BusTalk

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T approaching dire financial straits

By Noah Bierman - The Boston Globe - December 14, 2008

While public debate and anger have been directed toward higher tolls and dysfunction at the Massachusetts Turnpike Authority, another agency - the one that runs buses, subways, and trains - could be on the verge of an even worse financial crisis.



New financial setbacks and grim projections have observers inside and outside the Massachusetts Bay Transportation Authority worried about large fare increases and cuts in public transit service over the next 12 to 18 months. One watchdog says the agency is near bankruptcy.

The head of the MBTA advisory board estimates the agency's deficit is on pace to hit $142 million in the 2009-2010 budget year, a year after budget managers depleted reserves and refinanced debt to stave off insolvency.

MBTA officials recently learned that the state sales tax is expected to see its biggest decline since the Legislature began using it to fund the bulk of the T's operations in 2001. That shortfall would not only leave the T without new money to cover contractually required salary increases, it would also force the state to kick in about $86 million more to keep the subsidy from dipping lower.

On top of that, the T, along with transit agencies around the country, is asking for federal backing to protect it from defaulting on financial deals that have threatened to unravel amid the nation's credit crisis.

Even as the T struggles to keep track of its long-term problems, other woes crop up seemingly on a daily basis. The T recently acknowledged that a controversial construction project in Copley Square damaged the historic Old South Church. The T said its contractor, J.F. White, will be responsible for the costs of the bungle, but the contractor has not taken public responsibility.

The Federal Transit Administration has also told state officials that the T's finances are so poor that it will not qualify for federal matching money on its biggest expansion project - a $1.5 billion Silver Line bus tunnel - until it can prove the system can afford its share of the new project without short-changing bus, subway, and train service.

Daniel A. Grabauskas, the T's general manager, has been looking anxiously at the transit woes facing other agencies around the country, hoping he does not have to duplicate the combination of substantial fare hikes and service reductions that many are considering.

"I sincerely hope not, when we're seeing boosts in ridership, historic ridership on the T," he said. "It would be a real shame."

Grabauskas said that if tolls go up as proposed, more people will probably flock to the T "looking for more, not less" transit service.

Governor Deval Patrick and legislators promise they are not ignoring the T as they discuss bailouts and other proposals for the state's transportation system.

"The step we're taking right now is really focused on the turnpike," said Bernard Cohen, Patrick's transportation secretary and the chairman of the MBTA board. But "we haven't, by any stretch of the imagination, forgotten about the MBTA."

But observers note that officials have provided few specific remedies for the T's problems.

"There's a tendency to sort of focus on the problem at hand," said Paul Regan, executive director of the MBTA advisory board, which represents the cities and towns that help fund the T. "We'll do the turnpike this month and two months later we'll be back doing the T. So you might as well fix it all at once."

Grabauskas said he has been encouraged by his discussions with Patrick and legislators. He expects the Legislature to consider changing the T's generous pension plans to save the agency money, as well as laws to limit how much plaintiffs can recover when they sue the T for negligence. But neither of those changes would be enough to solve the T's problems, and employee groups are working to fight the pension changes.

Every year, legislators file bills to have the state take over portions of the MBTA's debt - which is $8.1 billion, including interest - without success. The debate could become more serious in January, but so could the competition for money because of a declining economy and other struggling agencies.

The T has received a penny of every dollar of sales from the state sales tax annually since the 2001 budget year. At the time, officials expected the income to grow by a minimum of 3 percent a year. Instead, it has grown an average of 1.4 percent, leaving the T with $200 million less over that time than even the most conservative projections.

The T learned in a letter last month that the income is now expected to drop to about $86 million less than last year. The MBTA's funding law guarantees the state will dig into its general fund and other accounts to make up the difference, so the T will receive as much as it did last year. But the T's expenses are expected to rise, with inflation and a court-ordered salary increase for its unions. As he prepares for next year's budget, Jonathan Davis, the agency's chief financial officer, has also been to Washington to lobby for help with a complicated investment problem. In the 1990s, the T and other transit agencies were encouraged by federal officials to sell their train equipment to banks and then lease it back. The arrangement brought the T $53 million in upfront payments. In return, the private banks realized a tax benefit.

Now, the agency could face default if one of its insurers, Ambac, sees its falling credit rating decline further.

"I think we're in a difficult position, but we're working on it and we believe we'll come out with an appropriate result that won't be a detriment to the authority," Davis said.

As the issues continue to crop up, the T's board of directors has begun to ask more in-depth questions about the agency and declined to vote on expensive projects without more scrutiny. Newer members have been aghast at the crisis.

Transit advocates and watchdogs say the problems were laid out more than a year ago by a state commission that recommended specific but painful options to fix them.

"They're effectively headed to bankruptcy, so they're in desperate shape," said Michael J. Widmer, president of the Massachusetts Taxpayers Foundation and a member of that commission. "It makes no sense to deal with some major transportation reform and ignore the MBTA."

Noah Bierman can be reached at nbierman@globe.com.

© Copyright 2008 Globe Newspaper Company.

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Several factors have led to the build-up of these problems. As noted in the article, the dedicated sales tax revenues have fallen far short of expectations almost since the beginning and the state legislature has not found an alternate source of funding to supplement this. Labor costs have continued to rise at the agency, particularly the generous pension program that allows workers to retire after only 20 years. And the funding plan required the Authority to take responsibility for capital projects instead of the state, leaving it with a crippling debt burden today - by some accounts, the MBTA will soon be spending 30 percent of its annual budget to service its debt. Unfortunately, the state is in dire financial straits as well and will be forced to make hard choices to solve the MBTA's problems as well as its own budget shortfalls and issues. Things are going to get real ugly.