Introduction: Dan Wilson. Prior to July, 2000, the MBTA was funded in arrears by the Commonwealth.

JONATHAN R. DAVIS, Chief Financial Officer, Mass. Bay Transportation Authority

We have been reasonably successful so far, but have challenges in front of us. Arrears was easier to work with, because we would submit a bill to the Legislature at the end of the year.

We need to maintain a reasonable level of cash reserve. We developed a five-year capital investment plan. When we started, we had essentially a zero dollar reserve. We increased the fare income by $54 million since the year 2000 fare increase. There was an 80% increase in non-fare revenue: Parking fees and advertising, for example. We had cost containment. We laid off 36 people last year. We re-bid banking services. New procurement methods. A new commuter rail contract.

In FY 2003, we were able to cap the cost of diesel fuel. We concluded a good labor contract. The debt management is also good.

But we have to address the issue of stagnant sales tax receipts. These were $44 million below the Legislature’s guarantee. There were also lower passenger revenues.

Capital investment: It falls off in the years 2006 through 2008. We have to current fund the capital debt or we will be suffocated by the cost of debt service. We have to maintain solid reserves now that we are forward funded. A recent flood cost us $50 million. We have to build our stabilization fund for items like this. The state of good repair program is substantial a substantial expense.

We will have 600 new compressed natural gas or low emission buses by 2004. The remainder will be overhauled. By August of 2005 the automated fare collection system will be installed. By August 2004 the system starts being implemented. In addition to other benefits, this system will permit us to open more subway entrances.

Mr. Davis delivered the above while presenting a Power Point display. The following is adapted from that display:

THE CHALLENGES OF FORWARD FUNDING.

To be successful under forward funding, the MBTA must

• Operate under well-defined limits of revenues available to fund operating costs and capital investments.

• The response to forward funding:

• The Authority developed a twenty-year finance plan.

• Developed a five-year capital investment plan.

• Obtained AAA/Aa2 bond rating.

• Increased own source revenue.

• Fare increase implemented in 2000.
• Increased non-fare revenue.
• Increased advertising income (TDI contract).
• Increased parking fees.
• Aggressively selling surplus property.
• Increased outdoor advertising contract.
• Real estate management.
• Implemented cost containment measures.
• Created workforce efficiencies and productivity improvements.
• Re-bid contracts:
• Power and electricity.
• Banking business contract.
• Commuter boat: Hull and Quincy service.
• Fuel hedging.
• Labor contract settlement.
• Debt management.

• The current economic environment.

• Economic conditions have impacted MBTA operations: Ridership and fare revenue have declined.
• No growth in sales tax revenue for FY 2004.
• Local assessments decline (by statute).
• The MBTA anticipates an operating deficit in FY 05, FY 07 and FY 08.

MBTA CAPITAL INVESTMENT PROGRAM (2004-2008)

With a total capital expenditure of $2.8 billion, the MBTA will apportion it as follows:

Handicapped accessibility (ADA) 5%

Enhancement 8%

Expansion 20%

State of Good Repair 67%

INITIATIVES

• Improving bus operations: The MBTA’s no. 1 priority.

• 600 new compressed natural gas or low emissions buses are to be delivered by 2004.

• All 400 of the remaining buses will be overhauled.

• New maintenance facilities.

• Upgrades to existing facilities.

• Silver Line service.

• Automated fare collection, bus and subway.

• New equipment.
• Fare vending machines.
• Turnstiles.
• 1700 validating fare boxes.
• High rotary gates.
• Milestones.
• Notice to proceed 02/14/03
• Subway installations begin 08/01/04.
• Bus farebox installations begin 02/01/05.
• Completion 08/05/05.
• Effects.
• Fare policy flexibility.
• Greater equipment reliability.
• Collectors reassigned as customer service agents.

GLEN TEPKE, Senior Policy Associate, Massachusetts Taxpayers Foundation.

The T has made major strides, but the expectation that the T can continue to fund expansion at the same level as the past [is unrealistic]. The capital program had no structural system to back up the T. The legislature had to impose a bond cap. But it was easy to ignore the limits. With the expansion of the 1990’s, there became a backlog of projects to keep the system in a state of good repair.

There is a huge backlog of debt, but still there is an expectation of expansion. The T could barely afford to maintain the existing system, not to mention expansion. Commuter rail procurement, harder bargaining with labor would not have happened in the then-current operating environment.

The key impact of forward funding was to strengthen the hand of people like [T Chief Financial Officer] Jon Davis. It also requires the T to look at the cost of debt and also the operating cost of projects. We can see this in the capital plan.

With regard to recent events, people question the capability of the T to finance expansion. This was not the intent of the forward funding statutes. It was an intent to encourage more riders for the existing system. To channel money to projects that are most cost-effective, such as the Urban Ring.

Some would argue that the T is not getting enough money from the State. This is a problem; it would reverse the incentives to the T that put them on a fiscal diet.

I suggest the T got a good deal by being funded through a percentage of the sales tax with a guaranteed minimum. If the T were just another line item in the budget, it would experience a significant budget cut in these lean times.

The T cannot do expansion on its own. We clearly need state support beyond the regular budget. If projects are good for the state, the state should support them. Only the state has [the resources to do this]

PAUL REGAN, Executive Director, MBTA Advisory Board.

The effect of forward funding on the riders: It made the T much more responsive to passenger demands. Freedom from the old fiscal system meant people could be more responsive. They are now spending more on cleanliness.

The Write to the Top campaign. To be able to fix escalators, make sure they are addressed. The union contract was signed, the same year as the NYCTA was on the point of a strike. There was no retroactive increase as there was in previous contracts. The system is getting more reliable. New buses, new streetcars. The Program for Mass Transportation has had 64 meetings over a year and a half. They talked with the citizens. Four hundred ideas came in, of which 130 made it into the plan. It was a participatory process.

Because of the debt service numbers, you saw projects become difficult. But if there is the political will to do it, the legislature should [help] pay for it. For example, Greenbush and Fairmount.

Very soon, debt service is going to overwhelm the T. This will happen whether there is a fare increase or no fare increase.

STEPHANIE POLLACK, Acting President, Conservation Law Foundation.

CLF and others worked on the forward funding legislation. This represented a top to bottom rewrite of the legislation that created the MBTA. The troubling thing about the last three years is there was far less attention paid to other things which were to happen. The best thing was that the T wasn’t in the legislature in the last few months [of the fiscal panic] with a tin cup. We are in danger of shutting down system expansion.

From the CLF’s standpoint, the T was not in the process of competing with the highway guys and local officials for funding of projects. Forward funding was intended to get the T to the table competing with the highway interests for a larger share of infrastructure investment dollars. But this is not happening. If there is money for the Sagamore Circle, why not use if for the Fairmount project? But I don’t disagree with what has been said previously.

What percentage of the T budget should be paid by the T and what by the state? And we need private sector money for expansion too. And this does not just mean them going to the feds and asking for dollars for North Point [in Somerville/Cambridge].

What the T is NOT doing: We have not seen statistics in document requests. What’s going on with development on T-owned land? Have they actually been doing stuff that they have committed to? Most important is growing ridership. If you grow ridership to grow revenue, wonderful things happen. If you grow revenue by raising fares, there are fewer benefits.

We are talking about a fare increase only two years after the last one. This is a violation of what was planned. The T should have a commitment to service and increasing ridership rather than fares. We have to tackle the issue of a fare increase.

Curtis Davis, Moderator: A lot of these questions go back to the legislature. The fundamental questions of transit as an economic development engine. What is an adequate subsidy level? With regard to management improvements at the T, there are new metrics, things that couldn’t be done in the past.

Questions and Answers.

Q. Barry M. Steinberg, Assn. for Public Transportation: What about the union contract, that in the past took a long time to conclude?

A. Jonathan Davis: We are now in a position to control contract decisions. In the past, we had to go to arbitration, but now we have a more reasonable package.

Q. What about overtime?

A. It is high in bus operations. We have had to invest more to keep the fleet operating. The head count is higher in 2004 to eliminate overtime. Heightened security also led to more overtime. We will be running a [police] academy shortly to reduce overtime.

There are also some work rules that present a problem, especially absenteeism. Overtime is a result.

Q. John Businger: People start thinking of the T as the top policy maker. But someone above the T should set transportation the policy and the T merely carry it out. We need a well-financed, stable T. Public transportation is more than just the T.

Q. Romin Koebel, Assn. for Public Transportation: What is the range of projects?

A. Stephanie Pollack: Some have started already, and some are about to begin: Bus procurement, the Arborway. Both are mitigation for the Big Dig. This package was set in motion a decade ago. That will need to unfold, but there are more [useful things to be done]. Refer to the Environmental Oversight Committee, of which Anne Fanton is project director.

Q. George Bailey, MBTA Advisory Board: The Metropolitan Planning Organization has limited funds because of the Big Dig. There is a $16 per driver cost of the Big Dig. If there would be a quarter of this paid for by tolls, using automated toll collection, the money raised could be used for more advantageous projects.

A. Glen Tepke: There has been a hue and cry about tolls. Tolls represent less than 10% of the financing of the Big Dig. This can [also] present equity problems with east-west travelers paying tolls and north-south travelers not.

A. Stephanie Pollack: The decision to sell the Beacon [Park] Yards is to up the money for kickbacks on tolls, not to pay off [debt]. We are doing the opposite of what we should be doing. We will discourage economically the use of the Framingham commuter line by subsidizing the cost of traveling by car along the same corridor.

Jonathan Davis: We have looked at ways of encouraging ridership.

(1) Bus to bus transfers. We underestimated the cost of this, but it was the right thing to do.

(2) Weekly combo passes, discounted monthly passes.

The Silver Line increase was 7,500 to 12,000 or 13,000 daily riders.

With the new [fare collection] system, we could discount off-peak fares.

We want to preserve service at all costs. We want a discussion of this. Additional fare funding is needed.

Q. Shirley Kressel: We have an accountability problem. Do these independent authorities still make sense? Independent means unaccountable. They have different rules. We need to look at a larger public policy problem with regard to the T.

Q. Curtis Davis: This is a structural question: Are we in a structural framework that is adequate?

A. Jonathan Davis: The structure today is best for preserving long-term viability of transportation. Also, from the standpoint of responsiveness, the General Manager has promoted openness. Dialogue as opposed to hearings. We also have had focus groups. They have good ideas on service.

A. Paul Regan: The T budget is open to public scrutiny to a much larger degree than most state agencies. The capital plan is reviewed with public hearings as well as the T Advisory Board.

A. Stephanie Pollack: There is transparency as well as accountability. The question is how things are structured. The biggest problem in transportation structure is the Mass. Turnpike and the Highway Department. But the Office of Commonwealth Development (Doug Foy) cannot control the Pike giving subsidies to drivers.

Q. Curtis Davis: Is there fundamentally a disconnect between the things that are wanted and the structure? Are we tinkering at the margins?

A. Stephanie Pollack: There have been too many meetings about establishing policies that never get implemented. Community people ask why they should bother making comments that never get implemented.

Q. Curtis Davis: Do we get the idea that forward funding is getting us better value than the past [arrangement]?

A. Jonathan Davis: Quality of construction. We need a different procurement process than low bid and cost overruns.

Q. Peter Smith: Growing ridership: I assume there is excess capacity in the system. Still, if we increase ridership at some point we would have expend very large amounts to accommodate the additional riders. How close are we to reaching this point.

A. Davis: There are fewer people riding the system than used to, with the exception of commuter rail. We are increasing capacity with low floor Green Line cars. On the Blue Line, there are new trains on order and platforms are being extended.

Q. Have recent expenditures increased capacity?

A. Davis: On the Blue Line, yes.

A. Pollack: Big developments on commuter rail are being deployed.

Q. Bill Kuttner: What does increase capacity is the North-South Rail Link. Also, people should remember that there is more to transportation than transit. The roadway system also is under great stress. There is a gradual state of deterioration, not only on the highways, but also local potholes.

Are we investing enough in transportation? To drivers: Do you like your roads? No? Then increase the gas taxes so we can fix them.