When people think of the Massachusetts Bay Transportation Authority, "reliable" isn't the first word that comes to mind.
But reliable is an increasingly apt descriptor for its approach to borrowing.
With help from borrowing and increased funding from Massachusetts, the MBTA — infamous for spotty service, train accidents, and federally imposed speed limits —seems to be turning over a new leaf.
"It's a totally different entity in 2026 than it was in 2016, than it was in 2020," said Brian Kane, executive director of the MBTA Advisory Board.
The authority plans to bring $767.4 million of senior sales tax revenue bonds to market on Tuesday to support a growing capital plan. And the authority is perhaps more equipped than ever to spend the proceeds.
Jefferies is serving as manager, with 14 co-managers, and PRAG is the municipal advisor. Mintz is the bond counsel.
The bonds will fund a portion of the MBTA's capital program, repaying outstanding commercial paper notes and refunding multiple series of outstanding bonds, one of which includes a tender offer. They are set to mature from 2027 through 2056
On the same day the bonds are issued, the MBTA plans to price $10 million of senior sales tax variable rate demand obligation bonds. The taxable bonds, which will fund the capital program, are set to mature in 2066.
"In connection with the issuance of the 2026 VRDOs Bonds, the authority expects to enter into a standby bond purchase agreement with TD Bank, N.A.," the MBTA wrote in the preliminary official statement, "to purchase the 2026 VRDOs from time to time that are tendered and not remarketed pursuant to the Sales Tax Trust Agreement and the applicable remarketing agreement."
The sales tax bonds are rated AA-plus by S&P and AAA by Fitch and KBRA.
Fitch's rating on the bonds is higher than its rating for the commonwealth itself, noted analyst Karen Krop.
The bonds are backed by a 1% sales tax, calculated two different ways, and MBTA gets the higher amount.
The first calculation is a dedicated sales tax revenue amount (DSTRA) — the 1% tax plus $160 million annually. The second is the base revenue amount, which the investor presentation describes as "a unique inflation-protected statutory floor that can never be reduced." The floor is tied to the increases with the Boston consumer price index, although its growth is capped at 3% per year.
The DSTRA has exceeded the floor annually since fiscal 2018, according to the presentation. In fiscal 2027, projected DSTRA revenue is $1.445 billion.
"We consider [the sales tax] to be a broad-based revenue source," Krop said. "Revenue growth prospects, we consider very strong in the commonwealth across the board."
The dedicated sales tax revenue flows to the MBTA's bonds automatically, with no need for the legislature to appropriate the funds.
The bonds are also cross collateralized with the MBTA's assessment bonds, backed by annual payments from the 178 municipalities in its service region.
If the deal sounds familiar, that's because it is. The MBTA issued a
It last issued assessment bonds in 2022 and before that in 2016.
The Jefferies underwriting team said they expect the deal to be well-received by investors.
"There are no market saturation issues and Massachusetts borrowers generally benefit from strong retail demand," Jefferies said in a statement.
Kane said the authority's borrowing has become more standardized and more disciplined in the last decade. The MBTA has used financing instruments — like swaps and derivatives — in the past, Kane said, but it's mostly moved away from those deals. This deal includes the MBTA's first tender.
"As a public organization with a board of directors appointed by political representatives, there's a certain hesitancy to get too complicated, and I think that's fair," Kane said. "With that said, the system they sort of have now, where they sell these bonds on the market and repay them over 30 years, works. I don't see a real reason to change it."
The MBTA's borrowing has increased from around $337 million of sales tax and assessment bonds in 2016 to more than $1 billion last year.
The $337 million may seem small for the country's
"They lacked the institutional capacity to get projects out the door," Kane said. "They would do the bond sales, and then [the proceeds] would just sit."
Massachusetts lawmakers weren't willing to allocate much in funds for the system and were pushing for more
The result is now infamous. The MBTA had
At one point, Kane worried the authority would have to patch its budget with debt, even though debt service made up
Its future started to look brighter in 2022, Kane said, with the election of Gov. Maura Healey and voter approval of Massachusetts' Fair Share amendment, a surtax on income over $1 million.
Healey supported increased funding for the authority, and the
Meanwhile, the MBTA got new leadership, who Kane described as "the real deal."
The new leaders ramped up hiring, adding the personnel necessary to execute its capital program and cover all of its bus routes.
Service has improved, Kane said, and many of the federally mandated speed limits have been lifted.
"More and new subway cars are coming on board online on a monthly basis. In addition to that, they're doing massive bus fleet replacements with cleaner, newer vehicles, and they're building new bus maintenance facilities," Kane said. "They're in the best shape that they've been in financially in, at least, I would say 40 years."
Still, all that progress costs money. And that came with budget gaps.
In January, the MBTA projected a $560 million
But a
Kane had a more optimistic view of the deficits.
"They're sort of planned deficits," Kane said. He expects the deficits will naturally shrink over time as the MBTA's hiring decreases, and the Fair Share tax revenue will cover the shortage.
The other big risk to the agency — and every transit agency — is the federal government.
The Department of Transportation has targeted the New York Metropolitan Transportation Authority's grants and revenue multiple times in President Donald Trump's second term. It has not yet targeted the MBTA, but last year, took aim at the Southeast Pennsylvania Transportation Authority over safety problems.
Moreover, transit agencies across the country have enjoyed larger federal grants recently, thanks to the Inflation Reduction Act. Those federal grants are up for renewal this year, and, with Republicans controlling Congress and the White House, they may end up smaller than they are.
Federal grants are expected to fund $4.2 billion of the MBTA's $10.3 billion 2027 to 2031 capital program, according to the offering statement.
Kane said he's not worried about this yet — the government has historically extended existing grant levels for a year, then increased or decreased the grants the following year, he said. And next year, the balance in Congress could switch.
The MBTA's sales tax bonds are not dependent on its operations, Krop said, and none of these revenue threats would affect its ability to repay the bonds.
"We rate the bonds without consideration for the operations, because the revenues are separate," Krop said. "That allows us to rate the bonds higher than what might be the underlying credit quality of the MBTA."
Kane said he's not aware of any factors that could make a big change in the MBTA's current borrowing schedule. For major expansion projects the commonwealth usually issues the bonds for the MBTA, he noted.
So, investors can look forward to another $600 million to $700 million sales tax bond deal next year, he said.
"It's the safest possible investment you can make, in my humble opinion," Kane said. "If it wasn't an ethical thing, I'd be buying it myself."
