What might David D’Alessandro find as he turns over the rocks at the MBTA?

Former John Hancock CEO David D’Alessandro is hard at work on his eagerly anticipated "top-to-bottom" review of the MBTA’s finances and management, due for release by the end of October.

Expect the report to concentrate heavily on the MBTA’s finances, incoming Secretary of Transportation Jeffrey Mullan told lawmakers at Thursday’s Joint Committee on Transportation oversight hearing on the Massachusetts Department of Transportation transition.

“Don’t expect the situation to be rosy,” he added.

How much worse can the T’s finances be? “There is still work to be done if we are going to save public transportation in Eastern Massachusetts,” Paul Regan, the MBTA Advisory Board’s executive director told me in a telephone interview.

Last month, the advisory board underlined a $25 million shortfall in the fiscal 2010 budget, only weeks after the Legislature allocated $160 million annually to the T. The board projects a $75 million deficit in FY 2011 and more than double that two years later — even with the new sales tax revenue. 

Two years ago, the Transportation Finance Commission identified a “critical and growing structural funding gap,” along with a $2.7 billion backlog in maintenance needs at the country’s oldest transit authority.

 “Whether you like the transportation reform bill or not, doesn’t really matter,” says Regan, who served on the commission. “The critical issues that are going to drive problems at the MBTA for the next five years haven’t been addressed yet.”

Even if D’Alessandro paints a more distressing picture, additional money for mass transit in Greater Boston is a nonstarter on Beacon Hill, especially with new budget cuts on the horizon thanks to a revenue gap approaching $1 billion this fiscal year.

On top of that, Regan thinks that Washington won’t supply funds for transit infrastructure in “significantly higher amounts” than Massachusetts gets right now. He’s not optimistic about federal money for future expansions either.

"I just don’t believe that the T can compete successfully for 'new starts' dollars for a number of different projects against states that are actually building brand new transit systems,” he says.

At a minimum, riders can bank on paying more. A fare increase, before or after the 2010 election, is still an option, despite Gov. Deval Patrick’s decision to postpone public hearings until D’Alessandro completes his review.  “It’s a mirage to expect that there are large pockets of money that they can find that would head off a fare increase sometime next year,” says Michael Widmer, the Massachusetts Taxpayers Foundation president, who also worked on the commission.

Provided finances don’t crowd out management issues, D’Alessandro’s review should also open a window on the T’s business culture and operations. Before forward funding, the Legislature reimbursed the authority for costs that its revenues did not cover. Forward funding now forces the T to live within its shrinking budget.

But the public fixation on the T’s debt and the failure of its sales tax allocation to live up to projections is, in part, a “cop out,” Widmer explained to me. The agency has a decades-old cultural mindset that doesn’t look at how to operate for the long term. He wants a longer range focus on bringing costs under control and managing to those realities. But better management alone won’t fix the problem: Currently, Widmer sees a sprawling bureaucracy with strong unions that historically has been “a dumping ground for political appointments.”

“You’ve got all that jungle and underbrush that’s strangling the agency,” he says.

But Gov. Michael Dukakis isn’t persuaded. He’s seen too many public agencies that have been transformed by excellent public managers. “I don’t buy this cultural stuff,” he told me. “You can’t run one of these operations where you pick a general manager and the governor’s patronage guy starts telling you who to hire.”

Would restoring management rights produce a more efficient MBTA? Giving transit managers more control over spending has been a thorny issue for decades. The issue came to a head in mid-November 1980 when the MBTA did not have enough money to run the system until New Year’s Eve. 

Gov. Edward King tried to take over the system to avert an early December shutdown; however, the Supreme Judicial Court ruled that attempt illegal. Lawmakers convened a special session come up with a bailout plan, but not before the budget crisis shutdown the entire system for one day.

The rescue package included management changes giving MBTA officials the right to assign workers based on merit instead of seniority, monitor overtime, and subcontract outside employees for authority projects

Those measures put the MBTA at odds with its unions. By 1995, labor pressure resulted in amendments to the 1980 legislation that stripped most of those management rights. Currently, T managers retain the right to hire part-time employees. “The power [the unions] wield has clearly harmed the agency, there’s no question about that,” says Widmer.

However, Stephen Silveira, who chaired the Transportation Finance Commission, isn’t sure that management rights are an issue or if that’s just an “urban myth.” “From my discussions with people who are familiar with labor relations, it’s not really a problem for them,” he says.

Though the T’s situation is serious enough to revisit management rights, Regan is also reluctant to blame union members. “The thing about management rights that people lose sight of is that the potential of [giving] more power to management is not really about cost savings with labor,” he told me. “It’s about efficiency in the system.”

Nevertheless, the Legislature is unlikely to take up management rights given the budget crisis, the upcoming election, a pending lawsuit brought by the T unions to block benefit changes under the new transportation reform law and the expiration of the Boston Carmen’s Union contract next year.

One change that could make inroads in how the T does business (and antagonize its unions) is exempting the agency from the Pacheco Law. The statute places a $500,000 ceiling on contracting out services that are performed by the state employees. Only the Massachusetts Water Resources Authority is exempt from law. With public-private partnerships all the rage in the sky high-cost world transportation, the Pacheco Law is a major barrier to cost savings at the authority.

Silveira would prefer to see an “honest transparent comparison of all the costs involved in the ‘make or buy’ decision.” For example, he says, “the fact that Pacheco Law sets up a comparison between an actual bid from an outside vendor and a theoretical bid from the internal, I swear, if people landed here from another planet and I described that to them, I’d expect them to leave immediately.”

The MBTA also could benefit from improved contract administration and procurement. Renovation projects like the Kenmore Square and Copley Square station projects have had their share of difficulties.

Millions in cost overruns marred the introduction of the automated fare collection system (which deprived the T of millions in potential fare revenue) because the agency did not “properly oversee the activities of its design engineer,” according to a 2008 state audit. The T also “improperly planned the system and inadequately communicated those needs to various MBTA departments.”

“The construction program has been a disaster for a long time,” says Dukakis.

With an average of $470 million spent on capital projects and acquisitions, the T should knuckle down on consultants and suppliers. “They need to examine all their procedures to make sure that they are wringing every dime out of the few dollars that they are going to get,” says Regan.

But once again, the solution to the MBTA’s dilemmas hinges on dollars and cents.

“The way to pay for the T is with a gasoline tax, but that assumes a highly productive and efficient system,” says Dukakis. “One of the things I hope that David is going to do, is tell us whether or not we have that and secondly, if we don’t, how we get there,” he added. “I suspect that he will also say that in the long-term there has to be a more secure source of funding.”

Mullan told lawmakers at the oversight hearing that he expects D’Alessandro to furnish “a detailed action plan.”