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BHI's MBTA study: Derail budget buster |
from NewsLink, Vol. 3, No. 3, Spring 1999
After decades of signing a blank check for the Massachusetts Bay Transportation Authority, the Commonwealth is planning to change the way taxpayers are charged for public transportation. But will these changes be enough? A new BHI study, Financing the MBTA: An Efficient and Fare Solution, raises doubts that they will.
For years, the MBTA has simply billed the state for rapid transit, bus and commuter line services it has provided to commuters in 78 communities. And, each year the legislature has paid the bill, asking few questions about cost containment, efficiencies and user fees.
The method, called “backward funding,” is one reason why the MBTA is known as a perennial “budget buster.” With backward funding, MBTA management has little incentive to bring costs into line.
Attempts to bridge the gap between revenues and expenditures have been minimal. Fares were last raised in 1991. Years later when the Weld Administration's blueprint for privatization proved to be politically unpopular, the MBTA's financing problems left the collective radar screen.
And so the T chugs along on a budget that now approaches $1 billion per year, of which only about 17% is derived from fares.
Now, however, even supporters of public transportation have, in effect, declared, “This is no way to run a railroad.” That's because the state faces a debt ceiling imposed by expenditures and commitments to the Central Artery/Tunnel project and other brick and mortar efforts. While bridge and toll road drivers and taxpayers are called upon to sacrifice to alleviate this crisis, the MBTA and its users continue to enjoy an almost free ride.
Shouldering the MBTA's burden isn't good for the state's bond rating. By Wall Street's account, the more the T borrows, the less the state can borrow for other projects without impairing its bond rating.
Is forward funding the answer?
The new phrase on Beacon Hill is “forward funding,” which means that the T will no longer have the luxury of billing the Commonwealth for services provided for the prior 18 months. In addition, the legislature wants to raise fares, dedicate 20% of the state's sales tax to the MBTA and assess charges upon another 97 communities that indirectly benefit from the transit agency.
Forward funding is a move in the right direction. However, forward funding doesn't address the real issue: the MBTA needs to be put on a budget. By guaranteeing a revenue stream that bears no relation to costs or usage, the legislature is simply substituting one flawed budget practice for another.
An efficient and fare solution
Consider the following:
• The MBTA could save $58.87 million in FY 2000 operating costs by increasing efficiency to levels achieved by comparable transit authorities and without sacrificing service.
• Massachusetts taxpayers pay on average $203 per year each to subsidize the MBTA, whether they use the system or not. The total state subsidy is $608 million. That comes to about 8% of the average taxpayer's tax bill.
• In 1997, the MBTA paid 3,600 of its 6,000 workers on average 65% more than other Massachusetts employers for workers in certain comparable occupations.
• The MBTA pays as much as 52% more than other transit authorities pay the same workers. It pays a “Delivery Person” $21.85/hr, compared to $14.38/hr by the Maryland Transit Authority and $15.69/hr by the New Jersey Transit Corporation. It pays a “General Helper” $19.83/hr, compared to $16.23/hr by the New York Transit Authority under its contract with the Transit Workers Union, Local 1056.
• The MBTA devotes a comparatively large share of its budget to administrative costs (20%) and to fringe benefits (31%).
• The MBTA charges one of the lowest fares in the nation. Subway fares are on average 38% below those charged by comparable authorities and bus fares are 55% lower.
• The state effectively subsidizes 100% of MBTA debt service, which, since 1980, has increased from 11% to 35% of the MBTA's total budget. Since the mid-1980s, the MBTA's reliance on state funds has risen from 40% to 65% of its capital expenditures.
• Adjusted for inflation, the MBTA's deficit increased 1060% from 1964 to 1999 or at an annual rate of 7.25%.
• In 1997, the MBTA made 3.8 times as many bus trips as all of the state's regional transit authorities combined. Yet, the state subsidy was 6.19 times higher for MBTA bus operations than for RTA bus operations. The MBTA subsidy per trip was $1.54; the RTA subsidy was $.94.
• MBTA reform would free up public funds for other projects. The MBTA could, by increasing efficiency and making reasonable fare increases, save the state $217.24 million in subsidies permitting it to fund an additional $2.66 billion in capital projects.
BHI released its year-long study in May. In it, BHI suggested MBTA efficiencies and budget reforms that could save Massachusetts taxpayers millions of dollars per year.
Under BHI's proposal, the Commonwealth would reduce the FY 2000 MBTA subsidy from a projected $623.50 million to $406.26 million. This $217.24 million saving would permit the state to finance an additional $2.66 billion in new infrastructure spending.
The share of MBTA operating expenses subsidized out of state funds would be brought in line with that for a “peer group” of eight comparable transit authorities. The share of MBTA debt service paid by state funds would be reduced by 25% to reflect the decrease in federal funding.
The MBTA would maintain existing service levels by raising fares and by increasing cost efficiency to a level comparable to that of the peer group. Fares would rise by 124%, with bus fares rising from $.65 to $1.35 and subway fares from $.85 to $1.90. In order to raise the revenue needed to compensate for the reduced subsidy, the MBTA would reduce costs by $59 million per year. Then, the MBTA would begin to operate more as a business and less as a system of entitlements for its employees and users.
Far from being draconian or mean-spirited, such reforms would simply require the MBTA to achieve levels of efficiency and self-reliance already achieved by comparable transit authorities in Massachusetts and other states. It would create efficiency and a fare structure that would be, for once, fair to taxpayers.
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