From Bad to Worse: MBTA Hurtles Toward Fiscal Cliff

Public transportation is on the verge of an "existential crisis," cities and towns that help fund the system, like Franklin, warned, as the MBTA moves ahead with a budget plan that actually drains its reserves in the face of a looming deficit.

A T subcommittee voted Thursday to advance a $3.02 billion fiscal year 2025 budget that would effectively empty the MBTA's savings to help drive up spending by 11 percent, leaving no bulwark against a nearly $700 million gap forecast to hit in the following year.

Shortly afterward, the MBTA Advisory Board -- an independent watchdog that represents the 176 cities and towns served by the T -- published an analysis of the spending plan with a stark warning about what's on the horizon.

"The riding public, cities and towns, and all stakeholders face terrible options if the MBTA's $696 million deficit is not closed in the next 13 months," the organization wrote. "This comes at a time when MBTA ridership has not returned, and analysis suggests that it is unlikely to return anytime soon given both a flattening of growth versus general expectations for recovery. The fear is that no action will take place, and service cuts will be the only available solution if the Authority is forced to solve its deficits internally."

MBTA officials have long struggled with available revenues that lag their spending appetite, and the trend has become even more pronounced in recent years as ridership stalls short of a full rebound and agency leaders embrace a hiring blitz they say is necessary to improve service.

Budget-writers were able to close several prior gaps by tapping into one-time funding, much of it federal pandemic relief. The latest plan, which still needs a final approval vote from the full MBTA Board of Directors, would draw down the remaining $307 million available in savings and use federal preventative maintenance formula funds to balance the operating budget.

MBTA Chief Financial Officer Mary Ann O'Hara said the agency will try to save another $93 million next year through a series of streamlining steps to provide at least a small foundation for fiscal 2026, when T estimates project a $696 million budget gap.

The Advisory Board, whose member municipalities will collectively contribute $193 million to the T next year, warned that without action, the service cuts and layoffs needed to save nearly $700 million "suggest an existential crisis for public transportation in Massachusetts."

Authors recalled a series of service cuts the MBTA implemented for a short period in 2021 -- early in the COVID-19 pandemic -- that slashed frequency and some commuter rail weekend trips.

They called those 2021 cuts, which produced significantly less in savings than the forecast for the upcoming deficit, "draconian."

"The service cuts required to close a $696 million deficit in 13 months are simply impossible to propose and still be considered a public transportation provider," the Advisory Board wrote. "To prevent these death-spiral-inducing actions, the MBTA Board urgently needs to begin discussions of financial restructuring to be able to plan rationally for the foreseeable crisis ahead."

The watchdog group said "external support" will be necessary to balance next year's budget, and suggested the current appetite for staffing up might not be sustainable.

"Although the need for more employees to safely operate the agency is clear, headcount must at some point, align with affordability," the report said.

MBTA Final FY25 Operating Budget Slides - June 6, 2024

MBTA officials have regularly lamented what they see as "disinvestment" in the system before Gov. Maura Healey took office, and they view hiring more workers -- an effort that is well underway -- as critical to fixing safety problems and improving service.

Leaders at the MBTA and the board that oversees them have grown increasingly vocal in recent months about structural factors they believe contribute to the agency's financial distress, including debt the T took on as part of the Big Dig.

One particular boogeyman has been the state's sales tax, which will be responsible for about $1.47 billion in T funding in fiscal 2025.

A 2000 policy often referred to as "Forward Funding" dedicated a portion of the statewide sales tax to the MBTA. O'Hara said that, at the time, officials expected that revenue would grow at an average of 6.46 percent to 8.5 percent per year. But it in fact has increased at an average rate of 2.29 percent per year.

MBTA Board Member Tom McGee on Thursday blamed "20-plus years of underperformance of the sales tax" for many of the current headaches.

"We need to talk about that over and over again so people understand," McGee, who previously co-chaired the Legislature's Transportation Committee, said. "The underperformance of the revenue that was dependent is really why we're here today. If we had that performance that we expected, we would not be in this place."

O'Hara replied, "I agree," adding that the T received $9 billion to $16 billion less in dedicated sales tax revenue over 20 years than initial projections suggested.

"We didn't just get here because we were spending money wildly. We got here because the [sales tax] performance didn't meet the expectations," McGee added.

MBTA officials have not laid out how they plan to close the forecast gap in the fiscal 2026 operating budget, discussions about which will begin in spring 2025.

Beacon Hill is highly unlikely to broach the topic of transportation financing until at least next year. Legislative Democrats have given no indication they are interested in reforms beyond additional MBTA funding they included in the annual state budget. Healey created a task force to review options, but the group's findings are not due until the end of the year.

One funding option they might tap already exists: a voter-approved surtax on high earners, whose revenue must be used only on education and transportation investments.

Collections of that revenue so far have blazed past the conservative expectations Democrats baked into their state budget. It's possible that Beacon Hill will soon have hundreds of millions of dollars available for capital and one-time education and transportation projects.