GOV. MAURA HEALEY earlier this week set in motion an effort to revamp the way transportation is financed in Massachusetts, and the MBTA on Friday provided the perfect case study for that effort as T officials warned the agency is about to head over a fiscal cliff.
In her State of the Commonwealth speech on Wednesday, the governor said she wasn’t going to kick the can down the road any longer and wanted to chart a new course for transportation financing in the clean energy era.
Right on cue, T officials delivered a series of presentations to the finance subcommittee of the MBTA board that showcased 24 years of inadequate investments in the transit authority, culminating in the forecast that the agency is now headed for many years of mounting operating deficits. The solution, according to the presentations, is for the Legislature to approve new taxes and fees to support the T.
The walk down memory lane started in 2000, when Beacon Hill policymakers decided they were no longer going to let the T spend money and then pass the bill on to the Legislature. Instead, lawmakers created a forward-funding structure that provided the T with several funding sources, a slice of the state sales tax being the primary one, and told the authority to live within its means.
But the T didn’t start with a clean balance sheet. It was also saddled with $3.5 billion in existing debt and $1.5 billion in debt associated with projects mandated as part of environmental mitigation for the Big Dig. The interest payments on this inherited debt — $8 billion in all over time — acted like a drag on the agency, which was facing other headwinds as sales tax revenues came nowhere near forecasted levels.
Sales tax revenues had been forecasted to grow at a pace somewhere between 6.5 percent and 8.5 percent; instead, they grew at a rate of 2.29 percent, leaving the agency with $9 billion to $15.5 billion less than expected over the 23-year period, according to T estimates.
The financial setbacks didn’t stop there. Assessments on communities in the MBTA service area went down, not up as a percentage of T expenses. Fares went up, but slowly. Even as revenues were sluggish, the agency kept expanding, which only put more pressure on the operating budget.
“The concurrence of these two factors (legacy debt and underperformance) has led to constrained operating budgets and capital efforts to maintain a state of good repair, resulting in the projected operating deficits for the next five years and beyond,” the T said in its historical analysis of funding.
Tom McGee, a member of the MBTA board, also drew a line from decisions made in 2000 to the situation the T finds itself in today. “There was a long road to get us to where we are today,” he said.
The T today finds itself in a precarious situation. Under Healey and MBTA General Manager Phillip Eng, the T is spending far more than it is taking in, and spending is accelerating as more employees are hired under recently negotiated generous union contracts that pay a lot more.
With ridership growth forecasted to be negligible and sales tax revenue uncertain, the T is forecasting 1 percent average annual revenue growth over the next five years. Expenses, by contrast, are expected to grow by an annual average of 4.8 percent over that period. Ferry costs are forecasted to rise 8.1 percent, paratransit 6.9 percent, wages 5.8 percent, and overtime 5.3 percent.
New expenses are on the way. South Coast Rail is expected to open later this year and the T, following a mandate from Healey, said it plans to roll out a half-price fare for low-income riders in March that will cost $25 million in fiscal 2025, which begins July 1, and $62 million annually at full rollout in fiscal 2029.
T officials had been hoping they could get through the coming fiscal year using leftover federal aid, but on Friday they conceded that isn’t likely to happen. Even using more than $300 million in remaining federal funds, the T is forecasting a deficit of $182 million in fiscal 2025. Annual deficits are expected to mount in the following four years, topping out at $859 million in fiscal 2029.
“While we have certain mitigation measures we are considering along with the welcome support of the governor to address fiscal 2025, we are staring at the fiscal cliff,” said Mary Ann O’Hara, the T’s chief financial officer.
Speculation is that the budget proposal Healey is releasing next week will cover the T’s forecasted deficit for the coming fiscal year using money from the 4 percent surtax on income over $1 million. Beyond that, she needs to come up with a lot more money to pay for the expensive overhaul of the T being performed by Eng.
O’Hara drew attention to a chart in her presentation that indicated many peer transit agencies are grappling with deficits. Her presentation indicated those transit agencies with legislatures willing to pour a lot more money in are faring well, while those without such support are faring poorly.
“Peer transit agencies with significant legislative support, such as the Metropolitan Transportation Authority [New York], have leveraged new revenue sources such as payroll mobility taxes, fare increases, and gaming license revenue to create future year surpluses for investments in safety & service,” the presentation said. “Agencies without legislative support, such as the Washington Metropolitan Area Transit Authority, are proposing up to 60 percent service cuts to balance their FY25 budgets.”
The message was clear: the Massachusetts Legislature needs to step up with a lot of new funding.
Tom Glynn, the chair of the MBTA board, said he recently met with Rich Davey, who heads the New York City transit agency. Glynn said Davey’s approach in New York was to travel the state preaching the virtue of public transit to win passage of eight funding initiatives. Those initiatives, according to the T’s presentation, will leave the Metropolitan Transportation Authority with a $1.6 billion surplus in fiscal 2025 and a $2 billion surplus in fiscal 2026.
In case lawmakers on Beacon Hill needed some direction, the T surveyed the fundraising initiatives being tapped by transit agencies across the country and included them in O’Hara’s presentation. The big one in New York is a transportation mobility tax, assessed on employers and the self-employed. The Metropolitan Transportation Authority is also counting on casino revenue assessments, corporate tax increases, and fare and toll increases.
In other states, new payroll taxes, sales taxes, vehicular fees, driver’s license fees, congestion charges, real estate transfer taxes, and traffic violations are all under consideration.