Balancing Boston’s Transit Budget

For the first time in a decade, the Massachusetts Bay Transportation Authority – or the “T” which operates the nation’s oldest subway in Boston – has a balanced budget, no small thanks to its finance team led by CFO Paul Brandley.

MBTA at a glance

  • Balanced its budget in fiscal year ending June 30, 2018
  • Executing on a 5-year, $8 billion capital investment plan
  • Issued sustainability bonds – the first public agency to do so – raising $370 million in 2017
  • Entered into a P3 for technology-driven Automated Fare Collection
  • Considering another technology-driven P3 to provide free WiFi on bus shelters

Paul Brandley, the CFO of MBTA

“We are trying to change the narrative around the T, making it fiscally sustainable by doing both the small and the big things,” says Paul Brandley, the transit agency’s Chief Financial Officer.

In an interview with Gargi Chakrabarty, Content Director – Icons of Infrastructure, Brandley delves into the T’s fiscal turnaround wherein its revenues today are  sufficient to cover its operating expenses and debt service.

Brandley, who was named this week in Boston Business Journal’s 40 under Forty, also shares insights about the agency’s decision to issue “sustainability bonds” – first for a public agency – and its latest initiative to engage in public-private partnerships (P3s).

The T’s ability to increase revenues and hold the line on spending allows it to channel money to much-needed capital projects to improve its aging infrastructure.

After all, it has a long list of such projects.

According to its inventory detailing the condition of facilities to comply with federal regulations, the situation is sobering: More than half of its 378 stations and parking facilities need significant repairs.

The MBTA's Green Line is undergoing a $1.4 billion upgrade.

Icons of Infrastructure: What steps did you take to fiscally turn around the T?

Paul Brandley: We refinanced a significant amount of debt, negotiated improved collective bargaining agreement terms our unions, and outsourced what we felt were non-core functions, such as collecting cash from fare vending machines.  Until last year, MBTA armored cars drove around the system picking up cash from each of the stations. We realized there are private sector companies that are experts in this and could do it lot more safely and efficiently than us.

In the fiscal year just ended June 30, 2018, we were projecting an operating deficit of $335 million after the terrible winter. But given the growth rate of revenue versus the growth of operating expenses, our deficit was actually flat; in fact, we posted a surplus of about $100k – which is wonderful news.

Since we continue to receive an annual appropriation from the Commonwealth, but don’t have a budget deficit, there’s no need to use it on operations. We can reinvest those funds back in the system in critical upgrades. For instance, in the Governor’s current budget, the T gets $187 million in appropriation.  Since we had no deficit in the last fiscal year, that entire $187 million will be put back into the system. Some of money will go to new Red-line and Orange-line cars. As you know, we have a capital investment plan that spans 5 years, with $8 billion spread across 375 projects – so the money will go to different projects.

IOI: What are the big-ticket items in the T’s $8 billion capex plan?

PB: One of our most important initiatives is Positive Train Control. PTC is a critical safety technology that we must have on commuter trains. The Federal Railroad Administration mandated implementation of PTC. We expect the project, which is underway, will cost $600 million. This technology, which is put on trains and tracks, will prevent train-on-train collision by taking human error out of the equation when operating commuter trains. The primary contractor is Ansaldo STS, the software that we are using has been developed by Siemens, and the PTC solution is called ACSES II.

The focus of our capital investment plan is on reliability and modernization, on the less sexy nuts and bolts projects that improve performance of the system, as opposed to shiny new stations or massive expansion projects. Although we do have the Green Line Extension that will cost $1.4 billion over the next 5 years.

Other projects concentrate on reducing our deferred maintenance backlog and that includes a significant amount of repair work on bridges and tunnels, and an upgrade to our signal systems.


“One of my concerns is being able to execute on the $8 billion capex plan over 5 years. Historically, we have been unable to spend more than $500 million in a calendar year. So, it’s a big step and there are some supply and demand challenges when it comes to the workforce.”


IOI: The T was the nation’s first public agency to issue sustainability bonds in 2017, raising more than $370 million. What are the lessons learned?

PB: Sustainability bonds support projects that have environmental and/or social benefits. Our mandate is connecting citizens with employment, medical care, education, and being stewards of the environment, so our debt issuance ought to be aligned with our public purpose.

We looked at our capex plan, identified 74 projects that make the system safer, more energy efficient, prevent pollution, enhance workplace conditions for employees, and we issued sustainability bonds to pay for them. Initially, it was bit unclear what the public response might be. Before the issuance, I sat down with folks at MIT Sloan’s Sustainability Department and Harvard’s Initiative for Responsible Investing. I also reached out to impact investors directly. Everyone was in support of the sustainability bond concept, and that is why we went through with it.

We were pleasantly surprised that the sustainability bonds translated to lower borrowing cost than traditional bonds issued at same time. I think that sends a powerful message to treasurers and CFOs in other agencies, because it shows that the market will reward you for doing good in the world.

As expected, the impact investing community was the aggressive buyers of sustainability bonds and they weren’t as interested in traditional bonds. Both sets of bonds were highly rated and issued against our sales tax revenue stream.

Going forward, every bond issuance will have a sustainability component to it. I hope that component grows over time which will signify that more of our projects have environmental and social benefits.

The MBTA is looking to provide free WiFi in bus shelters in a private partnership.

IOI: The T is hiring a deputy director to focus on P3s. Will the agency be looking at public-private partnerships going forward?

PB: We executed our first P3 in March of this year for Automated Fare Collection which is an upgrade to our fare collection infrastructure. Next year, you can tap your phone or credit card, or go online and add value via credit – cashless boarding will be the crux of our fare collection, and that ought to be transformative for our system. We will try it on bus, subway, ferry, and commuter rail. The rationale behind P3 is the focus on core versus non-core functions. We aren’t a technology company, we don’t have software developers throughout the building. When it comes to big technology implementation and ongoing maintenance, it’s better left to the experts.

We are partnering with Cubic, a company that worked on upgraded fare collection systems in Chicago, New York, and Los Angeles. They will help us operate and maintain the system for the next 13 years. We evaluate their performance every day. For instance, if a particular fare vending machine goes down, that might translate into a penalty. On the other hand, if there is no downtime or miscalculation of fares over an extended period, that might translate into a reward for consistent performance.

Our next P3 is also in the works.  The T operates 177 bus routes across the Commonwealth, covering 750 miles with more than 2,000 bus stops. Most bus stops have shelter and a bench. We are thinking about how to provide free broadband and WiFi to customers using those bus shelters. Free WiFi is powerful, especially to folks in under-served communities that could have access to it. It could also act like an emergency response system. As another technology initiative with a potential revenue stream, we think it could make a good P3 candidate. We have published a request for information, hoping that some telecom companies will come back to us with ideas around implementation.

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