MBTA Control Board's First Year Just a Start

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When Massachusetts Gov. Charlie Baker took office in 2015, he found the mass transit agency that serves Greater Boston in more of a mess than anyone had imagined.

"This place is in worse shape than Harvard Pilgrim was back in 1999 when it went into receivership, something I thought I would never, ever say," Baker recalled telling chief of staff Steve Kadish, a former colleague at the health-care provider that Baker as chief executive turned around about a decade ago.

Baker spoke last month as a fiscal control board he and the legislature created to oversee the Massachusetts Bay Transportation Authority observed its one-year anniversary.

The wheels for change at the nation's oldest and arguably most challenged mass transit system began turning early in 2015 after a record 110 inches of snow in Boston crippled some of its aging fleet and thrust the "T," as locals call the system, into the national headlines. The snow crisis helped expose many longstanding problems: an unsustainable budget, an inability to spend capital dollars, clunky procurement, sloppy workplace practices and an insular culture.

Fiascoes included a driverless train accidently leaving a station; a cash room rarely locked; a longtime struggle to complete a light-rail extension; revelations that the average employee has 57 off days a year including vacation time; and a money-bleeding secretive pension fund with reported past ties to convicted murderer and organized crime figure Whitey Bulger.

"If anyone questions whether the control board was necessary, well, let's put that to bed," said Richard Dimino, president of A Better City, a business-backed Boston group with a focus on transportation infrastructure. "The authority was significantly impaired and in dire trouble."

Reaction to the board after year one is constant: Its creation was necessary, some of its triage may lead to operational improvements, and much work remains.

"Recent changes to MBTA's oversight and management structure have started to yield efficiencies, improving its strained financial operations," said Moody's Investors Service.

The T at full staffing will have a new general manager, chief administrator, chief operating officer, chief financial officer and chief procurement officer and for the first time, a chief technology officer. It is also scrambling to fill key subordinate slots.

Among other moves, the MBTA pruned more than half its $242 million deficit and terminated five legacy floating-to-fixed rate interest rate swaps in a move expected to save $235 million over 10 years. The latter reflects a debt strategy by the control board and the Massachusetts Department of Transportation board – the MBTA answers to both – that also included refinancings and funneling excess debt reserves into a capital maintenance lockbox.

"The control board still faces an uphill battle closing the budget gap and addressing operating inefficiencies," said Iliya Atanasov, senior fellow for finance at Boston-based free-market think tank Pioneer Institute.

"Management has developed ambitious plans to divest costly interest-rate swaps and reduce borrowing costs through competitive bidding. The T is moving cautiously in the right direction on these issues."

The MBTA last month held its first competitive bond sale in 21 years, issuing $337.3 million. Officials said that by locking into the lowest interest rates in the authority's history, the MBTA will experience more than $150 million in future cash flow savings.

The control board also authorized fare hikes of 9.3%, which took effect July 1 across the system. In addition, it pruned first-quarter overtime costs from $20.5 million in 2015 to $10.3 million the following year.

According to Dimino, chipping away at the structural deficit, tweaking and downsizing the Cambridge-to-Somerville Green Line extension – federally mandated by a Big Dig highway megaproject mitigation settlement -- and weather resilience were among the major achievements.

"They had fallen asleep on how to manage both the traditional weather and the severe weather here," he said.

The T, which opened in 1897 and still operates along some of that corridor, has an estimated $7 billion maintenance backlog. Nationally, that figure is around $86 billion. Some trains on the T's Red and Orange lines date to the late 1960s.

Older systems, notably in the Northeast, are trying to balance state-of-good-repair troubleshooting with modern enhancements such as expansion and technology upgrades.

"I think there is always a tension between those two," Jonathan Davis, who retired last year as MBTA chief financial officer, said on a Bond Buyer podcast. "I think we always need to take a look at providing public transit in areas that we don't currently serve, and we have a responsibility to be good stewards and invest in the system."

New York Metropolitan Transportation Authority Chairman Thomas Prendergast said priorities evolve over time. His career with the MTA dates to 1982, when then-chairman Richard Ravitch crafted its initial five-year capital plan.

"When I was first here and Dick Ravitch got the first $8 billion, it was all about state of good repair," Prendergast said after last month's board meeting. "And then Peter Stangl said no, no, you gotta go beyond that. You have to do something about enhancing the quality and the level of service. Then after that it was the expansion.

"So you have to do all three. As the population increases and ridership increases, we've got to add capacity to the system. So that's 7-West, that's Second Avenue, that's communications-based train control, things of that nature."

According to Prendergast, "whole life asset management" frees up dollars for expansion projects including the No. 7 subway line extension to Hudson yards and the new Second Avenue subway corridor, which the MTA hopes to open in December.

Aging equipment and a haphazard safety culture has pushed the Washington Metro -- called "America's subway" when it opened to fanfare during the 1976 bicentennial celebration – into crisis. Mishaps have included fatal accidents, a fireball at the Federal Center station platform and a near head-on collision when a driver ran a red signal upset over the scheduling of his food break.

The Southeastern Pennsylvania Transportation Authority pulled 100 commuter railcars – about one-third of its fleet-- on the eve of Philadelphia hosting the Democratic National Convention. SEPTA cited a faulty welding job by the manufacturer's subcontractor.

In Massachusetts, work is far from over.

"Turnarounds – and this is a turnaround – take years," said Baker.

Baker next year will ask lawmakers to transfer oversight of the MBTA Retirement Fund, which he termed in freefall, to the state's Pension Reserves Investment Management board.

The Retirement Fund has long operated as a private trust, backed by a state Supreme Court ruling. Pioneer Institute and other sunshine advocates have called for openness, saying the MBTA and taxpayers are financially liable for any underperformance at the fund.

Atanasov, a frequent critic of T operations, called unsustainable retirement liabilities the "elephants in the room."

A report last year by Bernard Madoff whistleblower Harry Markopolos and Boston University finance professor Mark Williams said the fund may be overestimating its value by roughly $470 million.

The fund has lost millions in alleged Ponzi schemes associated with Fletcher Asset Management and Weston Capital Management, and published reports also connected the fund to Bulger, convicted in 2013 of participating in the murders of 11 people, and Bulger associate Francis Fraine, who admitted to a role in a Boston arson ring in the late 1970s.

Some recent moves, meanwhile, have left the control board vulnerable to criticism. For instance, it pumped up to $66 million into commuter rail operator Keolis Commuter Services with little discussion despite six years of poor on-time performance, notably during the snow crisis.

 "That should remain a thing of the past," said Atanasov. "This is business as usual, not the transparency and good management that officials keep promising. Getting contracting right is integral to cutting costs, improving performance and outsourcing noncore functions."

According to Baker, the T will use state contracts at better prices and terms – an option it often shunned in the past -- for procurements such as locomotives, phone and wireless service, parking lots, commuter rail and the Green Line extension.

It is also soliciting bids for positive train control, a federally mandated safety system that advocates say could have prevented fatal accidents on an Amtrak train outside Philadelphia and a Metro-North Railroad commuter train in New York City's Bronx borough in the past three years.

Two weeks ago the MBTA issued a request for qualifications regarding an automated fare payment system. New York MTA has a request for proposals out for a similar project.

ABC's Dimino warned that Greater Boston mass transit must accommodate further business growth amid a nationwide back-to-the-city thrust.

General Electric Co., moving in from Fairfield, Conn., intends to build a 12-story complex in the booming Seaport District along the South Boston waterfront, which according to ABC has experienced 20 million square feet of development since 1997. The district's primary transit feeder to nearby South Station is the Silver Line bus, which is already at 128% capacity.

Other large employment clusters include the vast Longwood medical district in Boston and Kendall Square in Cambridge, which adjoins Massachusetts Institute of Technology.

"I would hate to see us positioned as a place where people are not coming here because they can't get here," said Dimino. "There's a positive type of energy around cities these days. You see it in San Francisco, D.C., New York and even parts of Chicago.

"Frankly, we haven't gotten our arms around it yet."

Dimino favors a transportation infrastructure agency patterned after the Massachusetts School Building Authority, a conduit issuer the legislature formed in 2004 to replace a predecessor agency that critics said spiraled out of control.

Rhode Island last year also started a similar agency to fortify school construction through bond issuance.

"Do we take the next wave of investments and technology and put that into such an authority," said Dimino. "Or do we make the existing governance into a real 21st century agency?"

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