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BOSTON CAPITAL

The MBTA’s big debt problem

It’s time once again for an annual Boston tradition. Get ready to kick the can down the subway tunnel.

The MBTA is ready to roll out this year’s attempt to pull the transportation system out of another big financial hole. No doubt people will complain about higher costs, shrinking service, or both. We’ll see the details later this week.

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Another low-risk prediction: That plan will cover a projected budget shortfall of $161 million for the fiscal year ahead - on paper, at least - but do little or nothing about the T’s real money problems. See you next year.

The T’s real problem is debt. The system owes too much - about $5.2 billion at the moment - and will never break free from an annual cycle of fiscal contortions to balance its books without some commitment to reduce the overall debt.

In other recent years, shortfalls have been met by refinancing obligations further into the future and even raising more money with bonds based on the revenue from parking spaces decades into the future. This time, fare increases will almost certainly be part of the answer.

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“The T is not self-funding, and it never will be self-funding with the kind of debt it’s carrying and the kind of [service] commitment politicians want,’’ says David D’Alessandro, the former John Hancock Financial Services Inc. chief who led an independent review of MBTA operations in 2009. “They’ve got to change the economic model.’’

Here’s another way to look at the MBTA’s debt: It takes all the money the system raises from fares, more or less, to make the monthly nut on those borrowings. That amounts to about a third of the T’s budget. A business facing those kinds of numbers would consider reorganization in bankruptcy court.

‘We can’t continue to run a system in which 33 cents on every dollar goes to debt payments.’

Richard Dimino, president of A Better City research organization 
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“We can’t continue to run a system in which 33 cents on every dollar goes to debt payments,’’ says Richard Dimino, president of A Better City, a research organization focused on economic competitiveness in Boston. “Without any intervention, the debt number is just going to grow.’’

It’s tempting to blame those problems on the transit system itself, the people managing it, and the unions representing employees. And, yes, they have all contributed.

But the MBTA got stuck with billions of dollars in obligations that should have ended up on someone else’s balance sheet.

Think of the MBTA’s debt as a pie divided into three, roughly equal slices. One slice is made up of state bonds that had funded transportation projects and were shifted onto the T’s books as part of a financial reorganization in 2000. Another slice consists of debts the MBTA has run up on its own since that change 12 years ago.

The third slice paid for public transportation improvements that had been drawn up principally to help the Big Dig construction project, not the MBTA. The highway plan - and all the cars it would attract - needed environmental mitigation projects to win approval. They became MBTA activities - and obligations.

That reorganization plan launched 12 years ago - known as “forward funding’’ - envisioned a financial future in which an economically independent MBTA could handle those debts and pay them down. Says D’Alessandro now: “Forward funding anticipated an economic model that was ridiculous.’’

The money wasn’t - and isn’t - there to pay the debt that has only grown larger.

Eventually the state needs to assume at least some of the MBTA’s debt. It would be fair for the state to assume at least those obligations that were really run up to enhance the prospects of the Big Dig. The T would save more than $100 million in annual interest payments on that slice of debt alone.

But even that change would face an uphill battle. Politicians beyond Boston don’t like the idea of supporting the MBTA with more state money, and they certainly don’t want to assume new debts.

Cities - and the metropolitan areas that surround them - need functioning public transportation for more than convenience. It is an economic necessity for businesses and institutions that won’t come or stay without a transportation system that can get their employees to work every day.

The MBTA certainly can provide that. But it needs a serious financial plan that finally addresses the debt burdens it can’t shoulder.

Steven Syre is a Globe columnist. He can be reached at syre@globe.com.
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