T capital funding sources projected to fall off cliff

THE MBTA is preparing to cut service levels to deal with a budget shortfall looming over next year, but the Massachusetts Taxpayer Foundation warned members of the Fiscal and Management Control Board on Monday that even bigger problems are just around the corner.

Andy Bagley, a vice president at the Massachusetts Taxpayers Foundation, said MBTA capital funding sources will fall off a cliff in fiscal 2025, roughly four years from now. When that happens, he said, the T won’t have enough money to maintain and modernize the existing system and pursue other initiatives that already have wide support.

“There’s a capital cliff coming and without additional resources you’re going to face some extremely difficult challenges in the near future,” Bagley said.

The T’s Fiscal and Management Control Board typically hears presentations from staff that tend to follow carefully scripted narratives. The board accepts testimony from the public, but those comments are time constrained and usually narrowly focused. On Monday, however, Bagley was given the opportunity to lay out in depth the Tax Foundation’s concerns about the T’s financial future.

He said capital funding sources for maintenance, safety, and modernization will start falling about $1 billion short of what’s needed in fiscal 2025, assuming the MBTA borrows $200 million a year. The gap would narrow to about $750 million a year if the T borrows $500 million a year, but Bagley said that higher amount would come with consequences for the T’s strained operating budget in the form of rising interest payments on debt.

The capital spending shortfall estimates do not include funding for climate change adaptation, revamped commuter rail service, expansion of South Station, construction of West Station as part of the I-90 Allston interchange, and electrification of buses and commuter rail lines.

Bagley said the operating side of the T’s budget faces similar challenges. Fare revenue has plummeted during the coronavirus pandemic and is unlikely to return to fiscal 2019 levels until fiscal 2025, largely because of the current spread of the virus and the growing acceptance of telecommuting.

“You really need lots of operating revenues and capital revenues, which right now don’t appear to be available,” Bagley said.

“The coronavirus is spreading, It’s staying. It will damage the national economy,” he said. “The longer this pandemic lasts, the greater the damage it does to the economy…It could be a very long time before you get full recovery on fare revenues.”

Joe Aiello, the chair of the control board and the person who invited the Taxpayers Foundation to speak at the meeting, said the presentation was “very, very sobering” to hear.

“We have a crisis today of one sort but there is another crisis heading the T’s way,” Aiello said.

When he asked if anyone on the control board had questions for Bagley – and no one said anything – Aiello said: “Or is everybody stunned?”

Transportation Secretary Stephanie Pollack said she took issue with a number of the assumptions made by Bagley. She said no state or municipality prepares a capital spending forecast beyond five years, in part because situations can change dramatically over such a long time period. She said no one would have projected the state would be spending $1.75 billion on capital projects this year, but it is.

“Things do change and this analysis doesn’t take that into account,” she said.