PART III: Why the MBTA is Broke
ESCALATING DEBT Higher debt-service payments mean bigger annual deficits. Last year alone the T spent $434.5 million in finance payments, which was an increase of $92.7 million from the preceding year. “They’re in a class by themselves,” Northeastern’s Stephanie Pollack says. By comparison, the New York transit system, which is about 10 times the size of the MBTA, carries a debt ratio that’s roughly one-third the size of the T’s. In fact, things are so bad with the MBTA that the $434.5 million it paid last year just to cover its debt is almost equal to the money it collected from fares. So every dollar that we, the riders, pay to the T does little more than provide the authority the money it needs to make the minimum payment on the money it owes.
THE ABILITY TO KEEP BORROWING Even with its finances in the gutter, the MBTA is able to keep borrowing. When you buy something in Massachusetts, one out of every 6.25 cents you pay in sales tax (the rate was raised in 2009) goes straight into the MBTA’s piggy bank. The T can then go to Wall Street and sell bonds to investors. The authority uses the money from the sales tax to guarantee those bonds. Basically, the T can say, “Your investment will always be repaid.” That fixed source of income has allowed the MBTA to continually borrow at exceptionally low rates. Robin Prunty, an analyst for Standard & Poor’s, acknowledged that it wouldn’t even matter if the T shut down tomorrow and never ran another train. So long as Massachusetts has a sales tax, investors who buy the T’s bonds will be repaid. And that’s how the MBTA maintains its sterling credit ratings. That said, cheap credit has proved a double-edged sword for the T. Yes, it’s good that it can borrow from Wall Street at low rates. At the same time, it has meant the candy shop is always open. The T can always return to Wall Street to borrow more and avoid making hard choices.
BUT HARD CHOICES ARE COMING There actually is a limit to how much the MBTA can borrow, it turns out. Prunty, the S&P analyst, estimates that the authority has about $500 million worth of borrowing space left. And Brian Kane of the MBTA Advisory Board says that if the T continues increasing its debt at current rates, in three to five years it will reach its limit. “They don’t have any more tricks left,” says Michael Widmer of the Massachusetts Taxpayers Foundation. “They’re running out of room, unquestionably.” In the end, it all boils down to this: the more the T spends on debt service, the less it can spend keeping the system safe and reliable.