Serious wonk post. But that's what is required for this problem.
- promoted by david
With the recent performance of the MBTA during these record snowfalls, coupled with the recently announced departure of the MBTA General Manager Beverly Scott, I took it upon myself to dig more into some of the numbers that got us here to see what sort of options there were for us to get out, while spending some time looking at other transit systems around the world to see how Boston stacks up.
The D’Alessandro Review
A first point of reference is the D’Alessandro MBTA Review commissioned by Gov. Patrick in 2009. It offers a great breakdown of the history for Forward Funding through 2009 and the major areas that impacted the MBTA during that period. Of course as D’Alessandro commented in The Globe, he never got a call from anyone on Beacon Hill about this report, showing you how seriously our elected officials actually take the T.
Let’s start with a quick run-down of the D’Alessandro findings about the T’s costs:
Cumulative Revenues/Costs vs Forward Funding projections through FY2008 in Millions of Dollars:
Fuel & Utilities Expenses: $-256
Payroll & Benefit Expenses: $-113
The Ride Expenses: $-95
Commuter Rail Expenses: $-37
Sales Tax Revenue: $-150
Transportation Revenue: $95
Non-Operating Revenue: $2
As this illustrates, the T fell behind Forward Funding’s projections in all categories except Transportation Revenue. What does this teach us?
Forward Funding had many flawed assumptions and created a structural deficit at the MBTA (Even the conservative Pioneer Institute has described the T as “structurally insolvent“)
More people are riding the T than were projected in 2000 and they’re willing to pay for it (Positive Transportation Revenue)
Everything cost more than was estimated in 2000 and without being able to raise revenues to make up for these, the T was doomed from the start
The T effectively saved itself money by restructuring and carefully managing it’s debt service, however without positive cash flows they have not been able to make a positive dent in their debt, leading to the ballooning debt picture we see today.
Lastly, slashing benefit & payroll expenses to the core could not have saved the T as the rests of its variable costs are still higher than management’s ability to save money elsewhere
Talking About Transportation As An Investment
When we look outside of the United States, there’s a very different attitude about public transit. In most places in Europe and Asia, investing in transportation is seen as an investment into an area’s economic well being. A great example of this is Singapore, which didn’t establish it’s metro system (The MRT) until the 1970s. If you read the history of the MRT, the most interesting note is the foresight of Singapore’s planners. Because they were working within the confines of an island, even though they could have built a bus-only public transit system, they knew that in 30 years time (By the 1990s) they would need a rail based system, due to population & economic growth. They then chose to build rail when it was less expensive to do so knowing they would reap the benefits later on.
You’ll find a similar story in London. Transport for London (TfL), which is steered by an independent board chaired by the Mayor of London, views its expenditures as an investment in the economic well-being of London and the larger UK.
Transportation expenses are an investment in a region, through increased property values, job opportunities, economic impact and time saved commuting via road. If you look at our own local Green Line Extension (GLX) program, The Globe cites a study by the Metropolitan Area Planning Council estimating that real-estate within walking distance of the new GLX stations will see property values rise by 16-30% over the next few years. That in turn increases the local property tax base and also increases returns for real-estate investors. It can be harder to measure the indirect economic impacts of transit, but a study by IHS Global Insight from 2014 estimated the economic impact of a 1 day snow storm on Massachusetts to be $265M. If you have reliable public transit that can operate during bad weather, it can make a serious dent in that impact and keep the region humming.
Capital Investment And The Limits Of Public-Private Partnerships
Capital investment, whether it’s in rail, roads or airports, is an expensive business. Critics of public transport often claim that these agencies couldn’t survive as private enterprises due to capital costs vs prices they could charge to recoup them, and they’re probably right. But the same is true for airports and roads. Various studies go into much more detail about the comparisons between the three modes of transportation, so let’s focus on other countries with developed rail networks and how they’re funded as well as the impacts of Public-Private Partnerships and privatization.
The UK
The UK, and the London region in particular, have a great rail system. Between the various rail services and the London Underground, it’s possible to get from almost anywhere in the greater London region (Including outside the M-25 beltway) to anywhere else in the region, often faster than it would be to drive. (I can vouch for this as someone who lived in London from 2001-2003).
There are two major divisions of transport in London – the subways (London Underground) and the rail networks (Network Rail).
The London Underground is owned & operated by Transport for London (TfL). In many ways, its system is similar to Boston’s in that much of the infrastructure was build in the 1880-1920s. Today TfL is funded through ticket revenues and the rest via government grant. The government money comes in the form of separate operating & capital outlays from the national government, which controls the vast majority of taxation powers in the UK & London.
For the year 2013/2014, TfL had fare revenues of £4.7B with projected 2015/2016 revenues of £5.4B. Even at that level, they require a supplemental grant from the Government of £842M (2014/2015) and £665M (2015/2016) to cover operations expenses.
Further to that, the Government is intending to provide another £909M-£925M per year over the next 2 years to fund capital expenditures.
Back in the early 2000′s, TfL attempted to implement a Public-Private Partnership program to help unleash the power of the private sector on its infrastructure costs. The PPP consisted of TfL providing manpower & operations for the Underground network and signing 30 year concessions to 2 separate private sector operations that would provide rolling stock, infrastructure maintenance & improvement and station maintenance & management. The private operators were placed on a performance measurement system where they would receive bonus payments for increased operational efficiencies on the network and would pay steeper penalties for falling behind vs the benchmarks. The benchmarks were set slightly below the public operations, meaning the private operators didn’t even need to meet the current standards on the Underground.
The results were abysmal. Both PPP operators went bankrupt within 7 years, with Metronet going bust in 2007 and Tube Lines in 2010.
Today the Underground is fully operated by TfL using the revenue & grant structure as above. Debate continues over the proper structure of the Underground, but it is seen as a vital engine to London’s economy so investment continues.
There are other examples from the UK such as Manchester’s Metrolink system, which is operated as a PPP. Metrolink does have a positive farebox recovery ratio, but the infrastructure is still owned & financed by Transport for Greater Manchester. It was also less burdened by aging infrastructure, like in London, as the light rail system was built mostly from scratch beginning in 1989 (Repurposing old heavy rail lines and building new purpose built infrastructure).
The UK’s rail system is similarly operated. British Rail was privatized in the 1990′s under the Conservative Government. Infrastructure was devolved into a company named Railtrack and various train operating companies that would provide rolling stock & manpower. This system lasted about 8 years until Railtrack went bankrupt under the strains of proper capital investment. It was then acquired by Network Rail which exists today as a semi-private but government backed infrastructure company. Train operators continue to be private, purchasing “concessions” to operate given routes.
France
France’s rail operations are split between SNCF (Train operator) and RFF (Infrastructure). SNCF is cash-flow positive and operates trains across the globe. But RFF was formed as a “bad railroad” absorbing the large debt of SNCF. It is government owned, meaning national tax dollars are used for infrastructure improvements & debt service beyond what it charges SNCF.
The Paris Metro is entirely operated by RATP. While RATP does have global operations running bus & metro systems around the world (Including operating the above mentioned Manchester Metrolink), it is still government owned.
Germany
Germany’s rail operations are run entirely by Deutsche Bahn. DB is entirely owned by the Government of Germany. The government is obligated by its Constitution to provide capital funding for the national railways:
In accordance with Article 87e (4) of Germany’s Basic Law, the federal government ensures “that due account is taken of the interests and especially the transportation needs of the public [...] in developing and maintaining the federal railway system”. - Deutsche Bahn Investor Relations
DB’s gross capital expenditures for 2013 amounted to €8.2B, with €149 billion invested since 1994.
DB, like SNCF in France is interesting, in that even though it is entirely owned by the German government, it has operations around the world. They contract for rail, metro & infrastructure operations in many countries, allowing them to earn profits that they can plow back into their home system. It’s an interesting example of “Government Sponsored Capitalism”.
Japan
Privatizers love to point to Japan’s railroads as an example of how private business can operate successful train companies given the right conditions. However Japan’s railways offer a mixed bag – successful regional private rail companies, and privatized national railways that were given a large leg up by government capital expenditure.
In 1987 there was a major push to privatize the national rail system in Japan. Japan National Rail (JNR) was split into 6 regional railways and 1 freight railway. These 7 railroads were taken over by the Japanese National Railway Settlement Corporation, which became the sole shareholder of all 7 railroads. At formation, the JNRSC inherited ¥25.5 trillion in long term debt racked up by the railroads (About $214 billion at today’s exchange rates). JNRSC sold off shares of the JR East, JR Central and JR West railroads to help pay down the debt. However in 1998, the JNRSC was taken over by the Japanese government, at which time its debts had ballooned to ¥30 trillion ($253 billion at today’s exchange rates). The remaining 4 railroads remain owned by the government today.
Of the 3 public JR Rail companies (JR East, JR Central, JR West), each is profitable without the legacy debt payments required for their infrastructure improvements. To further diversify themselves, each invests in real-estate (Residential, commercial & shopping centers), leasing spaces in their stations, distribution and other activities. Based on 2014 financial filings, each earns 65-70% of their revenue from passenger transportation.
In Tokyo, there are two separate subway systems – Tokyo Metro and Toei Subway. Tokyo Metro is jointly owned by the Government of Japan and the Toei Subway is owned by the Tokyo Metropolitan Bureau of Transportation. Both are highly advanced & punctual and connect with one another as well as JR & regional trains within the Tokyo region to offer a highly versatile & interconnected local transit system.
If we look at Japan’s more successful private railroads, they offer a different model. Leading up to World War II, intercity rail service in Japan was nationalized (Leading to what became JNR and now JR, above). Private rail operators were still allowed to operate regional rail systems. The government encouraged rail operators to build railroads into rural and underserved areas where they then built the communities – engaging in real estate development, building of recreation & leisure centers and commercial real estate along their lines. They then had a captive audience for the rail networks. To draw an American comparison, compare these operators to HP – the rail networks were the printers, and other other services were the ink. The rail development was not necessarily a loss leader, but it was the other business ventures of the railroads that made them successful. A quick review of FY2014 financial filings from Japan’s “Big 15″ private rail operators shows that most between 17-40% of their revenue from rail transport – the rest of their income comes from distribution & logistics, real estate, retail operations, diversified financials services, bus & taxi operations and other lines of business.
Singapore
We would be remiss to discuss rail operations without discussing Singapore. Singapore operates a hybrid system for their MRT, where the government provides all capital for construction, then outsources operations of the subway lines to private operators. These operators help keep operational expenses low & competitive, but as the government has sought to expand service, they’ve invested north of $20 billion per line for the latest works. Even at these high levels of investment, as Singapore is a newer system, it doesn’t have the legacy infrastructure maintenance costs of Boston or London.
Hong Kong
Lastly, let’s finish with Hong Kong. The MTR system in Hong Kong was privatized in 2000 to become MTR Corporation. In 1997, MTR was already making profits over HK$278 million, which has continued through privatization. The original development costs for its network were covered by the Government of Hong Kong, along with developers who built along the lines and built interconnections from their developments into the metro system.
Similar to the railroads in Japan, MTR now makes most of its money from real estate and managing transportation operations in other countries. In FY2013, MTR only made 40% of its revenues from transit operations.
As we can see from these above examples, the only transit operations globally that are able to make a profit require either government investment/subsidy or supporting business operations to sustain their capital operations. In this way, railroads are similar to airlines which require government funded airports to operate, and most airlines outside the United States even operate with direct government subsidy.
Rail vs Road, The Chicken & The Egg and The Role Of Integrated Urban Planning
Another major challenge of building a sustainable rail system is building a system that is as cost & time effective to its users as the road system is. Rail dominated America into the 1920′s before government started investing heavily in road infrastructure and then later on airport infrastructure.
All modes of transit have trade-offs. Cars offer autonomy and the ability to go almost anywhere, but have high costs to the individual for gas, maintenance, insurance and time sitting in traffic. Air is by far the fastest, but is very expensive and requires additional travel time due to security and getting to/from the airport. Rail, both long distance & commuter rail, offers the ability to by-pass traffic and connections to transit systems often allow users to get close to their final destinations.
The debate we all face when we go out the door is what will get us to our final destination while balancing cost, convenience and reliability.
One of the largest challenges we have in suburbanized America is enticing people away from cars (Which are great in the dispersed, car friendly suburbs) as they commute into our redeveloping urban cores. People will gladly sit in traffic when they see the rail system as unreliable or too expensive or too slow, relative to driving. If you already have the car and are making financing and insurance payments, if the cost of fuel is less than a train ticket, why would you chose rail? But as we’ve seen in Boston these last few weeks with snowstorms that have not just only crippled the MBTA, but have also restricted the flow of vehicles around towns & into Boston, we can’t rely on cars alone. The outcry from the T riding public, and from car commuters now facing more competition on the roads & highways, speaks volumes about our region’s increasing reliance on the T.
However the Boston area will need to think larger than just fixing the T to shuffle people in & out of work each day. A major challenge we face here is how to make the T pay for itself when it’s not rush hour. With Boston’s many cities and towns, with different planning & zoning responsibilities, makes the sort of integrated, transit oriented development you see in other parts of the world hard to recreate. A great example is the T’s new Assembly station in Somerville. The station was built by a private developer and has made reaching the Assembly Outlets easy for Orange Line ridings from around the area. But the station’s non-integration with the development, the lack of MBTA buses running to the station itself from the surrounding area, and the lack of garage parking to make the stop appealing to local commuters who might otherwise just drive into the city, reveals a lack of regional vision for Boston’s development.
Similar development oversights have made Boston’s transit system supremely downtown oriented. While the MBTA has been planning an Urban Ring plan since the 1990s (And other plans have existed as far back as the 1920s) and the North-South Rail Link during the Big Dig, a lack of transit oriented development in the suburbs and poor interconnections within the city have kept urban dwellers from being able to easily commute outside of Boston without a car. Anecdotally, the author has friends who recently moved from renting to owning in the South End. Long-time car commuters, one friend who is a doctor recently changed jobs from a hospital north of Cambridge (requiring a car) to Quincy Center (Accessible to the Red Line). However bus connections from the South End to Andrew or Broadway make getting to the Red Line difficult (Plus slow & irregular Red Line service), often leading to hour+ commutes, when a reverse commute by car took only 15-20 minutes. Much of the development outside the Boston core focuses on the Rt. 128 corridor, but the Green Line connection to Riverside or Commuter Rail connection to Dedham leave commuters dependent on bus or private shuttle to each the litany of corporate parks along ringing the interstate.
With the re-urbanization of America, and Boston’s growing urban core (Including most areas of Cambridge and Somerville), we will have to reinvest in our rail infrastructure as we’re quickly running out of room to increase road capacity. And considering the cost for the Big Dig, the region will think twice before further increasing road capacity downtown.
Finding Cash Flow – Who Pays, Who Wins, Who Loses
To continue to invest in our region’s development, the State will need to find the revenues to pay for rehabbing our aging infrastructure while trying not to shift too much traffic onto our congested roads, while trying to plug a budget gap of over $760M.
While in the past, MBTA budget shortfalls have been funded from general taxation, it would be worth considering alternatives that could bolster our infrastructure investments.
Different ideas:
Real Estate – While the MBTA may not have the large rail stations of Europe or Asia, many stations have the room for basic commercial development. Many could be homes to small retail establishments (Dunkin Donuts, Starbucks, news stands or similar). Large stations such as Back Bay offer great opportunity for large scale development with mixed retail, residential & commercial. When South Station was rebuilt in the 1980s, the BRA assisted the MBTA, however the BRA retains the air development rights meaning any development over South Station would benefit the BRA, not the MBTA. Now that the state is pushing heavily for South Station expansion, a deal should be structured to return air rights to the MBTA to give it another revenue stream. This would be in-line with the model of successful Japanese & Hong Kong railways.
A commonly suggested idea is for the Legislature to increase the assessments that towns & cities served by the MBTA pay into the system each year. This would help change the perception that the rest of the state subsidizes the T by increasing the share covered by assessments versus what’s provided by the MBTA’s 20% cut of the State’s sales tax. However one major drawback of this approach is that assessments are paid for out state aid granted to cities & towns. This will impact budgets which are constrained by Proposition 2 1/2. Asking the cities & towns to pay more directly is good politics outside the Boston region, but will put a strain on the areas impacted by it.
Another idea to have the Boston area pay for the T would be a State level an MBTA property tax surcharge. Proposition 2 1/2 limits the ability of municipalities to raise their property taxes and mill rates, but not the State. In the towns currently served by the MBTA Subway and Commuter Rail (Excluding towns served by only bus), there is a total of $504 billion in assessed property (Residential, Commercial, Industrial and Personal Property) according to the Massachusetts Department of Revenue Municipal Data Management and Technical Assistance Bureau. At even low tax rates, this would minimally add to property tax bills while creating a steady revenue stream (Property assessment levels stay much more consistent than sales tax levels, which are highly correlated with the economy). This could be a potential work-around vs raising assessments. However, as was seen with the 2014 gas tax increase, this could easily be overturned by voters who are looking for someone else to cover the capital costs.
Corporate tax surcharge in the MBTA region – In New York state, there is a 17% corporate tax surcharge levied on businesses operating in the greater New York City metro region that helps cover the operating costs of the MTA. As many of the beneficiaries of the public transit system are the companies who need their employees to get to work, this would help to add a corporate contribution to the MBTA’s revenue stream outside of the 20% sales tax, which is largely shouldered by individual tax payers.
Hotel & Airport Taxes – When tourists & business travelers visit our region, many make use of our transit system, but their only contributions are their sales taxes & user fees (In the form of tickets). While these aren’t necessarily cheap, hotel & airport taxes could help capture additional revenue. Boston USA reports that international travelers alone spent 2.5 million room-nights in the Boston area in 2014. Based on an average nightly cost of $250 (Also from Boston USA) that equates to $625M is taxable revenue (before accounting for domestic travelers). Massachusetts does already levy a state hotel tax, along with a local option tax and a 2.75% additional tax in Boston, Worcester, Cambridge, Springfield, West Springfield, and Chicopee to pay for our convention centers, but travelers rarely make travel choices based on local taxes, so this could be a reasonable source of added revenue.
Tolls, Congestion Charges, Parking Surcharges – Going back to the chicken & the egg problem, increasing the costs of commuting by car is an effective way to move trips onto rail while raising revenues at the same time (However you need to deliver on rail improvements, potentially up-front, otherwise you’ll be left with many disgruntled taxpayers). Massachusetts already has tolls on i-90 and the Tobin bridge, but not on i-93, which is consistently clogged. Placing tolls on i-93 both north & south of Boston would change the financial calculations for car commuters. Congestion charges like those in London or Singapore could be employed to further reduce car travel into the city (Encompassing areas of Boston & Cambridge). While in London the congestion charge has not been a major revenue driver, it changes consumer behavior and drives rail ticket revenue. A last idea would be parking surcharge on all downtown parking garages and non-residential private lots.
Public-Private Partnerships For Development – While the examples of PPPs in capital maintenance of rail networks outlined above mostly point towards not being an effective way to keep down capital expenses, there may be room for PPPs in terms of development (The proposed MBTA West Station, being built in partnership with Harvard University, is a good example). New developments such as the South Station Expansion are currently being structured as a PPP (Though with the aforementioned note that BRA controls the air rights at South Station). More development PPPs could create additional revenue streams for the MBTA. Examples could be continued expansion at Kendall Square or a new development on top of Back Bay station. Developments could be added to the Fairmount Commuter Rail line where the MBTA could be a partner with the BRA to redevelop areas around the commuter rail stops (Especially once DMUs are added to the CR network, giving higher frequency train services to these areas). Additionally redevelopment along the Worcester line such as at Brighton Landing (New Balance) could fit this model.
Revenue Then Reform, Or Reform Then Revenue? We Need Both And Modernization To Boot
One of the most common debates about the MBTA is should we reform its institutions and methods of operation before it can be entrusted with more funding, or should we get the funding in place to increase safety and ridership? If our last 30 years of history have taught us anything, it’s that we need both.
In 2009, Gov. Patrick & the Massachusetts Legislature created MassDOT as an umbrella “super-agency” combining MBTA, Mass Highway, the RMV and other transportation agencies. Newly appointed Baker Secretary of Transportation Secretary Stephanie Pollack will need to guide & reform these agencies to achieve some economies of scale. However, to earn the trust of the voting public, reform must continue and be visible.
Many suggestions have been made to directly reform the MBTA’s operations and enhance its service:
Immediately address the structural deficit the MBTA faces with new revenue streams as outlined above
Fully fund & prioritize the MBTA’s “State Of Good Repair” maintenance backlog (Currently estimated by the MBTA to be over $3 billion).
Increase transparency of the MBTA pension system, or during the next MBTA union negotiations, roll the MBTA’s pension into the normal state pension program
Health care and fringe benefits were one of the largest drivers of costs under the D’Allesandro review. MBTA employees should be brought under the state health insurance program. Adding them to the larger state pool would result in costs would be decreased.
Outsized maintenance costs should be reigned in if kept in-house, or outsourced to free up working capital. While good paying union jobs & workers can be a great asset to the system, the T’s costs are some of the highest in the country.
For more frequent service on heavily utilized subway lines (Making better use of trains and providing a more timely service as an alternative to cars), the T needs to upgrade its signaling infrastructure to Communications Based Train Control (CBTC). This would reduce headways and could allows Orange and Red line trains to run as close together as every 2 minutes at rush hour (Based on similar upgrades to London’s Jubilee line). CBTC would also allow for single operator trains (Provided union contract work-rules don’t prevent this), again lowering costs. NYC has done this on the L and 7 trains.
Return air rights for South Station from the BRA to the MBTA to provide the T with added revenue streams from the redevelopment and future MBTA expansion.
Invest in the Indigo Line project – The Indigo Line would cross-connect multiple parts of the MBTA system using light weight, faster Diesel Multiple Unit (DMU) trains. It would run trains more frequently on the Fairmount line (which currently sees trains only ever 45 minutes at rush hour), create a new connection between Back Back and the Innovation District/Convention Center, create a new rail connection to Riverside, and put trains back into service along the Grand Junction line, connecting the planned West Station with Cambridge and North Station. So many aspects of this project make sense on so many levels that even the conservative Pioneer Institute, usually highly critical of the MBTA and its management, supports it
Increase capacity at MBTA Park & Ride facilities and convert all facilities to modern, automated payment machines. This will reduce manpower for parking enforcement and prevent skipped parking fees at remote lots. This should include enlargements of the parking facilities at Alewife, which was originally designed to have 2 extra levels of parking.
Complete the North-South Rail Link – Without the rail-link, all rails only lead downtown. If we want to keep vehicles going through downtown to other suburban areas, we need to enable commuters to make use of the Commuter Rail. Today this is difficult as commuters need to ride into either North or South station, then transfer across two subway lines to make the connection. By completing the North-South Rail Link, Commuter Rail trains could run through service between the North & South shore with connections to Metro West. Many of the transit oriented development ideas outlined above require it to be easy for passengers to ride the rails to get to their location. Without this vital connection, the Commuter Rail will only ever be exactly that – completing the Rail Link turns the CR into a Regional Rail system.
Convert all Commuter lines and Green Line surface stops to automated fare collection. Most Commuter Rail stations can have fences and fare-gates installed easily and automated ticket collection would reduce the need for manual ticket collection. Green Line stops may be harder, but all Green Line stops should have CharlieCard/Ticket machines installed which would speed up boarding (No waiting for riders to purchase fares from the conductor at boarding time, which can lead to long delays).
Work with MassDOT and the City of Boston and Town of Brookline to streamline Green Line train flow on all lines with street lights. Currently Green Line trains wait at traffic lights like all vehicular traffic. Traffic signaling systems should be upgraded to prioritize Green Line trains to help reduce travel times on these lines. Additionally, service on the “E” Line service to Heath Street should be extended to Arborway and research done on grade-separating the trains once they start running at street level at Brigham Circle which is a major choke point in the system at rush hour and in inclement weather.
Improve the Silver Line BRT service by completing the Silver Line Phase 3 improvements to take Silver Line buses off the congested downtown streets and create “single seat” connections from Roxbury/South End to the Innovation District/Seaport. Additionally, upgrade the Sllver Line right of way along Washington Ave. to include lights that favor BRT traffic to reduce travel times into the downtown.
This is only scratching the surface of the changes the MBTA needs to see. Boston likes to talk about itself as a “Wold Class City” and the Hub Of The Universe. We need to work hard to live up to these titles. As the discussions continue after these winter storms, many people will be worried about funding these initiatives, but we need to look at them as investments in our region, our economy and our population. By investing in tomorrow, we can deliver on the World Class Region we like to think of ourselves as.