An Orange Line train pulls into the MBTA’s Wellington station. Photo by James Sanna | Banker & Tradesman Staff
MBTA officials are eyeing a $3 billion budget for the next year that would drain a final tranche of savings to ramp up spending despite a persistent, and growing, mismatch between the agency’s projected revenues and spending.
The T’s budget team crafted a preliminary financial plan for fiscal year 2025 that boosts spending about $293 million, or 11 percent, over the current year while forecasting a $247 million, or 10 percent, increase in available revenues.
That approach would widen the chasm between money the T has at its disposal and its spending appetite, especially as officials under General Manager Phil Eng continue aggressive hiring and repair campaigns they see as essential to offering more reliable transit service and attracting back riders who have snubbed the system since COVID-19 hit.
Collective bargaining increases account for about $114 million of the total spending growth, and increased hiring represents an additional $87 million, according to figures presented Thursday.
The draft budget, which still needs to be brought before the full MBTA Board of Directors and then head to the independent MBTA Advisory Board for review, calls for tapping about $307 million in remaining one-time savings funds.
T Chief Financial Officer Mary Ann O’Hara said the withdrawal would leave “minimal remaining cash reserves” to balance the books in fiscal 2026, when she forecasts a more than $600 million gap between the T’s projected expenses and revenues.
“The fiscal cliff looms again, and we are out of one-time money to balance the operating budget in [fiscal] ‘26,” O’Hara told an MBTA subcommittee on Thursday.
Officials have been warning that the agency was careening toward another financial crisis, but some of the math appears to have changed in the past two months.
In March, MBTA budget-writers forecast that they would need to trim spending by about $93 million to balance the fiscal 2025 plan, even after accounting for increased state assistance that Gov. Maura Healey, the House and Senate have now all proposed.
The draft budget presented Thursday instead anticipates achieving equilibrium without that $93 million cut. Officials now think deploying some federal formula funds for preventative maintenance can help close the operating budget gap this year.
O’Hara said her team still wants to find $93 million in savings in fiscal 2025, potentially by converting some consultants into full-time employees, eliminating unnecessary professional services and streamlining “overly burdensome” processes.
Cutting that $93 million now, she said, can give the T a small foundation to help navigate a more than $600 million gap between projected expenses and revenues in fiscal 2026, which is forecast to grow even larger in the ensuing years.
Another multimillion-dollar complication could come on the low-income fare front.
MBTA officials in March approved a long-sought program to offer reduced prices to riders who earn less than 200 percent of the federal poverty level. The new fare option will launch this summer, and likely cost a bit less than $30 million in year one, then between $56 million and $66 million once fully implemented by fiscal 2029.
In her annual budget, Healey in January proposed directing $45 million in state dollars to the T to cover the first year of low-income fare costs. MBTA officials incorporated that figure into their own draft budget, but legislative leaders want to provide the agency with less than half as much funding for the program – the House’s annual state spending plan directs $20 million toward MBTA low-income fares, while Senate Democrats proposed $23 million.
All three Beacon Hill budget-writers have competing visions on how much money to direct to the MBTA for other purposes. The House sought $65 million to support safety improvements at the T, $40 million for a workforce “academy” and $35 million for climate adaptation supports, but neither Healey nor Senate Democrats appear on board with those exact ideas before formal negotiations begin.
Senate budget chief Michael Rodrigues, asked Tuesday about whether his chamber’s plan would address the MBTA’s budget gap, replied, “That gap is insatiable right now.”
“That gap is vast. It’s a big gap,” he added.
The MBTA budget is built on multiple funding streams. The largest source, forecast at nearly $1.47 billion in fiscal 2025, is a dedicated portion of state sales tax revenue. Lawmakers also pack additional assistance for operating costs into the state budget, and cities and towns served by the T collectively pay assessments adding up to $193 million next year.
Beacon Hill also has a relatively new revenue option in its toolkit: money generated by a new surtax on the state’s wealthiest taxpayers, which must be directed only to education and transportation investments.
MBTA officials have long grappled with a mismatch between spending appetite and available resources. In recent months, they have regularly attributed much of the challenge to lower-than-expected growth in state sales tax revenue and Big Dig debt the agency absorbed, plus sluggish ridership in the wake of the pandemic.
Cutting expenses could present more difficult decisions at this point. Criticizing what they see as years of underinvestment in the system, Healey and Eng have pushed to improve pay for MBTA employees and hire more personnel, expecting that a bigger, more experienced workforce will be able to address persistent service woes like slow zones that plagued much of the system.
And with more reliable service, the thinking goes, more riders will return and pay fares – which once made up nearly a third of the T’s operating revenue per year, but today languish around 60 percent of pre-COVID levels.
“Historically, the savings in the deficiency fund or the rainy day fund have been achieved in savings and wages resulting in delays in hiring,” O’Hara said. “But as the team continues to make improvements in hiring capacity, the savings are much harder to identify.”
