Health & Fitness
Why Charlie is Broke
A case study of the MBTA's management practices would make an MBA candidate scream: "This is no way to run a railroad".
Until 2000, the MBTA got its money by simply sending a bill to the legislature at the end of each year. Nobody had much incentive to innovate or find savings. So legislators came up with a plan in 2000 to make the T live within an annually balanced budget.
Legislators anticipated that revenue from the sales tax would grow at 3 percent a year. (That wasn’t an outrageous idea; it had gone up at an even higher rate in the 1990s.) Lawmakers dedicated one penny out of the sales tax to the MBTA. But legislators never accounted for the possibility that healthcare, fuel, energy, or, really, any costs at all might ever increase. They also didn’t adequately prepare for future T expansion — not even for projects then mandated by Beacon Hill. To make matters worse, some $3 billion of preexisting debt was piled onto the system.
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Since 2000, sales tax revenue hasn’t gone up at nearly the rate the state expected, and in recent years it has actually decreased. Meanwhile, the T’s operating costs have grown by about 5 percent per year since 2000.
Without the money to maintain a balanced budget, something that’s mandated by state law, the MBTA has had to keep borrowing to make ends meet. The T has refinanced and restructured its debt every year since 2002. This means that debt-service payments continue to grow.
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By comparison, the New York transit system, which is about 10 times the size of the MBTA, carries a debt ratio that’s roughly one-third the size of the T’s. In fact, things are so bad with the MBTA that the annual amount paid in debt service is almost as large as the amount collected in fares. (Imagine if your mortgage payments were almost as large as your income.)
Even with its finances in the gutter, the MBTA is able to keep borrowing. When you buy something in Massachusetts, one out of every 6.25 cents you pay in sales tax goes straight into the MBTA’s coffers. The T can then go to Wall Street and sell bonds to investors. The authority uses the money from the sales tax to guarantee those bonds. The question is: how much longer can the MBTA continue to borrow like this?
The MBTA and other public transit operations are essential to the quality of life in our Commonwealth. The system needs fixing but who’s going to do it? And will it have a management system this time around that has some chance of succeeding?
