Regional News

MBTA: Beyond the Stop-Gaps

Like Charlie, the proverbial commuter on Boston’s subways memorialized in a Kingston Trio folk song, operating deficits of Massachusetts Bay Transportation Authority ride forever.

Charlie’s fate is still unknown; he never returned. For the MBTA on the other hand, stop-gap measures to fill its regular shortfalls predictably kick in.

This year, the fix – after the MBTA hit riders with a 23% fare increase and some service cuts, effective July 1 -- was a $51 million under-the-radar revenue surplus from a motor-vehicle inspection sticker fee fund, and about $1.5 million of unused snow-removal money. That closed a budget gap that was $160 million at the start of the year. State law requires a balanced MBTA budget.

Last week, the Massachusetts legislature sent the package to Gov. Deval Patrick.

Problem solved again. For the moment.

But heavy structural debt remains. The oldest public transportation system in the United States is also the most leveraged, with about 33 cents of every dollar it spends going to pay debt service. The “T,” as it’s commonly called in Massachusetts, owes $5.2 billion in principal.

The debt-service ratio total for the T’s parent, the Department of Transportation, is 45%. MassDOT subsumed the MBTA in a 2009 legislative overhaul.

Even ominous news peppers the good. Ridership on the T has increased 15 straight months, to more than 1.3 million passengers per weekday, but according to a study from the Urban Land Institute, the additional riders, coming in part from a transit-oriented real estate development pipeline that will continue to flow, are straining the aging system’s capacity.

“Ridership today is at or near the highest since 1946. At the same time, unfortunately, we cannot afford the system we have, never mind the system we need,” MBTA general manager Jonathan Davis said.

That raises doubt over the T’s ability to fund such projects as $1 billion for new trains for the Orange and Red subway lines; $2 billion for South Coast commuter rail; and $1.3 billion for the Green Line extension from Lechmere Square in Cambridge through Somerville into Medford, promised in 1996 for completion by last year and necessary to comply with federal clean air standards as part of the massive Central Artery/Tunnel project, known commonly as the “Big Dig.”

Suggestions for improvement range from short-term political – state senators from western Massachusetts lobbied in vain last week to put the MBTA under a control board similar to the one then-Gov. Mitt Romney implemented for the city of Springfield in 2004 -- to long-term operational, such as the Massachusetts Port Authority taking over the T’s four water ferry routes.

Others have suggested another blue-ribbon panel.

“Beyond the current action for the fiscal year 2013, we believe the state needs to develop a comprehensive plan to right the ship for transportation,” said Richard Dimino, president of A Better City, a research organization that advocates economic competitiveness in Greater Boston.

“We’re looking for an adult conversation about what type of transportation system do we want, and how do we pay for it?,” added Dimino, who was Boston’s transportation commissioner from 1985 to 1993.

The state thought it solved the decades-old problem of MBTA financing in 2000 with “forward funding,” under which the T got one-fifth of the state’s sales tax revenue and issued its own debt, and in return had to balance its budget. Previously, the state funded the system in arrears. The MBTA provided the service and then billed the legislature.

But mistaken assumptions from forward funding created new sets of problems -- underperforming sales tax, skyrocketing expenses and crushing debt. “Unfortunately, the MBTA plan developed to implement forward funding was unrealistic and destined to fail,” said a 2009 report authored by former John Hancock chief executive David D’Alessandro.

During the 1990s, state sales-tax revenues were rising at 6.5% annually, with forward funding assuming growth of at least 3%. But that number dropped to 1% from 2001 to 2009. Expenses for fuel and energy, payroll and benefits, paratransit service and commuter rail escalated.

“The finance plan inexplicably projected no increases in health care costs between [fiscal year 2001] and FY08,” D’Alessandro wrote.

As part of forward funding, the state transferred $3.6 billion of debt to the T, of which $1.7 billion was for companion Big Dig transit projects. The T has since borrowed about another $2 billion for other capital projects.

“Heavily reliant on debt, the authority has substantial fixed costs and sizable capital needs with limited pay-as-you-go funding expected during the next several years,” Moody’s Investors Service said in a report assessing $416 million of Series 2012A assessment bonds the authority sold earlier this month.

Moody’s still rated the bonds Aa1, its second-highest rating, citing the strong credit quality of the 175 participating local governments, which pay an assessment fee; assessment bond coverage expected to remain strong at more than 3 times over the near term; and bondholder protections that include a debt service reserve fund, 1.2 times additional bonds test, a cross-pledge of the MBTA’s sales tax revenues on a subordinate basis, and the commonwealth’s covenant not to divert the revenue streams or reduce them below specified floor amounts.

A western Massachusetts lawmaker, State Sen. Gale Candaras, D-Wilbraham, lambasted the MBTA over its debt management. She favored the control board, which the Senate defeated on a voice vote.

“Part of the [2000] agreement came with the benefit of 20% of all sales tax collected was the T to take on T-related debt. The agreement did not include gambling with that debt,” said Candaras, citing a 2008 state auditor’s report that said the MBTA’s use of interest-rate swaps, intended to reduce debt-service costs, actually increased those costs by more than $55 million over a five-year period through termination fees and other expenses.

“We have a double-A-plus bond rating, so we’re not a deadbeat state. There’s never any doubt about our ability to pay. But for too long we have effectively given the MBTA a blank check to cover deficit after deficit without holding decision makers accountable,” Candaras added.

According to Candaras, who grew up in North Bergen. N.J., riding metropolitan New York public transit, between 54% and 60% of the T’s money comes from the state’s general fund -- the new budget ratio is still a variable. That amount, she said, exceeds what northeast peers such as New York City’s Metropolitan Transportation Authority (40%) and New Jersey Transit Corp. (34%) receive from their states.

Candaras argues that the state has shortchanged the 15 bus-oriented regional transportation authorities elsewhere in the state. This year, those RTAs got $2 million of the extra $51 million sticker-fee surplus. Two years ago, similar funding, which she called “a sweetener in the pot,” never materialized.

“The RTAs, which serve people far, far away from anything that even looks like a subway car, never got it,” she said. “DOT never released it. It got built into other things. While all this is going on, the RTAs are starving to death.”

Peter Derrick, a transit historian and former executive at New York’s MTA, dismissed the idea of a control board for transit agencies in general.

“That’s what politicians always do; they jump up and down like banshees. A board of directors itself is a form of oversight. It becomes a charade. What do you do, have oversight over the oversight?” said Derrick, a visiting scholar at New York University’s Rudin Center for Transportation Policy and Management.

A Better City praised the MBTA for not pursuing further refinancing or restructuring of its debt to close this year’s deficit.

“This may be because there are no savings left to be had in that strategy, but moving away from debt games and addressing this year’s deficit head on is a positive step toward addressing the structural problems at the core of the T’s financial troubles,” ABC said in a March report.

ABC would like the MBTA to strengthen its management rights in labor negotiations; partner with the private sector for energy savings; explore consolidation of paratransit services statewide; and merge the MBTA transit police with the state police.

It also favors Massport paying the assessment now paid by the 175 cities and towns the MBTA services. Massport runs Logan International Airport, served by the T’s Blue and Silver lines. ABC cited as precedent the use of revenues at Minneapolis-St. Paul International Airport to support Metro Transit’s Hiawatha light rail line that serves the airport.

“We’re starting to learn from what the other states are doing,” said Dimino.

Sen. Thomas McGee, D-Lynn, chairman of the legislature’s joint committee on transportation, said mass transit help from Washington is essential.

“The federal government is backing away from it, and I think that’s very wrong-headed for them not to see how vital transportation is to areas like New York, Philadelphia and Boston. Transportation enhances quality of life.”


(1) Comment



Comments (1)
Hey, love the "T" when visiting Boston, but tell me why, Senator Lee, should taxpayers from Mississippi to Illinois subsidize transportation in cities like New York, Philadelphia and Boston so these high cost cities that have given away the store and failed to manage their costs can defer the day of reckoning and pay below cost fares for cleaner trains?
Posted by Kevin M | Tuesday, June 26 2012 at 4:06PM ET
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