So the State Takes Over the MBTA's Debt …
Multiple voices have suggested during this debate that the state take over the MBTA’s Big Dig Debt. Just yesterday, transportation secretary Richard Davey added his voice to the debate noting that a debt transfer was not “a bad idea.” Administration and finance secretary Jay Gonzalez responded that this was “not a realistic solution.” (SHNS, subscription required.)
I’ve noted before that the term “Big Dig Debt” can be misleading as it refers to transit projects funded as part of a side agreement to the Big Dig (and not funding of projects related to the roadway itself).
But let’s play along with idea. If we transfer the $1.7b in debt associated with the Big Dig transit projects, what are the implications? In rough, back-of-the-envelope numbers, that frees up approximately $130 million per year in the MBTA’s income statement.
What they do with that breathing room is the key question — does it eliminate the seemingly yearly cycle of crisis budget cuts? It certainly lowers the pressure to cut low volume routes and pursue additional revenue.
My biggest concern is that it frees up the MBTA to make bad decisions about employee benefits or, even worse, continue to fund expansion. Using this temporary breathing room to take on more debt (to build more projects that need an operating budget subsidy) is a recipe for disaster.
And I’m unconvinced by the this-time-we’ll-really-keep-the-MBTA-on-a-short-fiscal-leash argument. That’s what Forward Funding was supposed to do, and although many of its initial projections have proven to be wrong, we’ve had 10 years to fix it.
In addition, adding $1.7 billion to the state’s existing $20.875 billion in debt is not free. First, we’ll need to find some room in the budget for the $130 million in debt service we’ll be moving over to the operating budget. Closing the public health hospitals or eliminating state facilities for the developmentally disabled would just cover the costs, to give you a sense of scale. Take your own look at the budget and figure out what you’d cut to free up the $130m.
The state also attempts to limit its debt service to less than 8 percent of the operating budget and adding $130 million per year to existing debt service (over $2 billion in FY13), which would put us close to that limit in a few years.
Moving debt off of the MBTA and onto the state is a zero-sum game. And there’s some potential that the MBTA would continue its unsustainable behavior of the past two decades if given a little breathing room. The idea is not without merit, but it’s being thrown around as a facile solution when it may be the opposite.
Crossposted at Pioneer Institute’s blog.