Two weeks after Governor Healey released her budget proposal, we can confidently say that the Commonwealth has a plan to fix the MBTA's budget shortfall and continue the agency's efforts to hire critical maintenance workers and bus drivers – at least for one more year.
A few months ago, the T needed to fill a $700 million shortfall in its 2025-2026 budget thanks to rising labor costs and lower-than-expected revenues from fares and its dedicated share of the state's sales tax.
But earlier this month, the state announced that it would be able to fill that gap, with no new taxes, using higher-than-anticipated tax collections from the state's new "Fair Share" income tax.
"This investment will help stabilize the budget and support the effort to continue delivering safe, reliable, and improved service while also increasing our hiring efforts. We are not predicting service cuts or layoffs," an MBTA spokesperson told StreetsblogMASS.
Filling a $700 million hole
Here's a breakdown of how the Healey administration's proposal compares to the past two years' budgets:
Note that the MBTA's portion of the sales tax, which has been the agency's biggest source of funding since 2000, is expected to decline this year by about $40 million.
To make up for weaker-than-anticipated growth in sales tax revenues, the T has been relying on an increasing amount of subsidy from the Commonwealth Transportation Fund (the red bars in the chart at left), which collects money from the state's gas tax, motor vehicle sales taxes, and registration fees.
For a number of years, that subsidy had been $187 million, but lawmakers doubled it last year.
This year, the Governor plans to give the Commonwealth Transportation Fund a $765 million infusion from its higher-than-expected Fair Share tax collections. The Commonwealth's budget writers think that this infusion could also be sustained in future years as well, creating a more reliable source of transportation funding for the T and other agencies.
Here's how the Governor suggests we should spend that additional $765 million:
- $500 million would go to the MBTA to supplement its operating budget;
- $110 million would go to Regional Transit Authorities (RTAs) to supplement their operating budgets;
- $100 million would pay for debt service on Commonwealth Transportation Fund bonds. If this level of spending were sustained in future years as well, it would let the state borrow roughly $5 billion in bonds for major capital projects, like bridges and rail improvements (more on this below);
- $55 million would help pay for MassDOT's operating budget.
The $500 million that the MBTA could get in new Fair Share revenue would combine with the $187 million the T got in prior years to yield a total of $687 million in MBTA funding from the Commonwealth Transportation Fund next year.
Even after factoring in the decline in sales taxes, the Governor's state funding for the T would be about $260 million higher than last year's state funding levels.
There's still a deficit – but it's a manageable one
The T expects to spend $3.1 billion in next year's operating budget, so Governor Healey's budget proposal would cover roughly two-thirds of the T's costs.
Here's a breakdown of other income the T could use to cover the rest:
- Fare revenues in the 2024-2025 budget are expected to be around $400 million;
- The T gets another $100 million from miscellaneous sources like parking fees, advertising, and real estate leases;
- Member municipalities contribute about $200 million a year;
- And the federal government provides another $190 million (which may not be a reliable source for next year)
Add up all these funds, plus the $2.1 billion from the state budget, and you get a little under $3 billion – about $100 million short of what the T actually needs.
Governor Healey proposes to paper over this gap – for now – with a one-time infusion of cash to rebuild the T's financial reserves.
Kicking the can past the next election
Recall that all this extra money for the T in the upcoming year's budget is coming from higher collections the state is getting from the new Fair Share tax.
But the state has been collecting Fair Share taxes since January 2023. So in addition to the extra money available in next year's budget, there's also more than a billion dollars' worth of unexpected surplus from the past two years that the state hasn't spent yet.
In addition to her main budget bill – House bill 1 – Gov. Healey is also submitting a supplemental budget to spend the extra Fair Share money they've already collected. Most of it – $780 million – would go to the MBTA, for the following purposes:
- $400 million for spending and payroll costs required by the FTA's safety management inspection;
- $300 million for an MBTA budget stabilization reserve fund;
- $67 million for low-income fares;
- and $13 million to compensate the T for the fare-free operations it offered during the Sumner Tunnel shutdowns during the past two summers.
After years of relying on federal pandemic relief funding – money that's mostly been spent at this point – this one-time funding will replenish the T's reserves and give the agency an additional resource to patch over smaller budget deficits for the next two or three years.
Eventually, lawmakers will need to come up with new taxes or fees to actually fix the MBTA's structural budget deficit for the long haul.
The Governor's plan will probably let her postpone that conversation until after her re-election campaign in 2026.
A little debt relief
Governor Healey's administration is also planning to pay off about $89 million worth of "legacy debt" that the T inherited from the Commonwealth a quarter-century ago.
Administration officials told StreetsblogMASS that they plan to use funds from the state's new "federal funds matching pool," a fund that lawmakers created last fall from higher-than-anticipated interest on the state's rainy day fund.
While the primary intent of that fund is to provide a source of matching funds for federal grant awards, lawmakers also authorized using those funds to retire old debts.
The T currently spends $467 million a year on debt payments. State budget officials told StreetsblogMASS that paying off these old debts should reduce the T's payments by $13 million a year (about one half of one percent of its annual operating budget).
And a little more on the state's credit
Last year, the state budget set aside $60 million in Fair Share spending for transportation for the MBTA's capital construction projects, which includes major repair projects like the MBTA's track improvement program, building projects like station improvements and new bus garages, and major equipment purchases like new train cars.
The T issues debt to pay for these projects, which typically take several years to complete. As such, they're planned in a separate 5-year capital budget, which expands or contracts depending on how much additional debt the T can afford to take on.
As we've reported previously, the T has a backlog of $25 billion worth of projects it needs to complete to attain a "state of good repair." The agency's persistent annual budget shortfalls have been a huge barrier to actually getting those projects done: the T can't afford more debt when it can barely pay its day-to-day bills.
The Governor's new budget proposes to issue a lot more debt for transportation capital projects – but instead of making the T pay back that debt with its insufficient fare and sales tax revenue, as usual, the state will now issue new MBTA debt with the promise to pay it back from future Fair Share revenues.
The administration expects that if the proposed budget passes, they could leverage roughly $5 billion in bonds for new transportation capital projects over the next 10 years.
$1.4 billion of that additional borrowing would be earmarked for the MBTA to finance projects like new regional rail coaches, the new Red and Orange Line trains, the ongoing Track Improvement Program, station accessibility projects, and electrical power upgrades.
To put that number into context, the T's current capital budget calls for $9.6 billion in spending over the next 5 years.
State taxpayers will need to repay this new debt, with interest, over the decades to come, but budget officials think that we'll be able to afford it with all the additional Fair Share money coming in.
We'll continue to update this story as we learn more details about the MBTA's 2025-2026 budget, which will be the subject of several upcoming MBTA Board of Directors meetings.
Learn more about the Governor's budget recommendation here.
Read a briefing on the Governor's transportation spending proposals here.
