BOSTON - The MBTA’s Fiscal and Management Control Board (FMCB) today adopted an FY18 MBTA operating budget that continues the progress made by the FMCB and MBTA management over the last two years to sharply reduce the MBTA’s operating deficit.
The $1.989 billion FY18 operating budget, which is slightly lower than last year’s spending plan, has a structural deficit of $30 million. While still out of balance, the operating budget approved today carries a structural deficit that is nearly ten times smaller than a projected FY18 operating budget deficit of $335 million identified twenty months ago when the FMCB and new MBTA leadership were put in place.
“We still face serious challenges, but we can also report significant progress, more than many people thought was even possible,” said MBTA Acting General Manager and Chief Administrator Brian Shortsleeve. “We owe it to our riders to keep making the tough decisions necessary to position the T for long-term sustainable success.”
In today’s action, the FMCB directed MBTA staff to identify additional savings totaling $12 million from the FY18 operating budget proposed earlier this year, mainly from additional savings in current costs for bus maintenance and the MBTA’s paratransit service, The RIDE. The FMCB also called for MBTA staff to produce $5 million in FY18 commuter rail savings.
The FY18 budget deficit of $30 million will be largely covered by borrowing from the $187 million in additional assistance provided to the MBTA by the Legislature this year. Of that $187 million, $150 million is set aside for capital investments to improve MBTA reliability.
The FMCB and MBTA management have continuously worked toward balancing the operating budget through a combination of internal cost controls and increases in own‐source revenues. Operating expense growth has been held to zero for the past three fiscal years for the first time in MBTA history.
Processes have been put in place to improve the fiscal outlook and put the MBTA on a path to fiscal sustainability. Increasing own‐source revenues through advertising, real estate, and parking is projected to rise 70 percent from FY15 to FY18. Real estate development programs have also been accelerated to continue to grow revenue.
Additionally, all available debt has been restructured and refinanced, resulting in $35 million in operating savings in FY18P with the MBTA on track to pay down more than $470 million of principal in FY17 and FY18, reducing the debt balance to $5.1 billion in FY18.
The MBTA was granted a three-year waiver from the Pacheco law as a tool to balance its operating deficit, resulting in a number of flexible contracting actions approved by the FMCB and implemented within its first eighteen months. The MBTA’s cash processing operation was contracted to Brinks for ten years with an operating and capital savings of $96 million and a dramatic improvement in operations (80 percent reduction in time to deposit from 120+ hours to twenty-four hours or less). Significant savings and operational improvements have also been achieved as a result of partnering with the private sector for the T’s warehousing operations.
The landmark agreement with the Boston Carmen’s Union Local 589 resulted in operating savings of $217 million due to lower wage rates for new hires, work rule reforms, and slower progressive wage increases. The first-in-the-nation Uber/Lyft paratransit pilot program has also helped reduced costs on The RIDE.
Capital investments in FY17 resulted in the highest state of good repair in the MBTA’s history ($675 million, up by 60 percent over FY16). Winter resiliency infrastructure investments of $100 million resulted in successful, fully operational subway, bus, and commuter rail systems during winter storms in February and March 2017. Operating budget savings of $140 million were also deposited in the capital maintenance lock box for capital infrastructure repairs. The entire Red Line No 3 fleet was approved to be replaced with 250 brand new cars, which will be in service within four years. The Green Line Extension project was also brought back on track with $600 million in value engineering savings identified and a new management team in place, resulting in the Federal Transit Administration greenlighting a $1 billion funding commitment. These initiatives have incurred positive results with the MBTA’s operating expenses on track for the lowest growth rate in more than fifteen years.
The MBTA has proceeded with further options to balance its FY18 operating budget. The approved FY18 Budget includes baseline status quo revenue and expense assumptions. Revenue assumptions for FY18 include sales tax revenues conservatively budgeted at the Base Revenue Amount of $1.007 billion, own-source revenues increased by $15 million (driven by a growth in parking and advertising revenues), no fare increases, and additional State Assistance of $187 million fully committed to the CIP and “Pay-GO” capital. Expense assumptions for FY18 include wage expenses (flat headcounts to eliminate vacant positions, thirty-percent reduction in corporate HQ and administrative positions, Boston Carmen’s Union 12/19 agreement in effect for the full fiscal year, across-the-board increases of 2.5 percent next year with all unions other than the Carmen’s Union naturally increasing wage expenses by $6 million or 1.2 percent, and overtime costs projected to be level with FY17 run-rate at $42 million), pension budgeted at Actuarially Required Contribution Rate from FY17, RIDE savings (consolidated, fully operational RIDE call center and the RIDE Uber/Lyft pilot), warehouse/cash collection/call center/police dispatch fully implemented, materials/services/supplies expenses built from the bottom up based on executed contracts and purchase orders, and a total debt service of $451 million, including $240 million of principal paid down per amortization schedule (interest expenses are $31 million less than originally projected in 2015 pro-forma).