BATTERED BY A CORONAVIRUS pandemic that has slashed fare revenue and soured Beacon Hill on providing additional funding for new initiatives, the MBTA is facing a financial crisis worse than the one it encountered during the snowmageddon of 2015, according to a report released by the Massachusetts Taxpayers Foundation.
The business-backed financial watchdog said $827 million in federal aid is bailing out the T this fiscal year and next, but the transit authority is likely to face a $400 million deficit in fiscal 2022, which begins on July 1, 2021. Long-term, the foundation said, the T’s financial situation is unsustainable, with expenses expected to increase by an average of 4.7 percent annually through fiscal 2025 while revenues will grow far slower in the short term and just 2 percent annually from fiscal 2023 through fiscal 2025.
The Taxpayers Foundation said the T’s Fiscal and Management Control Board is set to expire on June 30, leaving behind a long list of important accomplishments. “But the Board also leaves a transit authority with a financial outlook that is arguably even more dire than the one it inherited five years ago,” the foundation said. “When the current FMCB took command in 2015, the MBTA was in crisis. As it exits, the MBTA is lurching towards another financial crisis, one that this time could prove existential.”
The Taxpayers Foundation praised the T for cutting costs, boosting revenues, and improving service over the last five years, but said the next board overseeing the T “will find it much more difficult, if not impossible, to realize savings without affecting current or planned service levels. Members of the new board face a daunting task. Nothing less than the future of the MBTA hangs in the balance.”
The foundation’s report leaves out some context for the T’s current predicament. Over the last several years, the T has upped spending to address safety concerns, make overdue repairs, and expand service. Some of that spending was predicated on increased legislative support for transportation, as evidenced by House passage of a roughly $500 million package of new taxes and fees in March and the governor’s support for a $1 hike in rideshare fees. Both measures foundered on Beacon Hill when the pandemic hit and the economy went into a tailspin.
The T now finds itself in a situation where spending is on an upward trajectory and revenues, particularly fare revenues over the next couple years, are way below normal. The pandemic increases uncertainty because there is no way of knowing when and if passengers nervous about COVID-19 will return to riding the T.
“In fact, the challenges ahead pose a far greater threat to MBTA operations than anything experienced to date,” the report said.
T officials and members of the Fiscal and Management Control Board are well of the problems the agency faces, but have not taken any major actions to address then, Aside from some belt tightening, the T has taken few steps to rein in costs, T officials have not laid off or furloughed any workers and are not planning a fare increase. They also are counting on the Legislature to let the agency use borrowed money to pay employees working on capital projects, cutting a $60 million cost from the operating budget. Legislative approval has not been given yet.
The Taxpayers Foundation identified five key cost drivers at the MBTA: personnel, collective bargaining agreements, pension fund obligations, debt service, and operating losses stemming from the Green Line extension and South Coast Rail.
Here is the Taxpayers Foundation’s assessment of each of the cost drivers:
Personnel – To address safety issues, provide new operating services, and up capital expenditures, the foundation estimated the T will need to add 500 employees.
Collective bargaining – Under union agreements, labor costs will rise an average of 2 percent a year.
Pension obligations – The pension system is stressed, with the number of retirees rising and revenues not keeping pace, requiring the T to pump more dollars into its pension system. The T’s contributions to the pension system have been rising 14.7 percent annually.
Debt service – To make planned capital improvements, the T plans to borrow between between $1.5 billion and $2 billion a year, adding roughly $15 to $20 million each year to its debt service costs.
Operating losses – Most T services operate at a loss, but the Taxpayers Foundation estimates the Green Line extension and South Coast Rail will increase operating losses by $49 million.