February 2, 2012
In the first installment in our series on T fare hikes and services cuts, we look at how the T has found itself in its current fiscal straits. But first, we want to mark the passing of a giant figure in the history of our city, Mayor Kevin White. ABC chairman Larry DiCara served on the Boston City Council during White's tenure; over the weekend, he spoke to WBUR at Faneuil Hall (revitalized under White) about the impact the Mayor had on the landscape of the city.
The Massachusetts Bay Transit Authority was four years old when Mayor White first took office in 1968, but the origins of the T's current financial woes are more recent. Ironically, it was an attempt to make the T self-sufficient more than a decade ago that has left the agency with the structural deficit it faces today.
The Failure of Forward Funding
Up until 2000, the MBTA was funded in arrears by the state legislature: the T would provide service, and at the end of the year, the Commonwealth would pay the bill. In 2000, the legislature decided to implement "Forward Funding" for the T. The agency would receive one penny from the state's sales tax, but in return it would have to live within its means. For the first time, the T would have to balance its budget using money from the sales tax, the assessments paid by the cities and towns served by the T, and revenues from fares, advertising, real estate and other sources.
Forward Funding was supposed to get the T off the Commonwealth's books and make the agency lean and efficient. In practice, it put the T in a hole it's been struggling to get out of ever since. Sales tax revenues, which were expected to go up 3% every year, have instead limped along at around 1%. Expenses, especially energy, health care for workers and the cost of providing The Ride paratransit service, have far outpaced projections. The result? A structural gap in the T's budget.
"Born Broke": Saddled with Big Dig Era Debt
As part of Forward Funding, the T was granted the ability to issue its own bonds to pay for capital projects like buying new equipment. But as part of the deal, the Commonwealth shifted $3.3 billion in debt onto the T's books. The rationale was that this was debt accrued for public transit projects, including $1.8 billion for projects mandated by a legal settlement associated with the Central Artery/Tunnel project. Taking this so-called "Big Dig debt" off the T's books would save the agency over $100 million annually -- more than half of the current deficit.
Escalating costs and an underperforming sales tax made is very difficult for the T to balance its books on its own, but paying down this mountain of debt has made it virtually impossible. Ironically, Forward Funding and the Big Dig transit commitments -- both intended to strengthen
the public transit in Boston – have instead put the T in an untenable position. As our friends at the MBTA Advisory Board noted in a report on the T’s finances
, the agency was "born broke".
Transportation Reform: A Helping Hand, But Not Enough
Since Forward Funding, the T has managed to balance its budget by selling off nonessential assets and refinancing and restructuring its debt. These actions kept the agency in the black, but they made its finances worse in the long run.
In 2009, the Governor and legislature passed landmark Transportation Reform legislation, rolling the state's transportation agencies into MassDOT. At the same time, the legislature raised the state's sales tax from 5% to 6.25%, appropriating to the T an additional $160 million each year since. But even that extra help hasn't been enough to keep pace with the T's mounting deficits. Last year, the T closed its budget gap by selling bonds backed by revenues from its parking lots and garages -- creating new debt to pay off old debt.
Cost Cuttings: Important, but Not Enough
Some critics have complained that the T should lay off employees or cut salaries before asking riders to pay more. In fact, since 1994 the T has shrunk its workforce by about 670 employees, while actually increasing the amount of service it provides. The T has done this by shifting administrative workers into operational roles, and by pursuing efficiences like moving to single operators on Orange and Blue Line trains. It has also shifted employees into the state's group insurance plan, saving about $30 million. The deficit the T is trying to close for the next fiscal year was actually $185 million before the agency found $24 million in efficiencies. Cost cutting and reform are important, but they won't be enough to close the large gaps the T is facing.
Even the fare hikes and sevice cuts the T has proposed, as harsh as they are, only buy the agency a year, maybe 18 months. Unless we want public hearings about fare hikes to become an annual event, we need to come up with a solution for the underlying structural problem. And it’s not just the T; the pattern of underinvestment and overreliance on debt is just as bad or worse in our highway program. Overall, 45 cents of every dollar Massachusetts spends on transportation is going to pay down debt, while the backlog in needed maintenance projects is estimated to stand at over $1 billion
this year alone.
Despite its stark finances, the T is the only major transit system in America not to raise fares or cut service in the past 5 years. While it’s impressive that the T was able to spare riders during tough economic times, putting off tough choices has made the problem worse. Given the size of the problem, it's likely that fare hikes and service cuts will have to play some role in the solution. Next week, we’ll take a look at what a smart fare policy for the T might look like, and the week thereafter we’ll examine which services, if any, the T should consider cutting.