This is a couple of days old, but it’s still bugging me like a pebble in a shoe: In reaction to some legislators’ attempt to have the state take on some of the MBTA’s crushing debt,
Treasurer Tim Cahill seems to want to defend his neatly-fiscally-disciplined turf:
State treasurer Tim Cahill is tossing cold water on a legislative proposal to alleviate the MBTA’s crushing debt burden through a state bail out.
Cahill penned a press release today saying the state has its own $18.5 billion tab to worry about and should not be forcing another burden on taxpayers, especially those who don’t even ride the T.
“We’re already asking people to pay twice for the T – once through the state sales tax, and once when they ride,” Cahill said. “We can’t ask them to pay a third time by turning this debt over to taxpayers statewide.”
The proposal by legislators is to transfer $2.9 billion of the T’s $8 billion debt burden – the largest of any transit agency in the country – to the state for repayment. T officials have offered support for the proposal, saying it would help avoid continual fare hikes and restructure its broken finances.
I think the “paying for it three times” argument is pretty thin gruel. All kinds of things have different revenue streams — e.g. Do we complain that we “pay three times” for schools because we pay property, state, and federal taxes? The question is: Do we need public transportation in the greater Boston area, the region’s economic engine? And do you want it to thrive, or continue its current death spiral?
Even more to the point: This strikes me as yet another example of territorial, defensive thinking in MA government. Look Tim, the T can’t increase fares 28% all the time — at least not without jazzing up the service immensely. That’s just a jackass way to run a business.
So come on, Tim, if you’re so smart, bring some solutions to the table. If the Barrios/Wolf/Sciortino bill isn’t the answer, what is? Be a part of the solution. Can the debt be restructured somehow? Are there temporary revenue sources that could be used for the specific purpose of paying down that debt? You’re the expert, right?
But please, don’t just tell us “You’ll get nothing and like it!”
it hasn’t even been paid for once.
Sorry but Cahil is right, but for wrong reasons. 1) State already has 2nd highest per capita bond indebtedness in nation. 2) state bond cap is $1.3 billion, about go to almost $1.5 billion annually. Adding the 2.9 billion to states debt load is impossible and will add hundreds of millions of new debt service costs to the state budget. 3)Legislators outside MBTA service area dont want to subsidize T more than they already do. 4) The T finances were reformed in 1999, first time since 1964. Its unlikely to occur again so soon. 50 This “bill” is nothing more than your standard run of the mill Jared Barrios “cheap headline, no chance, get peoples hopes up, do no follow through and move on to next cheap headline Legislation”. The problem is the T went on a capital project spending spree under Kerasiotis Cellucci and Weld. They ignored multiple reports (Pat McGovern Blue Ribbon Commission; Mass Taxpayers Foundation; Pioneer Institute) warning of over expansion, didnt prioritize (i.e Greenbush Rail instead of Blue line extension, Green line to Somervilee, Fall river/New bedford, etc. 5)The reality,nocapital expansion any time soon, Tim Murrays pipe dream of more commuter rail projects ,Not Gonna Happen.
I’m wondering when someone is goig to realize that when people lend money, they take a risk that it won’t be paid back. And, like gamblers everywhere, they shouldn’t risk what they can’t afford to lose. Default on the suckers, fer crying out loud.
What an absurd thing to say!
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Sure, lending money always involves a small amount of risk. Yet, the vast majority of lenders protect themselves either through tying the loan to collateral (assets pledged by a borrower to secure a loan or other credit, and subject to seizure in the event of default) or to existing legally enforceable rules that ensure very low rates of default.
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In the case of bonds issued by the state, the lender (purchaser of the bond) is loaning money in an extremely safe way (and taking a heck of a lot less risk than the average gambler) Though the interest paid is lower than many other investments, the bond holder is virtually guaranteed to recieve their money back since their investment is backed by the full faith and credit of the state. A “high bond rating” (as we have here) is simply another way of saying that the lender of the money (the bond holder) will almost always get paid back. The state, meanwhile, gets to borrow money in a very efficient way and at a very low interest rate.
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To suggest that the state default on bonds (which would result in years of legal battles and would be a worldwide embarrassment) is essentially the same as saying Massachusetts should stop borrowing money altogether. To give up this option would be terrible public policy.
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More on your proposal to apparantly create some sort of conception police force at another time.
And when the Commonwealth becomes a high risk borrower, how much do you think your taxes will have to rise to make the nut payment with 20% interest on a billion dollars plus of debt?
I just think that when governments borrow money instead of just taking it in taxes, they are no longer being governments and have become enforcers and leg breakers for the rich. Rich people have figured out some sort of scam where instead of paying taxes, they lend the government money as an investment, and the state then taxes everyone else to pay them back. When will we realize that we don’t have to do it this way, we can just take their money, which they obviously don’t need or they wouldn’t have lent to us in the first place. They say they want 20% interest the next time we want to borrow money, tell them their taxes will be 500%. I don’t work for rich capitalist’s investment funds.
Let me try to answer that.
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First, I hope you’ll accept the premise that selling bonds(yes, tax free in many circumstances) is the most effecient and effective way for a government to borrow money.
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Second, then, is the question of why borrow at all?
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Borrowing money has several advantages to paying for every government expenditure with revenues (taxes):
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1) Borrowing allows the government to acquire assets or fund development that it could not afford on a “pay as you go” basis without much higher revenues. Just as the vast majority of people use a mortgage to buy a house even though they could never save the entire purchase price, borrowing allows the state to invest in things now that will be worth it in the longterm and would otherwise be too costly.
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2) The wonders of inflation and time, combined with the low interest rate paid back to bondholders, make borrowing very effecient. The money borrowed is not wasted, it is invested by the government to hopefully bring larger returns (both in money and in quality of life for state residents).
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3) Unlike borrowing, higher taxes have many other negative consequences (reducing incentives to invest and to work) and are politically very unpopular. Also, taxes (as we’ve seen) are generally very difficult to adjust up or down. Even if the original need for the tax no longer exist. For capital investments, bonds are superior because the funds they make available are typically targeted for specific expenditures that most residents agree need to be made. And since the types of projects that bonds tend to fund have long-term benefits, the costs are spread out over time. Governments should not borrow money to meet ongoing operating costs.
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In response to your “rich people scam” argument, I have just a few quick points. First, we can’t simply “take their money.” In addition to the negative implications of taxes that get too high, we also live in a democracy that requires negotiations about tax rates. Second, the argument that people buying bonds “obviously don’t need” the money is way too simplistic. When people buy bonds – even the rich – they are investing the money for needs they anticipate down the line (or for their heirs). Indeed, they are investing the money in a very conservative way that suggests they do “need” the money. If they didn’t “need” it, they could spend it or gamble it away in thousands of different ways.
More than the debt? Why is our agency the most heavily indebted in the country? It certainly isn’t the best in the country. Why not consider privatizing some of the system, especially if the new private entity could assume some of the debt. Privatized public transportation systems in other countries provide much better service, at lower cost, than our T.
I don’t know how much of the T revenue comes from fares, but our fares are substantially lower than other mass transit fares. We’re complaining about our current fares, but have you seen what other people pay?
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San Francisco: $1.50/ride
Chicago: $1.75/ride
New York: $2.00/ride
Baltimore: $1.60/ride
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We’ve just raised our rates from $.90/$1.25 to $1.25/$1.70 for bus/train fares, but that’s the rate level that most major municipal mass transit systems have been charging for many years. Until very recently, we were much less than that. Considering that municipal mass transit services always run at a deficit compared to their fare revenue Anyways, the T has never had a chance to be fiscally solvent without tossing insane amounts of money at it.
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I can’t prove it, but I’d bet that the T is the most indebted partly because of focusing on projects that don’t pay for themselves, but mostly because there’s no way to bring in the money that a frequently used system like the T can handle under the old fare/pass fare system. I can’t defend the past management, but I don’t think that even the best T management would have had a chance in keeping the T in the black with the demands that are currently placed upon it.
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Privatization is always a potential solution, but what company wants to deal with the ensuing Boston labor lawsuits and the complaints coming from the downtime necessary to transition from a public to a private transportation system? And what companies have successfully privatized a major US metropolitan mass transit system? It just seems like another Big Dig mess in the making if Massachusetts were to go that route.
According to their 2006 financial statement (Page 7)
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Percentage of Operating Revenue Sources for Year End June 30, 2006
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39% Subway Passenger Revenues
28% Commuter Rail Revenues
20% Bus Passenger Revenues
12% Other Operating Revenues
1% Other Passenger Revenues
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http://www.mbta.com/…
that the 12% is made up mostly of advertising — and perhaps some revenue from in-terminal vendors?
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Anybody got the goods?
… is good management, not necessarily privatization. As hokun points out, public/private partnerships are fraught with danger, especially in the context of our Big Dig Culture.
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Bob, can you tell us what kind of regulatory scheme the subways in Hong Kong (e.g.) are under? Is it Wild West laissez-faire, or are there pretty tight controls from the state as to quality and type of service, like a public utility?
But I think the market provides the primary regulatory barb: the corporation is intensely interested in maximizing usage, primarily to increase the value of their real estate developments in and around the stations, which it where they make their money. Wikipedia has some good information here. The MTR’s corporate site is here. One thing is undebatable, in my opinion: the quality of mass transit in Hong Kong is so much better than in Boston they are not really comparable.
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PS: I’m not saying the whole thing should be privatized just like that — boom! — I am saying that our system is way worse than those used in other places — pathetically worse, frankly, on a cost-performance basis, and to the point where it is impacting Boston’s ability to be an economically competitive place to do business — and that privatization, perhaps an experiment with a few lines, or a bus system, is something to consider.
So much transportation and transit money is federal – the state’s contribution pales in comparison.
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I suspect that the T would have more often gotten its belly up to the trough of federal transportation funds over the last decade except the Big Dig was taking every penny our federal delegation could wring out of the budget.
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Transportation projects that were supposed to have separate funding streams (the Metropolitan Highway System, enhancements, regional TIP projects) all suffered delays and cancellations as the money that should have been reserved for these projects went to the CA/T. When Senators or Congressmen got a chance to earmark more funds in the Transportation Appropriation bills, a good bit of that went to the CA/T.
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I expect other transit systems were getting some federal help with their major capital expansions, while Boston was pouring all of its transportation money down a different hole.
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Another likely factor: the T is one of the oldest transportation systems in the country, isn’t it? Maybe it had no choice about making some major upgrades, even though cash was short.
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Park to Boyleston is the nation’s first subway. However, that’s comparing the oldest part of the system, not the system as a whole. Is the Boston system as a whole older than NYT or Chicago’s El? I don’t know. The T is certainly older than the Washington Metro or the Atlanta MARTA.
What would traffic congestion be like without the trains and the silver line? How long would it take to get to the airport? To a Red Sox game if everyone had to drive to Fenway?
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Everyone has a stake in the T.
I live in Boston metro and I drive less than 50 miles a year in the area. I’m also good for about 4 trips (2 each way) to I-84 each year. That doesn’t mean I’m arguing that the pike past the 84 split is worthless to me.
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The T is part of a transportation network — along with highways, local roads, and sidewalks. Each piece works better when the other pieces thrive.
The T is part of a transportation network — along with highways, local roads, and sidewalks. Each piece works better when the other pieces thrive.
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Thank You. Finally, someone who looks at these things as part of a whole, and not an isolated entity.
Thank you for helping us, by driving on the turnpike to Sturbridge, subsidize the gargantuan projects along the I-93 corridor for all of those people who should be riding the T that we also subsidize.
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Finally, people look at the big picture to see why the entire state must foot the bill for everything in the metro Boston area.
air quality, gasoline prices, and climate change?
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You can say that again!
When they reformed the T revenue structure, it was my understanding that it became less state subsidized, and was supposed to be more “independent” in getting revenue streams.
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Once upon a time, we had very nice low fares people could afford. That could only come if if a substantial portion of the T’s budget was not from fares/ads/intake revenue, but some state tax revenue too.
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My priorities would be to go back to subsidizing it. Ridership was higher, service was better. If I recall, we had the highest per capita ridership in the country. This means less cars on the road and less environmental damage and more people getting about even though they can’t afford a car. It’s worth it in my mind. Why was there high ridership? Affordability, hands down. Who benefits from high ridership? We all do, even out west of the state. Especially when you factor in how much it costs to fix overused roads and the cost to the environment and global warming.
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But I don’t know all the circumstances surrounding the reform, since I was living in NH at the time. So does anyone have an overview?
The amount of debt directly impacts the interest rates that are paid on the debt – the more debt, the lower the credit rating, and thus the higher the interest rates.
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Tim Cahill, and Shannon O’Brien, our previous treasurer, have kept state finances in excellent shape, managing our funds and debts well. Punishing the treasurer by throwing more debt at him, forcing him to manage unanticipated billions of dollars will upset what is already a fairly precarious balance. It doesn’t seem like a sensible solution.
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The better question to ask is “Why does the T have so much debt?”
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Other good questions:
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-Where did the debt come from?
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-What are alternative sources of revenue?
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-What are potential fiscally profitably routes that the T should serve, that could help tilt the fiscal balance more into the right direction?
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-Suppose the T had no debt. Without any debt and any of its associated costs, would the T be in the black? Or would it still be in the red? If it will stay in the red, then taking over its debt is just silly, because it will generate more debt as it operates.
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Asking a person to take on the debt of another, and then being mad when they don’t want to, isn’t “defensive thinking”. It’s no different for a state agency, especially when we’re talking about the agency whose job is to manage the state’s debt.
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On the other hand, what if we return the MBTA into state government, then its debt would be the state’s debt. But no one wants to do that.
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What you’re proposing is for Tim Cahill to pay the MBTA’s bills, but without any control over how future bills get generated. That’s simply unwise.
except that perhaps Cahill should be asked to be part of the solution. You might say that’s not his job as treasurer, and maybe you’d be right; but Patrick asked the public to “bring not just your problems but your solutions”. I’d like to see the governor, treasurer, and legislature put their heads together and get something done, rather than posture and stall. Maybe this is the prelude to that — we can hope.
Your comments ignore the underlying debate about whether the MBTA should be self-sustaining (paid for almost entirely through T fares) or ought to be subsidized by the state (the taxpayers).
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If one views the MBTA as an entity whose only benefit goes to the direct users of the syste, then your arguments would make perfect sense.
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But we haven’t always viewed it that way and, I and others would argue, it would be better policy to fund the MBTA in a way that all taxpayers would subsidize the actual users (keeping fares lower). After all, each of us that uses the state’s roads, breathes the state’s air, or lives in the economy generated by the thousands of daily commuters are the beneficiaries of a workable MBTA system.
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If you accept this view, it becomes clear that asking the MBTA to operate “in the red” on its own is unwise. Particuarly if we want to continue to invest in new lines, new stations, new rail cars, and/or fund future capital projects.
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The MBTA simply cannot afford to provide the public transportation system we all want and pay off its debt. The MBTA debt is growing (some would say spiraling) out-of-control. Either the state (all of us taxpayers) must accept some of the responsability for paying down existing and future debt or we should decide we no longer want to maintain a viable public transportation system.
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I see little other choice.
Might include a model like in Hong Kong’s as discussed above. There are other alternatives too, though: allow private competitors, spin off parts of the T into different public agencies or private businesses or public/private ventures, introduce variable pricing. The point is that the current system is providing sub-standard service compared to what it should be, and what we want, I think.
There’s more to this than the bottom line. There are all sorts of costs in life, and not all of them are direct. For example, the “T” may always operate in the red, but because of that service thousands of more jobs are created and survive in the Boston area. Because of that “debt,” hundreds of businesses are profitable. Because of what you call debt, people are easily able to get from point a to point b when it otherwise would be either hard or impossible. Furthermore, we may be spending a little now, but saving the Earth later. Global Warming is real and part of the solution is great public transportation. The costs associated with Global Warming are going to be far greater than any of the T’s debt.
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Transportation systems cost a lot of money – and it doesn’t make fiscal sense to allow them to continue to work in the red. However, businesses and non-profits throughout the state depend on them as much as the riders do. Everyone who depends on these systems – which means everyone who lives in Massachusetts and even beyond – must help pay the costs of this system. Boston wouldn’t be Boston without the T.
Let the T use their fares (and receipts from other sources) fund current debt and operations. Why not fund future capital projects — commuter line expansions, significant structural improvements to current rails or platforms, the green line extension, etc — through the Lege directly?
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Sure, I’m worried about Beacon Hill playing politics with funding… paying for this but not that based on who’s on what committee and whatnot. But, as long as the MBTA could keep the public pressure up to fund the most important projects, why not? If you’re interested, I could easily rattle off 10 projects that would serve to improve the usability, coverage, and quality of the entire system.
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And by the way — this B.S. about comparing the fares of riding the T to New York (24/7 operation, much more extensive), Washington (much cleaner and faster, operates until 3am on weekends), Chicago (more extensive, operates 4:30am – 1:45 am) are crap. Their systems are better than ours.
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We’re now paying a comparable fare to those systems, and yet the T isn’t as fast, as extensive, or available as many hours as those systems.
I rode the Chicago El for 4 years. It’s probably got more track, owing to Chicago’s enormous size, but I wouldn’t call it a better system.
is that the people who ride it aren’t the only ones who benefit from it. Businesses small and big alike benefit from it because its what gets their employees to work every day. Stores on Newbury Street benefit from the extra shoppers the T brings. A huge chunk of everyone who goes to see the Bruins, Celtics and especially Red Sox benefit – big time. Hundreds of non-profits, like museums and historical sites, benefit. Heck, even schools benefit – as tens of thousands of their students depend on them. Society benefits because without all the above – life in Greater Boston and Massachusetts would be a whole lot worse. Heck, the world should be thankful because services like the T help save the planet from millions of pounds of carbon dioxide emissions.
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So to say that just the riders must pay the burden is not only shortsighted, but rediculous. Everyone must pay the burden, from employers to society in general. The “T” should be cheap, reliable, easy to use and quick. If that means some of its funding must come through the general fund, then that’s something we’ll have to figure out. What the T should be focused on doing, instead of parring down costs and jacking up the fares, is getting more people to USE the T.