MBTA CFO Calls Next Two Annual Budget Gaps “Resolvable”

MBTA CFO Calls Next Two Annual Budget Gaps “Resolvable”

Reserves, One-Time Funds Patch Serious Budget Woes

(Source: State House News Service)

Chris Lisinski, 11/16/22 5:21 PM

NOV. 16, 2022.....A flurry of one-time funding injections improved the near-term financial outlook for the MBTA, but with costs growing more quickly than revenues and a still-undetermined amount of spending required to comply with federal orders, that optimism might not last long.

MBTA budget writers announced Wednesday they now expect operating budget gaps on the horizon will not erupt until at least fiscal year 2025, a year later than previously projected, and might in fact hold off until fiscal year 2026 if fare revenues rebound.

But there are several catches. The new expectation for a balanced budget in FY24, which starts in July, stems from deployment of reserves that will soon be depleted rather than from more durable financial improvement. T officials expect spending to swell more quickly than revenues, fueled by marquee expansions such as the Green Line Extension. And the latest five-year estimates do not factor in all of the costs the T will incur as it scrambles to address safety failures and staffing shortages in the wake of a stinging Federal Transit Administration investigation.

"Each year, we are losing ground on the budget balance as spending ramps up to fully include all of the new service and improvements," MBTA Chief Financial Officer Mary Ann O'Hara said at a T subcommittee meeting Wednesday. "All of those new initiatives expect to carry recurring expenses year after year."

So far, the T has absorbed operational cost growth using available revenues and reserves, but O'Hara cautioned that practice "is not sustainable."

The MBTA long struggled with structural funding problems, and the COVID-19 pandemic -- which decimated transit agency budgets across the nation -- only exacerbated them. O'Hara said fare revenue, which previously made up roughly a third of the T's operating revenue, dropped by more than 75 percent between FY19 and FY21.

Riders have been slow to return in the past two and a half years. In September, the T collected only about 51 percent as much fare revenue as its pre-pandemic baseline, O'Hara said.

Officials do not expect fare revenue will completely recover in at least the next five years. In the most optimistic of three ridership models, fare revenue in FY28 would be about 93 percent as much as before COVID; in the most pessimistic, the FY28 fare revenue projection is only 69 percent of pre-pandemic amounts.

Another major cost is not included in the latest estimates, which could reshape the outlook. The figures O'Hara presented Wednesday take into consideration four safety directives the FTA issued in June, when federal investigators ordered immediate fixes to glaring problems such as a stretched-too-thin dispatcher workforce, but do not include directives in the FTA's final report published Aug. 31.

To comply with the FTA's August findings, the T must make substantial changes to staffing, safety management, internal communications, and operating conditions and policies.

Federal officials estimated the T might need another 1,500 to 2,000 employees to properly and safely manage its services, more than a third as many workers as the MBTA currently has on its payroll. Hiring up to address that point alone could add tens of millions of dollars or more in annual costs.

O'Hara said MBTA staff are still working through how an agency-wide workforce assessment and other actions responding to the FTA's final report will affect the five-year budget forecast.

"All that being said, we do believe the budget gaps for fiscal years '24 and '25 are resolvable," O'Hara said.

That near-term improvement is due in large part to better-than-forecast state sales tax collections -- a portion of which goes to the MBTA -- and agreement between lawmakers and Gov. Charlie Baker to steer hundreds of millions of one-time dollars to the beleaguered T.

Baker signed a closeout budget last week that will send the MBTA another $112 million, adding to $266 million in the fiscal 2023 state budget and $400 million in bond authorization the T can tap under an infrastructure borrowing law.

The latest "pro forma" estimates O'Hara and her team presented forecast a balanced MBTA budget in FY24 thanks to availability of one-time federal and state dollars.

If the trend in ridership growth follows the most pessimistic projection, the T could face an operating budget gap of $139 million in FY25, but if passengers return in higher numbers, the gap might not open until FY26. By FY28, O'Hara forecast the T could face a shortfall between $365 million and $543 million.

"I am delighted that the sales tax revenue is as robust as it is and that the federal dollars are available," said MBTA Board Chair Betsy Taylor. "Having said that, the fact that we are draining all our reserves and the available federal dollars for operating expenses means that they are not available for capital."

Although they have sent massive sums of cash toward the T, lawmakers have shown little interest in tackling thornier questions about the agency's long-term funding outlook and recurring sources of revenue.

The House in early 2020 approved a package of tax and fee increases designed to generate hundreds of millions of dollars per year in money for transportation needs, but it died without a vote in the Senate and legislative leaders since then have made no effort to return to the topic.

Problems at the MBTA loom as one of the most pressing issues Gov.-elect Maura Healey will need to address when she takes office on Jan. 5. She'll also need to pick a top deputy to oversee that work with MBTA General Manager Steve Poftak set to step down on Jan. 3.

MBTA officials plan to present the budget projections for additional discussion at a full board meeting on Thursday.

-END-
11/16/2022

Serving the working press since 1894
http://www.statehousenews.com