare increases should only occur every other year, though severe budgets in the recession has led to fare increases even in some consecutive years. A particularly bad shortfall led to a mid-year increase in 2010 to close an unexpected drop in revenue. If WMATA does not get enough funding from jurisdictions and decides not to increase fares, then it must consider service cuts in order to balance the budget.

This surplus could also complicate WMATA’s position in negotiations with its largest labor union. While WMATA argues that it cannot afford to increase wages and be the sole contributor to pension funds, it is also announcing a surplus over the previous year of operation. Arbitrators, not WMATA or local governments, set wage and benefits levels.

The arbitration panel could decide that Metro’s financial position is not that bad, and may reject the idea of holding wages constant or requiring Local 689 workers to contribute to pension funds. These costs would increase the projected shortfall, and would require additional funds from governments or riders to keep the budget balanced.

Calling this a “surplus” may mislead some riders. It does not mean that Metro “made money” in 2012, but rather that its budget projections were gloomier than reality. Similarly, DC Public Schools might conceivably spend less one year than projected and end up with a surplus, but it’s still getting most of its money from the District’s general budget, not turning a profit from education.

It does, however, seem that WMATA could have told its board or the public about this a little earlier. Kytja Weir writes in the Examiner,

Metro had known it probably would have a surplus before finalizing the fare increases and higher subsidies. But Chief Financial Officer Carol Dillon Kissal said that she couldn’t use the savings then because it was only a forecast. …

Metro typically presents a stark forecast with a budget hole that needs to be filled with increased fares, service cuts or higher subsidies. But it was the second year in a row that Metro ended the year with a multi-million dollar surplus. In a report released last week, the agency said it had a $46 million surplus in the previous fiscal year.

It might have been possible to raise fares less. On the other hand, budgeting too conservatively just leads to a surplus, while budgeting too aggressively can force a sudden mid-year service cut or fare hike to fill an unexpected hole. In some past years, board members did more to pressure the agency to estimate higher. Sometimes that worked out, and riders saved money; other times, it led to last-minute crises.

This is only the beginning of WMATA’s budget season. Over the next 7-8 months, WMATA staff, the board, and the public will discuss budget. Staff will first present the board with its forecasts for FY2014 (July 2013-June 2014), and CEO Richard Sarles will propose a budget in January. After that, the board will decide on whether to send any fare increase or service cut proposals to the public for comment around March, and in May or June will approve the budget for the coming year.

WMATA spokespeople did not yet return a call for comment from late this morning.