THE MBTA OVERSIGHT BOARD raised concerns that pension costs at the transit agency are spiraling out of control, and called on unions and management to come to some accord to rein in spending.
Paul Brandley, the T’s chief financial officer, updated the Fiscal and Management Control Board on the agency’s spending and revenues through the first quarter of fiscal 2019. He said revenues were down nearly $10 million from forecasts, mostly offset by savings on the spending side and a $6.5 million increase from investment income and a legal settlement. But he raised serious concerns about where pension spending is headed.
He said pension spending was budgeted at $97 million for fiscal 2019, but that number had to be increased to $103 million after the pension board lowered its estimate of investment returns from 7.75 percent to 7.5 percent. Brandley also ran some projections for 2022 which indicated costs would rise to $112 million if investment returns hold steady but could go as high as $137 million if returns tank.
Brian Shortsleeve, a director of the control board and a former general manager of the agency, said the pension costs are rising at an alarming rate. He said the cost was $74 million in 2015. If pension costs rise to $112 million in 2022, he said, that would be a 51 percent increase in seven years. Shortsleeve said he feared the numbers could rise much higher because of recent downturns in the stock market.
“If you look at the trend line, I think it’s entirely unsustainable, if that’s where it’s headed,” Shortsleeve said.
Jimmy O’Brien, the president of the Carmen’s Union, the T’s largest union, said the transit authority created the problem it is now fretting about by shifting employees from the payroll to retirement. He noted Monday’s budget update indicated regular wages were $7 million below projections in the first quarter, in part because the T has been cutting payroll through outsourcing, privatization, and early retirement incentives. All of those efforts increase the number of retirees taking advantage of pension benefits, he said.
“You can’t have it both ways,” he said. “They created the problem.”
Brian Lang, a control board director and the head of a union, said it’s in the interest of management and unions to come to some agreement to reduce costs. He said the MBTA’s unfunded pension liability is so high that, if it were a private business, the government would step in and order changes.
“That’s a very dangerous situation for the pension system to be in,” he said.
Lang said there is a way forward to save worker pensions, but he said both management and unions have to find a way to reduce costs, including lowering payouts to retirees. “As a union official who thinks about my own members, it’s incumbent on union leaders to sometimes do difficult things to help the membership in the long run,” he said.
Brandley said 23 percent of the agency’s payroll costs now go toward pensions, a percentage that state Transportation Secretary Stephanie Pollack said was too high. “This is a risk to the T budget, but more importantly it’s a risk to our workforce,” she said.
In his budget presentation, Brandley said fare revenue in the first three months of the fiscal year was down $3 million from projections and parking and advertising revenue was off $5 million. Spending was also higher than expected on commuter rail ($1.1 million) and the T’s paratransit service ($2.5 million). On the flip side, a program to wring productivity savings out of operations cut spending for materials and services by $5 million. The goal of the productivity initiative is $30 million across the agency over the course of the year.
