Pushing principal and interest costs out to future years has weakened the Massachusetts Bay Transportation Authority’s balance sheet, with an independent report released yesterday estimating the mass transit agency faces a cumulative structural deficit of $1.19 billion by fiscal 2014.
The MBTA’s debt service is projected to reach $525 million by fiscal 2014, compared to $342 million of principal and interest costs it paid in fiscal 2009, according to the report. The jump in debt service is due in large part to earlier restructurings that gave immediate relief to the agency at the time. From fiscal 2007 through fiscal 2009, the MBTA restructured $238 million of debt.
Along with earlier cost projections that underestimated energy, health insurance, and program costs, the report singles out the restructuring strategy as a contributor to the MBTA’s current and future fiscal woes.
David D’Alessandro, a former executive at John Hancock, compiled the review of the agency’s finances and infrastructure needs.
“Several studies have proposed that the debt the MBTA inherited from the state, and resulting debt service, are the primary reasons for the MBTA’s failure to thrive under forward funding,” the report said. “Yet as we learned, debt-service payments were much lower than projected over the decade because it was frequently refinanced and restructured. If any decision by the MBTA is worth second-guessing, it was the repeated deferral of principal and interest payments into a future that now looks even harder to fix, given the growing structural deficit.”
In 2000, officials implemented a forward funding plan where the agency would inherit $5.62 billion of state debt in return for a dedicated 20% of the state’s sales tax revenue. Overall, the MBTA’s annual operating expenses increased by 5% annually from fiscal 2001 through fiscal 2008, instead of decreasing by 2% per year, which was the expectation in the forward funding strategy.
Gov. Deval Patrick yesterday released the report and announced that he would not seek another fare increase to help boost the MBTA revenues. Earlier this year, the administration considered a potential 20% fare increase this winter to help meet operating costs. Over the past eight years, the agency has implemented three fare hikes.
“The MBTA will not seek and I will not support a fare increase for the next year or two, longer if possible,” Patrick said during a press conference regarding the report. “There is a lot of work that must first be done to regain the public’s confidence in this system. And that has to be done by stepping up the level of service and the reliability of service and assuring ourselves that we have the safety investments in the right priorities before we go to the public with any fare increases.”
The governor called for an immediate review of the MBTA’s backlog of state of good repair projects, which totals more than $3 billion in fiscal 2010, in order to re-prioritize projects to meet safety requirements. Of that $3 billion, MBTA has addressed $203 million this year, far short of the total amount.
“The MBTA would now need to invest $694 million each year in capital spending just to prevent the SGR backlog from growing further,” according to the report.
Jeffrey Mullan, secretary and chief executive officer of the Massachusetts Department of Transportation, will release the new priority list at MassDOT’s January board meeting. The MBTA is within MassDOT’s umbrella after most of the state’s surface transportation agencies merged together on Nov. 1.
The report estimates that the MBTA’s structural deficit will grow to $1.19 billion in fiscal 2014 from $230 million in fiscal 2011.
In fiscal 2010, lawmakers agreed to allocate $160 million to the MBTA to help close that year’s deficit. If the agency were to continue to receive such help each year from the legislature, that structural deficit would decrease, ranging from $70 million in fiscal 2011 to $550 million in fiscal 2014, according to the report.
