The Massachusetts Bay Transportation Authority is facing a combined budget deficit of more than $1.1 billion over the next five years – a figure that exceeds even the “bleak” estimates outlined in David D’Alessandro’s sobering 2009 report on the agency’s troubled finances.
According to an internal T budget document obtained by CommonWealth, a controversial plan to sell parking revenues to Wall Street would put the MBTA slightly ahead of D’Alessandro’s dire projections, but would still leave the agency grappling with a total of nearly $1 billion in deficits through 2016.
T officials declined comment on the new budget projections.
The red ink is not just a result of the T’s hefty debt load. It’s being driven, in large part, by explosive growth in operating accounts like health care, energy costs, maintenance on an aging fleet, and The Ride, which provides transit to the state’s disabled residents. Expenses are outstripping revenues across the board.
Costs associated with debt are rising, but the pool of funds available to service the T’s debt is shrinking rapidly, raising the likelihood that the T could become insolvent, absent dramatic cost-cutting and major revenue interventions like fare increases and/or new taxes.
In his 2009 report on the agency’s finances, D’Alessandro, the former head of John Hancock Financial Services, wrote that a private firm facing the mountain of red ink the T is staring down “would likely fold or seek bankruptcy.” He panned forward funding, the legislative mandate that pushed the T off the state’s books and demanded that it become financially self-sufficient, as an unrealistic plan that was destined to fail. He added that the T was facing a financial day of reckoning, and called its financial standing bleak.
Gov. Deval Patrick and MassDOT Secretary Jeffrey Mullan seized on the report’s dire safety warnings. At a press conference at the JFK T stop, Patrick vowed to increase spending on critical deferred maintenance projects. The governor didn’t specifically address the T’s budget problems, but he did install a new general manager, Richard Davey.
It turns out that even D’Alessandro underestimated the extent of the T’s financial woes.
D’Alessandro estimated that, between fiscal years 2011 and 2014, the T would pile up $550 million in red ink. According to an agency pro forma obtained by CommonWealth, the true figure is closer to $610 million. Cost-cutting and debt restructuring closed this year’s $67 million deficit, but it was a temporary fix. Next year’s gap currently stands at $127 million, and according to the T’s pro forma, the numbers only get uglier from there: Between 2012 and 2016, the agency is on track to spend $1.1 billion more than it takes in.
According to the T’s financial projections, without revenue from a parking securitization program, the agency’s annual deficit will approach $200 million in fiscal year 2013, and will eclipse $344 million by fiscal year 2016. Parking securitization would only lower those gaps to $156 million in fiscal 2013, and $308 million in fiscal 2016.
The bleak budget projections could become a political sore spot for the Patrick administration, which has preached the mantra of transportation reform before revenue for years. The administration has steadfastly refused to discuss the need for new T revenues, choosing instead to grapple with the agency’s structural deficit on a year-by-year basis. It’s likely that the sheer scale of the mounting deficits will force a reappraisal of that strategy, though. This year’s deficit represented 4 percent of the T’s revenues. By fiscal 2016, it’ll be 20 percent – a figure that puts into context the scale of cuts that could be required if Beacon Hill doesn’t cut the T in on some significant new revenue sources, like fare hikes or a fatter slice of state sales tax receipts.
Budget deficits are projected to explode because several line items are growing far more quickly than the T’s revenues. Between fiscal 2011 and fiscal 2016, the T anticipates revenues rising by 8 percent. By contrast, it expects operating expenses to jump by 25 percent. Health care costs will rise by 40 percent, energy costs by 56 percent, maintenance costs by 64 percent, and subsidized local services, such as the Ride, by 67 percent.
The narrative around the T’s poor fiscal health has largely centered around its high debt costs, but the internal pro forma shows an agency drowning in everyday bills, not capital costs. Between fiscal 2011 and fiscal 2016, the T anticipates operating expenses climbing by 25 percent, versus a 22 percent increase in debt service costs. The parking securitization plan, which would generate roughly $300 million in up-front income for the agency, would dramatically slow the growth of the T’s debt service expenses. However, it would have virtually no effect on the agency’s overall budget. The T projects that, if a parking plan were approved, it would cut budget deficits from 2012 to 2016 by less than $200 million, leaving the T with $975 million in red ink to grapple with.
The dramatic 25 percent leap in the T’s operating budget should prove worrisome because it’s leaving the agency with an ever-shrinking pool of funds to use to service its mounting debt costs. In the current fiscal year, the T uses 75 cents of every dollar it brings in to pay its operating bills, leaving 25 cents to cover its debt. By fiscal 2016, the T anticipates spending 87 cents of each revenue dollar on routine bills, leaving just 13 cents per dollar – half of what it spends today – to cover a debt service tab that has nowhere to go but up.
