T preps for $308m deficit in fiscal 2022

The MBTA, facing tremendous budget uncertainty, is starting work now to close an estimated $308 million deficit looming in the fiscal year that starts in July 2021.

The MBTA is planning to use $720 million in federal COVID-19 relief funds to help close a deficit in the current fiscal year, but is projecting a $308 million shortfall in fiscal 2022 and additional, higher deficits through fiscal 2025.

To close the fiscal 2022 deficit, the T won approval Monday from the Fiscal and Management Control Board to shift federal aid designated for capital projects to the operating budget; start paying employees working on capital projects using capital (typically borrowed) money rather than operating revenues; and come up with new savings and revenues measures internally.

MBTA General Manager Steve Poftak said the challenges facing the T are commonplace among the nation’s transit agencies. “This is a transit problem, not an MBTA problem,” Poftak said.

Between the three initiatives, the T hopes to identify $400 million in savings or new revenues that will be stored in a special account and used to offset deficits expected in the year starting next July.

The plan sounds neat and tidy, but it is based on a number of assumptions that may or may not bear out.

For example, the T is projecting that fare revenue, which is currently about 10 percent of pre-COVID levels, will hit 60 percent by June 2021 and 80 percent by September 2021. The T laid out three other scenarios with a slower recovery of fare revenues; projected deficits under the three scenarios balloon to as high as $577 million in fiscal 2022.

In each of the scenarios, the T’s fare revenue never exceeds 80 percent of pre-pandemic levels through June 2022. The T’s plan calls the 80 percent the “new normal.”

The budget plan also identifies three sources of budget savings, but Poftak said all options are being considered, including fare hikes, service cuts, and layoffs.

“This is the beginning of a dialogue. At this point, everything is on the table,” he said. “It’s premature to take anything off the table.”

Transportation Secretary Stephanie Pollack said no fare increases or layoffs are expected in the current fiscal year. Indeed, she pointed out that, starting September 1, the T is actually lowering fares by eliminating the surcharges assessed on people who pay using cash or paper CharlieTickets.

As part of its budget assumptions for outlying years, the T is currently planning fares increases of 4.5 percent in fiscal 2023 and 2025.

The T’s presentation also said T revenues are forecast to grow an average of 2.2 percent a year from fiscal 2022 through fiscal 2025 while spending is expected to rise 4 percent. Spending is expected to rise the most – 4.4 percent – on pensions.

The three sources of revenue and cost controls being pursued by the MBTA mostly involve shifting funds between the capital and operating budgets. The first would take federal funds earmarked for MBTA capital projects and use the money instead for preventive maintenance efforts paid out of the operating budget. T officials said they believe they can tap $80 million of the federal funds in fiscal 2021 and as much as $300 million in fiscal 2022.

Poftak said the shifting of federal capital funds will come at the expense of the T’s capital budget, but he said spending on projects won’t suffer that much as spending should hover in the $1.6 billion range.

The T presentation said prioritized capital projects include the Green Line extension to Somerville and Medford, South Coast Rail to Fall River and New Bedford, the development of a cashless fare collection system, the rollout of new Red and Orange Line cars, and a system to avert collisions on the commuter rail system. Not included in the list is a planned revamp of the commuter rail system, where ridership has been knocked down to 9 percent of pre-COVID levels, or any upgrades to the Green Line.

The shifting of salaries of employees working on capital projects from the T’s operating budget to the agency’s capital budget is allowed under the House and Senate versions of a transportation bond bill that is currently awaiting final action on Beacon Hill. The legislative approval could free up $120 million for the operating budget over the two-year period.

The T is also counting on $120 million over the two years in internal revenue-raising and cost-control measures. T officials were vague about specifics, but said reductions in overtime and discretionary spending would be pursued. The presentation also said the T would pursue “new uses or licensing of parking facilities” and the development of new fare products.

The T, for example, recently unveiled a discounted five-day flex pass for commuter rail, which allows the rider to use the pass five times over the course of a month. Poftak said 593 of the passes had been sold as of Sunday with no impact on the sale of monthly commuter rail passes. “We think it is additive,” Poftak said.