MBTA projects $404M budget gap by 2026
The MBTA forecasts that one-time revenues will close projected budget gaps in fiscal year 2024 and ‘25, but says those funds won’t cover a shortfall expected to exceed $400 million in FY26.
And that $404 million budget deficit could soar to $473 million in fiscal ‘28, based on the lower than pre-pandemic-level ridership scenario the MBTA is using for its projections, Chief Financial Officer Mary Ann O’Hara told the T’s Audit & Finance subcommittee on Wednesday.
In the coming years, the T will have to increase its spending to comply with safety directives issued as part of a federal investigation into the agency’s subway system, along with implementing major capital and service improvement projects, such as the Green Line extension, South Coast Rail, bus network redesign and fare transformation, she said.
O’Hara said total expenses are projected to grow by 4% and operating expenses by 4.6% from
FY23-28 due to those new capital projects and initiatives, driving growth above the 10-year pre-pandemic historical baseline of roughly 3.3% and 3.4%, respectively.
“We see budget gaps emerge within the next five years,” O’Hara said. “In other words, absent any recurring revenues, the spending associated with these improvements increases budget growth and budget gaps.”
For example, the T is planning for a 1.4% assumed budgeted headcount growth from FY24-28, that is targeted to increase its current operating staff from 5,590 to 7,529 employees at the end of that time period, according to the pro forma presentation.
It will also have to contend with the uncertainty of ridership levels, which are currently bringing in roughly 51% of pre-pandemic fare revenue. That’s higher than the worst ridership scenario, but lower than the one the T is assuming for its fiscal year 2024 budget projections.
Other potential budget risks for the fiscal year ‘24 budget, O’Hara said, are fuel pricing fluctuation and inflation.
O’Hara said the T will be able to resolve its initial $236 million projected FY24 budget gap with higher than anticipated state sales tax revenue, active debt service management, additional state funding, and federal pandemic relief funds.
Helping matters as well, she said, is the T has been able to benefit since FY21 to ‘22 from about 6% in “budget favorability,” or unused expenditures that could be put into reserves to resolve budget shortfalls.
And it’s been able to offset spending needed to comply with eight federal safety directives — through $266 million in additional
FY23 state budget funding for the ones issued in June, and $112 million in supplemental state funds for the final August directives.
However, subcommittee Chair Betsy Taylor said it was important to note that the upcoming fiscal year’s positive budget projections are “entirely dependent on one-time revenues.”
“The fact that we are draining all our reserves and all the available federal dollars for operating expenses means they are not available for capital,” said Taylor, who also noted concerns with the T’s “problematic” reliance on fare revenue, which is “trailing under budget” this year.