MBTA Finishes FY17 with Lowest Core Operating Expense Growth in 15 Years and a 65 Percent Reduction in Operating Deficit Compared to FY16
BOSTON — The MBTA continued to make significant progress in improving its fiscal health during FY17. Through active management of headcount, tightening of internal controls around the purchase of materials and services spending, taking advantage of lower interest rates, and other cost control initiatives, the Agency achieved the lowest core operating growth rate in 15 years—which resulted in a substantial reduction in the Agency's structural deficit compared to FY16.
"The new financial discipline our team has instilled within the organization has resulted in better management of costs and a reduction in the T’s structural deficit, which are major achievements," said MBTA General Manager Luis Manuel Ramírez. "I want to commend the team for strengthening our fiscal foundation, which has the potential to create additional capacity for new outward-facing investments to our system that will directly affect our riders."
Successfully controlling core operating costs and reducing its debt service enabled the MBTA to reduce its structural deficit by 65 percent from an FY16 actual structural deficit of $86 million down to an actual FY17 structural deficit of $30 million. Driven by a Fiscal and Management Control Board-approved fare increase and one-time real estate transactions, total revenues increased $63 million in FY17. Core operating expenses for FY17 were $6 million less than FY16, reflecting lower fuel and energy costs and reduced materials and services expenses made possible through cost controls including: targeted contract management and renegotiation for services, utilities, and office and maintenance supplies.
"The results of this past fiscal year show major progress in controlling costs and reducing the structural deficit," said MBTA CFO and Chief Administrator Michael Abramo. "While we fully recognize we have more to do, it’s important to document this milestone as we take another significant step forward in improving the T’s financial footing and, ultimately, getting us closer to improving our business operations and enhancing the delivery of service."
Among the FY17 highlights:
- FY17 structural deficit was $30 million compared to budget of $80 million and $56 million below FY16
- No significant service cuts
- Key drivers: $23 million from cost control initiatives, $63 million of revenue expansion, and $15 million of lower debt service
- FY17 structural deficit 65 percent favorable to FY16 structural deficit of $86 million
- Compared with FY16, the MBTA reduced core operating expenses by 0.4 percent in FY17. Represented the lowest rate of MBTA core operating expense growth in more than 15 years
- Fare recovery ratio (percent of system operating expense covered by riders) increased from 41 percent in FY16 to 43 percent in FY17
- Implemented Phase II and Phase III of Finance Plan in FY17
- Reduced debt burden and created capacity for future capital investment
- Authority completed its first competitive bond sale in twenty years ($218 million in Senior Sales Tax Bonds and $119 million in Assessment Bonds). Realized $160 million in future savings due to refinancing
- Active management of headcount: 717 separated employees and 323 new hires resulted in $35 million of net salary reduction in FY17
- Reduction of approximately 300 heads due to Voluntary Retirement Incentive (i.e., employees already eligible to retire) and Voluntary Separation Plans)
- New Local 589 labor contract on December 19, 2016, saves $219 million over ten years
- Work rule modernization including overtime rules, bi-weekly pay, new hire wage rates, and annual wage increases
- Unit work contracted out to private companies including money room, warehouse, bus diversions, customer service agents, and janitorial services
- FY17 non- wage expenses lower than FY16 by $13.3 million
- Material and services decreased $19.8 million from FY16
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