Statement on the Proposed 2009 MBTA Fare Increase and Service Rationalization

Alex Lu, Transit Analyst, Haverhill, Massachusetts.

In my view, MBTA should seek external funding sources to close the budget gap in place of proposed service cuts or fare increases. While I support a transit fare increase to generate additional revenues for the Authority, MBTA’s financial deficits are structural in nature and cannot be solved from the farebox, assessments, and sales taxes alone.

I understand that the Commonwealth is under dire financial duress. However, I believe the Commonwealth must provide dedicated and continuing funding grants directly to the MBTA for capital expenditures, and write off MBTA’s prior self-supported debt from earlier capital expansion projects. The debt burden has made it increasingly difficult for MBTA to deliver the excellent transit services residents have come to expect. Other sources of revenues, such as highway user fees, real-estate related or other taxes, should be considered as a means of repaying transportation-related debt. Planned capital projects must continue to rebuild, modernize, and expand transit system for future generations. Cutting service or increasing fares (thus reducing ridership) for capital debt repayment contradicts the capital program’s purpose.

I have 12 years’ experience as a transit analyst and planner, and have a working knowledge of transit infrastructure financing. MBTA’s recent reinvestment and improvements in the network have made Boston’s system the envy of other cities throughout the Northeast, and made it not just possible but also comfortable to assume a transit-oriented lifestyle in the Commonwealth. However, because of Forward Funding legislation requiring MBTA to borrow against future revenues to fund capital projects, MBTA has had to dedicate increasing fractions of the operating budget (now nearly 30%) to debt service payments. This situation benefited no one except capital markets that are collecting interest on the infrastructure debt.

Cities as diverse as Tokyo, Hong Kong, Singapore, London, Glasgow, Kuala Lumpur, and Taipei – all with quality transit service like Boston – have found ways to finance transit infrastructure improvements without borrowing money, instead relying on government grants (see Appendix). In four cities, Tokyo, Kuala Lumpur, London, and Glasgow, where the government tried forcing transit systems to borrow capital funds, the inevitable consequence has been a government bailout as systems entered predictable financial collapse. Farebox revenues cannot support large and growing debt service payments even in high density cities with “envy-of-the-world” transit systems like Tokyo and Hong Kong. Tokyo raised their fares by 200% before realizing the public will no longer tolerate further increases. Hong Kong needed government land grants to justify any system expansion. In New York, where transit revenues are strong and only 10% of operating budget is devoted to long-term debt service, fallout from the recent real estate collapse nonetheless left the transit system having to either enact substantial service cuts or obtain additional government grants.

Service cuts and/or fare increases as a “solution” to growing debt service payments is bad for the public and the government, because:

1. Cutting Off-Peak Service Hurts Economic Activity. Transit service, particularly off-peak service that enables commuters to stay in Boston later and/or take family weekend trips, is critical to outlying towns like Haverhill. Off-peak travel is associated with sports events, entertainment, continuing education, and retail spending. Absent off-peak transit options, commuters become constrained in their daily schedules and tend to return home after work. At a minimum, a high-quality commuter bus alternative must be provided, which would negate cost savings from commuter rail cuts.
2. Cutting Service or Increasing Fares Hurts the Transit System. Fare increases and service cuts are a vicious cycle that diverts riders to private automobiles. Increasing fares, reducing service frequencies, and off-peak service elimination reduces passengers beyond those directly affected as more riders commit to an auto-oriented lifestyle. This necessarily reduces farebox revenues and results in even more service cuts. The outlying towns will suffer real estate devaluation and economic decline as commuters divert to cars or move closer to Boston to reduce commuting time.
3. Cutting Off-Peak Service Disproportionately Affects Minority and Low Income Populations. Minority and lower-income populations are particularly dependent on transit for access to jobs, especially in suburban areas. Specifically, working-class professionals with lower incomes and more minority employees like nurse assistants, teaching aides, municipal workers, retail, and service industry employees are particularly reliant on off-peak service, as their shifts require evening work hours. They are least able to afford a commuter car. Cutting off-peak service entirely without replacement results in discriminatory impacts to underprivileged riders.
4. Cutting Off-Peak Service Increases Parking Requirements and Traffic Congestion. As commuters requiring schedule flexibility divert to private cars, urban traffic congestion is created and demand for parking in Boston will increase. If parking spaces must be provided in the dense downtown area at high land or building costs, economic development is handicapped.
5. Cutting Service for Capital Debt Contradicts the Capital Program’s Purpose. Capital projects are large transit investments. Public benefits of investments are realized by operating transit service, which consumes relatively little funds. Cutting service to pay down debt is like purchasing a home and choosing not to live there, to save money on utilities and using the savings to pay mortgage.

Cutting the capital program as a “solution” to future infrastructure financing needs (as some might suggest) is bad for the public and the government, because:

1. Cutting Capital Program Will Result in a State of Disrepair. Transit infrastructure requires periodic asset renewal to ensure continued service. Deferred capital replacement and asset life extension strategies will eventually result in a failure-prone system with inefficient components and technologies, costing even more to rectify later. If sufficiently neglected, catastrophic failures can occur, suspending service indefinitely and putting lives at risk. Replacement must take place on a continuing basis as life-expired assets begin to consume disproportionate maintenance resources.
2. Cutting Service or Cutting Expansion Projects is Bad for the Environment. Cutting transit service and projects will inevitably lead to more private automobiles. This increases highway infrastructure needs (and overall transportation costs), increases petroleum consumption and air quality problems, resulting in more respiratory illnesses. While automobiles are becoming cleaner and cheaper with modern technology, commuter transit also benefits from new clean air technologies but further reduce pollution by allowing many passengers to share the same vehicle.

On a more personal note, elimination of off-peak commuter rail service without replacement will essentially destroy my choice to be car-free. While I can afford the engine repairs to put my 1988 Volvo (with 263,472 miles) back on the streets of Massachusetts, it is far from a clean air car by today’s standards. Having long maintained that “my American dream has no room for a car”, I hope that the Commonwealth will not force me to travel like every other suburban American.

Appendix: Detailed Discussion of Experience with Infrastructure Debt Financing in Eight Cities

1. In Japan, Japanese National Railways (JNR) constructed and operated subway and commuter services in the Tokyo metropolitan area and incurred a substantial infrastructure debt during the postwar reconstruction period (1950~1970). The system finally collapsed financially during the 1970s because it was unable to repay even the interest payment on its US $300 billion accumulated debt (37 trillion yen in 1987). Left with no other alternative, the Japanese government absorbed onethird of that debt upon JNR’s privatization in 1987, with land sales, stock sales, and lease payments from Shinkansen express trains funding the remainder.
2. In Hong Kong, the British Mass Transit Provisional Authority constructed the subway network in the 1980s. To ensure system revenue self-sufficiency, extensive land grants (i.e. rights to develop adjacent land) were awarded to the transit system, which were sold, developed, or leased to generate revenue. Today, the Hong Kong Mass Transit Railway (MTR) derives more than half of revenues from non-transportation activities, including rental income from 25 train station malls, 70,000 housing units, 15 million square feet of commercial real estate, and the 88-story International Finance Centre. MTR has not raised fares since 1997, despite service increases and large capital projects. The Hong Kong government owns 76% of MTR, and MTR has no long-term debt.
   
3. In Singapore, the Land Transport Authority (their Department of Transportation) paid for the subway construction outright during the 1987~1994 period. Costing US $3.3 billion, it was the largest public works in the history of Singapore. Today, the Singapore Mass Rapid Transit (SMRT) Corporation operates the system with continuing public investment in infrastructure through assetrelated grants appropriated directly by the Land Transport Authority.
4. In New York, the subway infrastructure was allowed to deteriorate to the point where one derailment occurred every 18 days in 1983. The system has been substantially rebuilt since then with five capital programs, using a mixture of Federal and state funds but more recently with transportation and real estate transaction tax revenue bonds, and sale-and-leaseback proceeds on major capital assets. Today, self-supported debt and asset sales account for 47% of MTA’s capital budget. As the U.S. real estate market collapsed in 2008, the system is struggling to obtain additional State support and revenues, to prevent service reductions and to continue to repay its capital debt.
5. In Malaysia, the Kuala Lumpur subway was initially constructed with private capital, but the concessions soon failed due to their inability to generate sufficient revenues from the farebox to make interest payments on the US $2 billion infrastructure debt. The Malaysian government was forced to create a national infrastructure company (Prasarana) and purchased the subway from the mortgage backers using a combination of taxpayer funds and a World Bank loan.
6. In Taiwan, a consortium of governments including the City of Taipei, Taipei County government, and the national government paid more than US$ 18 billion outright for subway construction during the 1985~2004 construction period. Transit system farebox receipts contribute to system operating and maintaining costs, but not capital construction or their associated debt service payments.
   
7. During British Rail’s privatization in 1994, rail infrastructure (including London, Glasgow, and other commuter rail networks) was assigned to Railtrack PLC, a publicly-traded company tasked with maintaining infrastructure and raising money for capacity expansion. Due to substantial lease payments from rail carriers, which themselves were receiving government subsidies, Railtrack was able to internally fund some infrastructure improvements. However, this was done at the expense of proper maintenance, which led to several rail accidents beginning in 1997 with many casualties. The resulting fallout bankrupted Railtrack, and the British government infused US $25 billion into the network during 2001~06 for necessary safety improvements and corrective maintenance.

Maintained by		. © 2001-10 Lexcie Lu.