MBTA faces cost hikes and delays with its fare system upgrade

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In the face of the COVID-19 pandemic and amid delays and a cost spike, the Massachusetts Bay Transportation Authority is still proceeding with an update to its fare-payment system.

The state-run authority’s oversight board unanimously approved a $935 million contract for a public-private partnership — its first official one — with San Diego-based Cubic Transportation Systems Inc., up $212 million from its original estimate.

The Boston-area Massachusetts Bay Transportation Authority is proceeding with a new fare payment system.

The onset of the coronavirus and response measures have elevated the importance of automated fare collection for public transit systems, according to the Boston business group A Better City.

"AFC offers contact-less fare options, which is appealing in the wake of the COVID-19 pandemic, when the MBTA has increased its cleaning of 'high-touch points,' including fare boxes and fare vending machines to four times a day to reduce the spread," A Better City said in a report. "AFC also offers fare flexibility options, which can help speed up response time to crisis situations."

Critics of the “T,” which locals call Greater Boston’s mass transit system, questioned the timing and transparency levels of the agreement. They also suggested the project is overwhelming the agency.

“It’s a very big challenge for a state agency to engage in a contract of this scope and breath and complexity,” said Gregory Sullivan, research director at Boston-based think tank Pioneer Institute and a former Massachusetts inspector general.

“My personal opinion on this contract is you’ve got to get this right," Sullivan said. "This has been very sub-rosa. The public was really not aware of what was happening.”

Sullivan and Chris Dempsey, director of the civic organization Transportation for Massachusetts, have called for an independent review of the contract, which is said to run 3,000 pages long.

“I have a 982-page version that is some subset of the 3,000-page version, and I’m trying to track down the other 2,000 pages,” Dempsey said.

The effects of the coronavirus — an 85% ridership drop over three months due to stay-at-home measures plus diminished tax receipts — are weighing on a system already burdened.

“The big picture in my mind is that the T is in financial distress,” Sullivan said.

The oversight board on Monday approved a one-year draft of its capital improvement program rather than its usual five-year plan due to pandemic-related uncertainties. The MBTA expects to issue $400 million to $520 million of debt in fiscal 2021, depending upon updated capital expenses.

Modernizing fare collection is essential to MBTA operations, according to T officials. The authority collected $672 million in fares in fiscal 2019. Its farebox recovery ratio that year was 42%.

“This is really a strategic investment in our future that will allow us a lot more flexibility to think about fare collection and fare collection policies in the future,” Laurel Paget-Seekins, the MBTA’s assistant general manager for policy, said at an April meeting of the Fiscal Management and Control Board.

The T intends to collect more than $8 billion during the 10 operational years of the new system, dubbed “AFC 2.0.” Target date for the launch is 2025.

Cubic has installed new systems in New York, Chicago and Vancouver, British Columbia, among other places.

“We knew that they had a very good platform,” said Ronald Renaud, the MBTA’s chief transformation officer. “We learned by talking with folks in New York and other places what the mistakes were. We knew what they were challenged with, what the users were challenged with, and we wanted to take time to understand that. So that’s just by way of definition another reason we needed and are asking for more time on the reset.”

The T has also agreed to a $49 million contract with longtime vendor Scheidt & Bachmann for “AFC 1.5” transitional upgrades. Without them, the current system will be unable to process credit-card transactions around the end of 2021.

The new cash-free system, reflecting a national trend, will widen the availability of the existing Charlie Cards to stores, libraries and civic organizations and create a so-called contactless payment with credit cards and smartphones, and allow all-door boarding on buses and Green Line light-rail trains.

“Charlie” is the mythical figure in a Kingston Trio folk song about a rider who got lost on the Boston subways and never returned. Charlie Cards began in 2006.

“I think the elimination of cash frankly not only in transit, but across the country and across society, I think this is a trend that is going to accelerate even further,” said Patrick Foye, chairman of New York’s Metropolitan Transportation Authority.

A tap payment system will enable transfer between among all MBTA modes, including commuter rail and ferry. It will also improve access to ridership and revenue data, Renaud said.

The project has been a work in progress since its announcement in December 2018. Late last year, T officials warned the oversight board of looming cost overruns in addition to a phased-in implementation as opposed to an all-at-once rollout.

“The idea of a big-bang rollout was never realistic,” Sullivan said.

The T now intends to pay Cubic $35 million up front, veering from the original plan of no down payment.

“It’s very clear that this is a troubled project,” said Dempsey, a former Massachusetts assistant secretary of transportation and former consultant at Bain & Co. He also led opposition to Boston’s bid to host the 2024 Summer Games and is the co-author of “No Boston Olympics: How and Why Smart Cities Are Passing on the Torch.”

“This is so big and complicated that they have bitten off more than they can chew,” Dempsey said of the MBTA project. “I’m not saying anybody did anything wrong, but it’s so massive that it needs more sets of eyes and it’s not getting the sunshine it deserves.”

By contrast, said Dempsey, the Green Line extension from Cambridge to Somerville — long-delayed and federally mandated as part of a mitigation settlement in the Big Dig megaproject — and South Coast rail service to New Bedford have gotten more public and media scrutiny.

“If something happens with the Green Line extension, the mayor of Somerville is all over it,” Dempsey said.

Project delivery and procurement challenges "have mainly been due to lack of experience with public-private partnerships," A Better City said.

Renaud said the incremental capital cost includes a $10 million benchmark interest rate movement contingency, as well as underperformance safeguards. Closing is expected in June, though it hinges on Cubic executing a refinancing to enable the T and the contractor to achieve a price below the authorized contract amount.

A spike in LIBOR or lending costs could jeopardize the financing, according to Renaud, who said the contract cost would not exceed estimates the control board received in June.

“The financial markets are volatile,” Renaud said.

The future of the control board itself provides a backdrop. Gov. Charlie Baker and state lawmakers formed the board in 2015 after a record 110 inches of snow in Greater Boston paralyzed parts of the T.

The board will expire on June 30 unless lawmakers act. If nothing happens, governance will revert to the 2009 reorganization under which the MBTA operates as a unit of the state Department of Transportation.

Baker had favored expanding the board to seven members, all appointed by him, while Boston Mayor Martin Walsh has been lobbying for city representation.

Then the pandemic hit, eclipsing everything else.

“With the coronavirus, we’ve not been able to have that robust discussion about the control board,” Dempsey said.

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Public-private partnership Massachusetts Bay Transportation Authority Infrastructure Massachusetts Transportation industry