The Pioneer Institute’s Statement on the MBTA

The MBTA is broke and broken.  It is structurally insolvent.  Breakdowns and late arrivals are, indeed, unacceptable, but the bulk of the T’s troubles are not about Dr. Beverly Scott, who resigned yesterday as general manager.  They are, in fact, the fault of multiple administrations and legislatures, as well as advocates who pushed the MBTA to expand faster than is reasonable – and without adequate funding to undertake, operate or maintain the projects.  More immediately, they are the fault of the MBTA’s board, which is ultimately responsible to Massachusetts residents for the T.  The board’s job is to uphold the public trust and ensure the good operation and management of the transit authority.  They did not do that.

• Over-expansion. The state has expanded the MBTA more than any other major transit system in the country over the last 25 years, even though it serves a relatively slow-growing metropolitan area.  For example, the state committed the T to unreasonable projects like the Greenbush commuter rail line, which was built at a cost of $600 million with no federal participation and is attracting a negligible number of riders who are new to transit.  Many are still pushing the T to build commuter rail service to the South Coast at a likely cost of $2.2 billion, even though inadequate ridership is projected.  The MBTA itself has acted recklessly; most recently purchasing the rail rights between Boston and Foxborough at a time when the Authority lacks funding for basic infrastructure maintenance.
• Irresponsible oversight & management.  The MBTA has not taken maintenance of its current infrastructure seriously enough.  The recent bidding process for a commuter rail operator was opaque, leading to an immediate winnowing from more than 20 potential bidders to just two.  The contract length is not nearly long enough to generate investments in equipment.  Regarding the subway system, newspaper reports note that the T has “failed to file reports detailing the troubled system’s needs for at least five years – and have yet to get a new database up and running to track maintenance costs.” The board’s complacency on this issue is unforgivable.
• Headcount growth in hard times. According to the state’s own transparency website, OpenCheckbook.com, headcount at the T, even in difficult times, has increased by 900 since 2012.  Since 2001, total compensation costs nearly doubled.
• Reckless oversight of the MBTA pension system. The T has significant unfunded liabilities related to its retirement plan (MBTARF).  The unfunded liability has increased from $111M in 2008, when the MBTARF was 94% funded, to $855M in 2012 (the last year for which data are available).  That represents a 31 point decline, to only 63% funded.

 

In some ways, it is surprising that it took this storm to draw attention to the T’s failings, which are only partially related to funding.  Fixing them and making the T a high-functioning transit system will require emergency action.  Here is why:

It is well known that the T relies on a substantial state subsidy to sustain operations.  Some of its current operational failures are due to the state imposing expansion projects-the so-called “Big Dig Mitigation” projects, which account for almost half of the MBTA’s $5 billion debt. That said, the T is currently funded at a substantially higher level than at the time of the 2000 “forward funding” promised reform.  Today, the operating funds forward funding promised are finally being delivered.

Forward funding was premised on an assumption that sales tax revenues would rise approximately 3 percent per year.  While the T was underfunded from 2001 to 2009, two significant changes have taken place since 2009.  First, the state increased the MBTA funding by increasing the sales tax in 2009 and then raising the gas tax in 2013.  As a result, the T’s revenue grew from just over $1.1 billion in 2001 to over $1.9 billion in 2014, an annual growth rate of 4.2 percent.

Pioneer Institute believes it is time for emergency legislation to fix the MBTA, and that the legislation should take two concrete steps:

First, place the MBTA in receivership, removing the power of the MBTA Board and establishing a receivership board.  Such an action would follow the successful models employed in Chelsea and Springfield. Under the latter, the secretary of the Executive Office for Administration and Finance created a finance control board, which did not adversely impact collectively bargained rights. Both receiverships balanced municipal budgets and streamlined operations; in the case of Springfield, the city addressed a $41 million deficit in 18 months.  Both cities earned higher bond ratings as a result.

At a minimum, give the receivership board the powers to:

1. Halt all expansion planning and construction except for the Green Line extension, which is too far along to stop.  As Federal Transit Administrator Peter Rogoff noted while in Boston in 2010: “If you can’t operate the system you have, why does it make sense for us to partner in your expansion?”
2. Emphasize the purchase and placement into operation of new cars, signalization, switch heaters, and other maintenance and repair upgrades.
3. Restructure the bus service.  In 2012 during public debates over how to close a $161 million budget gap, the T rolled out contingency plans that would have made cuts to less frequently used bus routes.  While controversial, the scenarios demonstrated that many lines have very few riders.  The T should have the flexibility to engage small-vehicle private operators to ensure that those who need service can get it without engaging a full bus at the full cost of an MBTA driver.
4. Reinstate management rights enacted through amendments tothe MBTA’s enabling legislation in 1980 when the T faced a previous crisis. MGL c.161A. Section 8 of c.581 (codified at MGL c.161A, Section 19) made certain matters inherent management rights and not subject to collective bargaining.
5. Notwithstanding any limitations, establish performance metrics that can be used as benchmarks for accessing financial incentives (discussed in section 3 below).
6. Sell all monetizable real estate assets and direct the revenues toward capital improvements.
7. Re-open procurements, where appropriate, with an eye toward shifting risk to vendors.
8. Seek flexibility from federal and state legislative mandates on the T, such as Buy America provisions and the federal government’s overly prescriptive safety regulations, which extend production times, increase operating costs, and far surpass anything required in Europe.

 

Second, combine receivership status with debt relief and strict controls on hiring.

1. Have the commonwealth assume portions of the debt load associated with the Big Dig mitigation projects in a way that builds MBTA accountability.  Assuming a portion of the debt associated with the mitigation projects will create breathing room in the T’s operating budget by reducing the percentage of operating funds going to debt service.  This action might help the Authority further improve its bond rating and save money on future borrowing (currently Aa2 rated by Moody’s).  Pioneer believes that such a process should be undertaken gradually:

• Engage an independent firm to conduct a full audit of all existing mission-critical transportation assets of the MBTA and rank assets based on their ability to improve on-time performance, reliability and public safety. Determine the cost to bring each of the assets identified to a state of good repair.
• The state should immediately (2015) assume 25% of the debt load associated with Big Dig mitigation projects.  The approximately $50 million in operating dollars this action would free up must be spent on the assets identified above based in the order ranked.  Having a receiver in place is essential to making that happen.
• If and when in 2016, 2017 and 2018, the T meets performance benchmarks set in legislation, allow for the state to assume additional debt load associated with the mitigation projects.

 

Put strict safeguards in place so this money does not get consumed by additional payroll or expansion project planning or implementation.

Financial Position for the MBTA

Amounts derived from the MBTA’s website, audited financial statements and other.
Dollars are in 000’s

	2014	2001	VARIANCE	%
REVENUE
MBTA revenue (fares and other)	$         643,389	$       319,800	$        323,589	1.01
STATE SUBSIDIES
Dedicated sales tax	799,295	654,581	144,714	0.22
2009 sales tax increase allocated	160,000	-	160,000
2013 increased allocation	115,200	-	115,200
Total state subsidies	1,074,495	654,581	419,914	0.64
Local assessments	157,206	144,554	12,652	0.09
Other income (interest & other)	52,076	12,951	39,125	3.02
TOTAL REVENUE	1,927,166	1,131,886	795,280	0.7
EXPENSES
Compensation and benefits	804,086	414,900	389,186	0.94
Depreciation	381,966	201,932	180,034	0.89
Materials	214,340	131,461	82,879	0.63
Commuter railroad operations & other	496,479	202,252	294,227	1.45
Interest expense	278,057	184,159	93,898	0.51
Other	24,853	14,939	9,914	0.66
Total expenses	2,199,781	1,149,643	1,050,138	0.91
Loss	(272,615)	(17,757)	(254,858)	14.35
Additional grants (primarily federal)	502,722	136,834	365,888	2.67
INCREASE IN NET POSITION	230,107	119,077	111,030	0.93
DEBT SERVICE	$         443,000	$       344,238	$         98,762	0.29
LOSS BEFORE STATE SUBSIDIES	$  (1,347,110.0)	$    (672,338.0)	$    (674,772.0)	100%