Fact-checking the T’s structural deficit

Over the last two weeks, the MBTA has repeatedly cited the existence of a “structural deficit” to make the case for its controversial spending cuts and privatization initiatives

In a presentation on March 13 and again on Monday, T officials outlined a series of tough choices they said were necessary to close a $42 million structural deficit at the agency. Those tough choices included halting weekend commuter rail, paring back paratransit service, and privatizing or using the threat of privatization to wring $28 million in savings out of bus repair garages.

Facing strong opposition to each of the initiatives, T officials said they were required by statute to balance the budget, implying that the agency would be violating state law if it failed to make the tough choices. The T officials even cited a specific section of state law making their case.

The problem with the T’s argument is that the state law doesn’t say what the T says it does. And the structural deficit isn’t as serious as the words imply. In fact, some would say the T isn’t facing a dollars-and-cents deficit at all.

The T relies on three buckets of revenue to cover its expenses. It collects about $1 billion from the state sales tax; generates its own revenue through fares, advertising sales, and real estate transactions; and receives a $187 million annual budget appropriation that has come to be known as contract assistance.

Even though all three sources of revenue are available to the T, the agency has taken the position that it should only use the sales tax money and its own revenue sources to cover its operating expenses. The T wants to take the $187 million legislative appropriation off the table for balancing its fiscal 2018 budget for two reasons. First, the money is subject to appropriation and therefore unpredictable year to year. Second, the T wants to funnel all of that appropriated money into spending on longer-term capital projects to reduce the backlog of state-of-good repair projects.

In the current fiscal year ending June 30, the T is forecasting a $50 million deficit, meaning spending will exceed the transit agency’s sales tax and own-source revenues by $50 million. The deficit will be covered by drawing $50 million from the $187 million in contract assistance.

For fiscal 2018, the T is forecasting a $42 million deficit. Instead of tapping the contract assistance money again, T officials have proposed cutting spending to close what the transit agency is calling a structural deficit.

Rafael Mares, a vice president at the Conservation Law Foundation, said the T’s structural deficit is self-created. “The MBTA defines its ‘structural deficit’ as the gap between revenues and total expenses, but artificially counts only some of the funding the state provides towards that number,” Mares said in an email. “This creates an illusory gap that the T has been chasing like its own tail — and it perpetuates the ongoing myth that the transit agency is so financially unstable that it needs to increase fares and eliminate service. In reality, if we count the revenue the MBTA intentionally excludes from the definition, the MBTA has no deficit, but rather a surplus, leaving no fiscal reason to cut any service.”

Rep. William Straus, the House chair of the Legislature’s Transportation Committee, says he views the $187 million as just another source of funding for the T that is unlikely to disappear. He applauds the T for trying to pare back spending wherever possible and for trying to funnel more money into long-term capital projects, but he said the agency doesn’t face a structural deficit.

“Structural deficit is a loaded phrase because it conjures up an image of some sort of budgetary crisis,” Straus said.

Straus also said the T’s claims about the requirements of state law are off-base.

In a March 13 written presentation to the Fiscal and Management Control Board, the T said there is a statutory mandate to deliver a balanced operating budget. It said the law creating the control board directs the panel to develop 1-year and 5-year operating budgets “which are balanced primarily through a combination of internal cost controls and increases in own-source revenues.”

The presentation gave the wrong citation for the law, and it also omitted the fact that the budget directive is more a suggestion than a mandate. The law says the control board “may” establish 1-year and 5-year operating budgets; it doesn’t mandate them. The law is also silent on whether the contract assistance funds can be used to balance the operating budget.

Gov. Charlie Baker on Tuesday seemed to dial back the T’s aggressive approach to budget-balancing when he said the transit agency should keep searching for savings in its operating budget but shouldn’t cut service. He took the proposed elimination of commuter rail service off the table on Monday, and hinted the cutbacks in paratransit service may be shelved as well.

Baker also said the goal should be to keep moving toward balancing the T’s operating budget without using the contract assistance from the state, but added that he saw nothing wrong with using some of that money for operating expenditures in the short term.

In his state budget proposal for fiscal 2018, Baker is proposing $187 million for the T – $60 million that go direct for capital spending and $127 million in the form of a regular appropriation. The T is proposing that all of that money go toward longer-range capital projects.

Straus said he would prefer the T dispense with all the verbal gymnastics and decide what it needs to balance its budget and to meet its longer-term capital needs, and then ask the Legislature for the necessary money. He doesn’t hold out much hope that state transportation officials will change their thinking, however. He’s been at them on the structural deficit issue since 2015.

T spokesman Joe Pesaturo said in a statement that the agency’s efforts to balance its budget are focused on delivering a more fiscally responsible and reliable system for riders. “Prudent management of our budget is critical to setting the MBTA on a path to long-term fiscal sustainability, lowering operating costs, and making the necessary upgrades in system-wide infrastructure and passenger fleets,” the statement said. “MBTA management will continue to present a variety of budget options for the Fiscal and Management Control Board to transparently vet and discuss as it proceeds with reducing our operating deficit and demonstrating our commitment to more wisely managing taxpayer dollars.”

–BRUCE MOHL