The basic problem is the mandate that the MBTA balance its budget. Although that sounds reasonable, the devil is in the details. And the details in this case are a sudden reallocation of additional state assistance towards capital projects rather than to offset legacy debt costs.
In 2015, Governor Baker's own "Special Panel" recommended using $187 million of additional state funding to help the MBTA balance their budget. The latest budget proposal from the MBTA still asks for $187 million of additional state funding - but now that money won't go to operations (and debt service) but rather to capital improvements.
Without that money in the operations budget, the MBTA has to cut costs in order to balance the budget. Eliminating weekend Commuter Rail service and expanded "Ride" services are two of the biggest line items being cut to balance the budget - and supposedly "allow" the $187 million to go towards capital improvements and not operations.
The solution is obvious: take some of that $187 million and put it back into the operating budget. Only $17 million of the $187 million is needed in order to save both weekend Commuter Rail service AND the expanded Ride services!
THIS SOLUTION DOES NOT REQUIRE ANY ADDITIONAL FUNDING FROM THE STATE. It simply reallocates state budget money already being earmarked for the MBTA.
Skip down to the end of this blog post for the details on how you can help to make this happen.
How did we get here?
As described in the aptly titled "Born Broke" report from 2009, when the "Forward Funding" law was enacted in 2000 the MBTA was burdened with $3.3 billion in debt. Much of that debt was related to the Big Dig - and that debt is even called out in the recent presentation regarding the budget (see page 48 here).
The law also required that the MBTA balance its budget using "own source revenue" (like fares, advertising, etc.) and a fixed share of the state sales tax. In many fiscal years, that hasn't worked out, and the state has had to allocate additional funding beyond those sources in order for the MBTA to balance their budget.
The conclusion of the Born Broke report sums up the situation both then and now: "The underperformance of the sales tax as a principal financing source and too much debt are the causes of the T’s structural weaknesses. Until these factors are addressed, no amount of reorganization, efficiencies, or reforms will allow prevent deficits in FY10 or in the future."
Hence the prediction in the Executive Summary of the Born Broke report that "without external assistance in the form of debt relief or new revenue the Authority will be forced to make draconian service cuts and impose dramatic fare increases."
We've already seen the dramatic fare increases. With the loss of the previous 'external assistance,' we're now on to the draconian service cuts.
The oft-cited D'Alessandro Report from November 2009 reaches much of the same conclusions.
Those reports are from quite a few years ago, what about now?
For many of the intervening years since "Forward Funding" was enacted in 2000 (both prior to and after 2009), the MBTA has been able to cobble together enough 'reforms,' revenue increases (fare hikes), and additional state funding to avoid drastic service changes. Some of those reforms - especially recent reforms - have been wholly positive and beneficial. These include the investigation and move to improve the parking revenue stream and the restructuring of debt in a fiscally responsible way (see page 8 here) among others. Other attempts, especially in the early to mid-2000's, were essentially shell games to keep the budget balanced while avoiding the larger real issues. Many reforms have been controversial - privatization of the 'cash room' and other services. Other reforms haven't made the headlines, but have affected many - "30% reduction in Corporate Headquarters/Administrative positions" (see page 14 here) for example (and then we wonder how designs like Auburndale slip through?).
In April 2015, Governor Baker commissioned a Special Panel to investigate the MBTA - primarily as a direct result of the disastrous winter of 2015. The report that was produced explicitly "rejects the ‘reform vs. revenue’ debate because the MBTA needs both."
Most of their proposed solutions were implemented - the Fiscal and Management Control Board was implemented as a result of the report. That report also laid the groundwork for the fare increase in July 2016.
However, one of their recommendations that wasn't implemented was that the Legislature should "Limit future General Fund operating assistance by purpose to cover (1) debt service payments (2) employee costs for staff moving off of the capital budget."
Huh? That's some mumbo-jumbo. Let's break that down. Since "Forward Funding" was implemented, it has never worked perfectly. In many fiscal years, the legislature has allocated additional money to the MBTA so that the MBTA can balance their books. That's the "General Fund operating assistance" being talked about. [The "employee costs for staff moving off the capital budget" is another fascinating story - essentially the MBTA was using capital funds to pay operating expenses. That's now been fixed.]
The Governor's Special Panel recognized that the FY16 "General Fund operating assistance" was $187 million. The 2015 report included this slide:
Doesn't that sound familiar? IT'S THE SAME CONCEPT RECOMMENDED IN BOTH 2009 REPORTS.
But alas, that's not what is being proposed with this year's budget. This slide from the March 13, 2017 presentation to the FMCB still includes a mention of the $187 million supplemental assistance - but instead of being used to pay down the debt, it is now allocated to capital improvements:
Although it is an admirable goal to set aside funding for capital improvements, reallocating the additional state assistance away from the operating budget means that SOMEBODY STILL HAS TO PAY THE BILLS - the "bills" being the debt service on the mountain of debt that the MBTA carries.
Enough Dave! I can't stand all this talk about debt and General Funds and State Assistance...
This is all backdrop to where we find ourselves today. The MBTA has set this goal of being able to balance the budget without using the $187 million towards operating expenses. How do they do they do that? The same way you balance your budget at home: reduce expenses.
So forget everything you're reading about operating subsides, ridership counts, and other factors related to weekend Commuter Rail Service. Elimination of weekend Commuter Rail service is intended to do one thing only: scrape up some cash to balance the budget and to make it appear that the $187 million in additional state assistance can be removed from the operating budget and allocated to capital improvements.
Let's dive into the details - but first, we need to make sure we're all on the same page:
Capital budgets vs. Operating budgets
Remember, capital expenses (building stations, the Green Line Extension, the purchase of red and orange line subway cars, etc.) are NOT part of the operating budget. The operating budget pays for operations - bus drivers, subway operators, and the Keolis subcontract among other things. So don't get confused when you hear that the MBTA isn't spending enough capital - they actually aren't spending all that they could in terms of capital funding. Some of that is due to the delay in the Green Line extension, but capital spending is a story for a different day (see slide 17 here if you want details on the capital spending problem).
Keolis is a subcontractor
Keolis, as the private operator of the Commuter Rail, has a contract to perform a service. As part of the contractual arrangement, they are paid on a monthly basis for the work performed. If the level of service that they are required to perform changes (for example, more or less trains on a schedule), then their compensation would change. This is an important fact that many folks don't understand. The MBTA sets the service level and implements policies. Keolis is essentially obligated to do what the MBTA tells them to do. Clearly they have nothing to do with the proposal to eliminate weekend service - it would reduce the payments they get!
Commuter Rail Revenue goes to the MBTA
Every penny of every fare collected by Keolis goes directly to the MBTA. Keolis does not 'keep' any of the revenue they collect - they are paid separately by the MBTA. Again, there are probably plenty of people who think that the compensation for Keolis is somehow tied to the fares collected. It just simply isn't true. The value of the payments to Keolis are independent of the value of the fares collected.
Most of the cost of weekend Commuter Rail service has already been paid for
Saving $10 million while cancelling 104 days of service doesn't seem like a great bargain because it isn't. The problem is that the only savings that can be recognized are the small incremental staff and fuel costs for weekend service. The other costs - rolling stock, infrastructure, and maintenance aren't affected enough by the reduction in weekend service. The rails and fleet of equipment still need to be maintained, and the reduction in 'wear and tear' isn't enough to change the price that the MBTA is paying for those long-term services.
Fine, just please tell me why Weekend Service is being cut!
By cancelling weekend Commuter Rail service, the MBTA projects that they can save $10 million. Presumably this value is from:
1) Lower cash payments to Keolis; but offset by
2) Lower revenue from weekend fare collection.
In other words, if you stop going out to dinner every weekend, you'll save the money that you would usually be paying the restaurant. But there is an offsetting cost - you still need to eat, so the cost of food that you're cooking at home offsets the savings. The savings CAN'T be the total of your restaurant bills. Same for Commuter Rail - there won't be any cost for running the trains on the weekend, but there also won't be any fares being collected.
There has been no explanation of how they are calculating the $10 million value - and we need it.
This page from the recent budget presentation shows how the $10 million works to close the projected $42 million budget gap:
On top of that $42 million deficit, they want to spend $7 million on strategic operations hires (why are they needed? see: Auburndale). That means that they have to find $49 million in cost reductions or additional revenue to get to a balanced budget. Each column on that chart represents an incremental move from the total $49 million deficit towards the balanced budget on the left.
Clearly the solution is to follow the recommendations of the Governor's own Special Panel in 2015: maintain additional state assistance to the operating budget for the purposes of payment of debt service. That 'frees up' funding that can be used to avoid making some or all of the $49 million in cuts to 'balance the budget.'
What? It's that simple?
Well, yes and no. Clearly it's that simple with regards to the reallocation of the $187 million of additional state assistance. But once I discovered this whole story, I realized it leads down lots of other paths:
1) With the MBTA typically not spending all of their capital funding, the $187 million allocated to the MBTA under this budget proposal could easily be 'taken back' towards the end of the fiscal year if it is unspent. That could help the administration balance the overall state budget if needed. Another shell game with MBTA money.
2) The idea of using the $187 million towards capital improvements allows the administration to claim that they are 'investing in the MBTA.' But it avoids what the 2015 Special Panel found was the REAL solution: Balance the MBTA budget with the $187 million of additional state assistance to the operating budget AND find NEW sources of ADDITIONAL REVENUE to provide the MBTA with funding for capital projects. Another shell game with MBTA money.
3) Highlighting the "subsidy" that is needed for various weekend Commuter Rail trips is not a valid measurement of the savings that can be achieved. Those "subsidy" values include a percentage of the fixed cost of the Commuter Rail network, which, as noted above, isn't a fair way to calculate the savings. Steve Koczela does the math that matters in this tweet and shows that the actual savings averages out to $6.24 per weekend rider. The MBTA presentation of subsidies that aren't real is another shell game with MBTA money.
4) Reform before revenue has failed. Every report that has been commissioned to look at the MBTA - including Governor Baker's own 2015 Special Panel - has reached the conclusion that the MBTA needs both reform AND revenue. As noted above, some of the recent reforms have been good - and some of the controversial and/or painful reforms are probably also good. But the idea that the MBTA can continue to balance their budget without new revenue AND avoid draconian service cuts has finally been proven false. Another shell game with MBTA money.
What do we do?
This is where it becomes very simple. If you want a world class transit system that isn't the only major Commuter Rail system that shuts down on the weekend, then DEMAND IT.
Remember that the MBTA is not a completely independent state agency. Clearly the MBTA didn't come up with this budget proposal that includes the idea of moving the $187 million around without participation from the corner office in the State House. So calling the MBTA isn't really what needs to happen.
Call your legislator and the governor's office (617.725.4005 or 888.870.7770) and let them know what you think. Here are my ideas for what I'm going to tell them:
1) Stop playing shell games with the MBTA budget.
2) Allocate at least some of the $187 million back to the operating budget so that weekend service and the Ride can be preserved.
3) Actually, allocate the full $187 million back to the operating budget so the MBTA can restore operations staff and systems to where they need to be while paying down more of the legacy and Big Dig debt.
4) Find new additional revenue sources for capital improvements for the MBTA, as recommended by Governor Baker's Special Panel in 2015.
Use this link to find the phone numbers for your legislator.