Operating Budget Stability FY17 Recap Report to Fiscal and Management Control Board

FY17 Recast vs. FY17 Actual Results Agenda Executive Summary FY17 Recast vs. FY17 Actual Results FY16 Actual Results vs. FY17 Actual Results FY17 Service Metrics FY18 & FY19 Update Appendix FY17 Budget vs. FY17 Actual Results

MBTA operating budget performance exceeded expectations in FY17 Executive Summary Executive Summary MBTA operating budget performance exceeded expectations in FY17 FY17 structural deficit of $30M was a 65% improvement over FY16 deficit Deficit 63% favorable to FY17 approved structural deficit of $80M No significant service cuts MBTA continues to hold the line on expense growth For second straight year, core operating expense growth was flat Core operating expenses controlled by headcount reductions and active management of materials & services Revenue solid despite $35M shortfall in budgeted Statewide Sales Tax Receipts Total revenue -0.8% (-$16M) versus budget Own-source revenue slightly lower due to contract transitions Results are draft pending audit by KPMG; no material adjustments expected Forward funding goal that dedicated revenues cover operating expense still not met

Executive Summary Cost control puts MBTA on track for Forward Funding goal: Dedicated revenues close to covering operating expenses STATUS QUO FY17 PRO FORMA (AUG 2015) COMPARED WITH ACTUAL PERFORMANCE FY17A EXPENSES – $1.955B FY17A REVENUES - $1.925B Note: Structural deficit includes debt service and transferred capital employees annual expense, does not include Additional Assistance

Since FMCB, lowest operating expense growth in 15 years​ Executive Summary Since FMCB, lowest operating expense growth in 15 years​ FY00 – FY15 Average: 5% FMCB / New Mgmt August 2015 Note: For comparative purposes, FY17 core operating expenses exclude capital employees transferred in FY17. Energy costs forecast to be $8M less in FY17 than in FY16

Since FMCB, lowest operating expense growth in 15 years Executive Summary Since FMCB, lowest operating expense growth in 15 years Over this period, MBTA annual operating expense increased by more than $500M FMCB / New Mgmt August 2015 Note: For comparative purposes, FY17 core operating expenses exclude capital employees transferred in FY17. Energy costs forecast to be $8M less in FY17 than in FY16

FY17 Recast vs. FY17 Actual Results Agenda Executive Summary FY17 Recast vs. FY17 Actual Results FY16 Actual Results vs. FY17 Actual Results FY17 Service Metrics FY18 & FY19 Update Appendix FY17 Budget vs. FY17 Actual Results

Structural deficit is 40% or $20M below FY17 recast FY17 Recast vs. FY17 Actual Results Structural deficit is 40% or $20M below FY17 recast FY17 Recast vs. FY17 Actual Results ($M) FY17 RECAST FY17 ACTUAL $ VARIANCE NOTES REVENUES Operating Revenues $717.4 $715.6 ($1.8) Transition to new Advertising & Parking Partners Non-Operating Revenues $1,203.1   $1,209.5 $6.5 Total Revenues $1,920.5 $1,925.2 $4.7 EXPENSES Wages, Benefits and Payroll Taxes* $767.0 $771.8 $4.8 Overall headcount down; offset by OT & CBA increases Non-Wage $774.9 $755.3 ($19.6) Cost Controls Operating Expenses $1,541.9 $1,527.1 ($14.8) Debt Service $428.7 $427.9 ($0.8) Lower interest costs Total Expenses $1,970.6 $1,955.1 ($15.5) Structural Deficit ($50.1) ($29.9) $20.2 Fare Recovery Ratio 42.7% 43.2% Revenue Recovery Ratio 49.6% 50.4% *Includes transfer of employees from capital to operating budget

FY17 Recast vs. FY17 Actual Results Agenda Executive Summary FY17 Recast vs. FY17 Actual Results FY16 Actual Results vs. FY17 Actual Results FY17 Service Metrics FY18 & FY19 Update Appendix FY17 Budget vs. FY17 Actual Results

FY16 Actual Results vs. FY17 Actual Results Revenue Recovery Ratio Core operating expense down 0.4% in FY17; Structural deficit down 65% compared to FY16 – fare recovery ratio increased to 43% FY16 Actual Results vs. FY17 Actual Results ($M) FY16 ACTUAL FY17 ACTUAL $ VARIANCE NOTES REVENUES Operating Revenues $678.5 $715.6 $37.2 FMCB approved Fare increase Non-Operating Revenues $1,183.7 $1,209.5 $25.8 One-Time Real Estate Transactions Total Revenues $1,862.1 $1,925.2 $63.1 Increase of 3.4%   EXPENSES Wages, Benefits and Payroll Taxes $735.7 $742.8 $7.1 Overall headcount down (288); offset by OT & CBA increases Non-Wage $768.6 $755.3 ($13.3) Cost Controls Core Operating Expenses $1,504.3 $1,498.1 ($6.2) Capital Employee Transfer - $29.0 Transferred 219 heads Total Operating Expenses $1504.3 $1527.1 $22.8 Debt Service $443.7 $427.9 ($15.8) Termination of swaps and debt restructuring Total Expenses $1,948.0 $1,955.0 Structural Deficit ($85.9) ($29.9) $56.1 65% below FY’16 Fare Recovery Ratio 41.2% 43.2% Revenue Recovery Ratio 47.4% 50.4%

FY16 Actual Results vs. FY17 Actual Results Increased revenues and lower debt service drove the reduction of 65% in structural deficit compared to FY16 Note: Increase in operating expenses primarily due to transfer of employees from capital to operating budget Source: MBTA Internal Data. Analysis above excludes revenue from monthly FY17 Additional Assistance payments

Total revenue increased 3% ($63M) over same period last year FY16 Actual Results vs. FY17 Actual Results Total revenue increased 3% ($63M) over same period last year Total Note: Other income increase over FY16 primarily due to $12.0M in one-time South Station payment from Equity Office, $5.9M from Massport (Silver Line) Source: MBTA Internal Data

Own-source revenue is down 4% ($3M) due to contract transitions FY16 Actual Results vs. FY17 Actual Results Own-source revenue is down 4% ($3M) due to contract transitions FY17 trending down - transition to new contract; FY18 early indicators trending up (i.e., new panels & higher revenue share) Total Note: FY17 transitional year in Advertising/Parking contracts Source: MBTA Internal Data

Core operating expense lower than FY16 (excluding debt service) FY16 Actual Results vs. FY17 Actual Results Core operating expense lower than FY16 (excluding debt service) Note: 1.5% growth in total operating expenses for FY17 when including one-time transfer of capital employee wages and benefits ($29M); (b) Lower Energy & fuel costs of $13.8 M and reduction in materials, services and insurance of $10.4 M contributed to essentially flat year over year growth Source: MBTA Internal Data

Total Expenses (Including Debt Service) up $7M FY16 Actual Results vs. FY17 Actual Results Total Expenses (Including Debt Service) up $7M $29M transfer of capital employee wages and benefits to operating budget 743* Total Source: MBTA Internal Data

capital employee wages and benefits to operating budget FY16 Actual Results vs. FY17 Actual Results Core employee costs grew 1% ($7M) FY17, with an increase across all categories $19M transfer of capital employee wages and benefits to operating budget 499* Total** Source: MBTA Internal Data *$19M wages transfer to operating budget; without transfer, core wage and OT growth was 0.8%; $10M pension/fringe transfer to operating budget **Includes transfer of $29M in capital employee wages and benefits to operating budget. Without transfer, FY17 growth would be $7.1M, or 1.0% growth

FY17 headcount down 288 positions (5%) from prior year FY16 Actual Results vs. FY17 Actual Results FY17 headcount down 288 positions (5%) from prior year KEY DRIVERS FY16-17 FY17-18B VRIP/VSIP (384) (14) Other (123) (261) Critical Hires +58 Cap. Transfers +219 (+) (+) (-) (-) Note: Actual headcount numbers reflect end-of-fiscal year totals; FY17 operating budget headcount figures include capital employee transfers, which results in an increase in operating budget wages. Source: MBTA Internal Data

Materials, services, and financial costs down 9% ($24M) FY16 Actual Results vs. FY17 Actual Results Materials, services, and financial costs down 9% ($24M) Change in Materials and Services (24.2) Services ($9.0) Computer services ($3.5) Contract cleaning ($2.4) Engineering ($2.7) Utilities ($7.2) Temporary help ($0.6) Other services $7.4 Materials and Supplies ($10.8) Equipment components $3.1 Fuel ($6.6) Inventory Adjustment $0.0 Maint. Supplies/other materials ($7.3) Insurance ($3.9) Financial Services ($0.5) Total Source: MBTA Internal Data

FY17 Recast vs. FY17 Actual Results Agenda Executive Summary FY17 Recast vs. FY17 Actual Results FY16 Actual Results vs. FY17 Actual Results FY17 Service Metrics FY18 & FY19 Update Appendix FY17 Budget vs. FY17 Actual Results

Subway reliability, quarterly, FY16-FY17 FY17 Service Metrics Subway reliability, quarterly, FY16-FY17 Subway reliability is the percent of customers who wait no longer than the scheduled time between trains. Calculations do not yet account for the effects of overcrowding or bus shuttles.

FY17 Service Metrics Bus reliability, FY13-FY17 Bus reliability is how often bus service arrives when it is expected. Service scheduled to arrive every 15 minutes or less should not have long gaps between buses. Other service should arrive within a few minutes of schedules. The MBTA sets a higher reliability target for Key Bus Routes, which serve high-density travel corridors.

Commuter rail reliability, unadjusted, FY15-FY17 FY17 Service Metrics Commuter rail reliability, unadjusted, FY15-FY17 Commuter Rail reliability is the percent of trains that arrive at their final stop no more than 5 minutes later than scheduled. Unadjusted reliability is what passengers experience, not what Keolis is measured on.

FY17 Recast vs. FY17 Actual Results Agenda Executive Summary FY17 Recast vs. FY17 Actual Results FY16 Actual Results vs. FY17 Actual Results FY17 Service Metrics FY18 & FY19 Update Appendix FY17 Budget vs. FY17 Actual Results

FULL-YEAR RUN-RATE IMPACT INCLUDED IN FY18 ITEMIZED BUDGET FY18 & FY19 Update FY18 Budget Package (April 2017): Target bus maintenance annual run rate cash savings of $21M ($ Millions)   FULL-YEAR RUN-RATE IMPACT TARGET DATE ESTIMATED FY18 IMPACT BASELINE STRUCTURAL DEFICIT ($42) INCLUDED IN FY18 ITEMIZED BUDGET Hybrid In-Station Customer Service Model $6 8/1/2017 Four (Focus40) Garage RFPs $11 $8 Cabot Garage Efficiency $5 Everett Bus Shop Chelsea Silver Line ($5) 1/1/2018 ($3) Strategic Operations Hires ($7) 7/1/2017 SUBTOTAL - Adjusted Structural Deficit ($27) ($38) FY18 DEFICIT SPENDING The RIDE $3 $1 Commuter Rail CR Revenue Expansion and Advertising $4 $2 STRUCTURAL DEFICIT ($15) ($30) TARGET PAY-GO TRANSFER AS OPEX SAVINGS ACHIEVED $22 $7 ($37M – STRUCTURAL DEFICIT)

FY19 Structural Challenges: Operating Budget FY18 & FY19 Update FY19 Structural Challenges: Operating Budget Total Existing Debt Service Costs Amortization Tables require additional debt service payments totaling $50M in FY19 over FY18 Budget Increase in principal: $41M Increase in interest expense: $9M Compliant with FMCB approved Debt Policy (Jun16) Requires level repayment of principal consistent with useful life of capital investments Transfer of Capital Employees to Operating Budget Legislative mandate to transfer final phase of the capital employees to Operating Budget in FY19 220 budgeted headcount relating to legacy Design & Construction Net estimated increase to structural deficit: $27M Pension Expense Actuarially determined Annual Required Contribution (“ARC”) to increase by $10M in FY19 over FY18 Budget Based on current Actuary Valuation FMCB Approved Pilots Foxborough Commuter Rail Service Net estimated increase to structural deficit: $500k Early Morning Bus Service (i.e., Sunrise Service) Net estimated increase to structural deficit: $1M

MBTA forecast to pay down $1.1B debt principal next 4 years PRESENTED MONDAY 6/19/2017 MBTA forecast to pay down $1.1B debt principal next 4 years Total Existing Debt Amortization to increase $50M from FY18 to FY19: $42M of principal & $9M of interest

FY18 & FY19 Update Despite progress, Forward Funding goal that dedicated revenues cover operating expense still not met $212M improvement: - $180M (85%) - lower costs - $32M (15%) - higher revenue Source: MBTA management in process of recasting FY18-FY20. Operating Deficit does not include additional state assistance of $155M in FY16 or $187M FY17 (forecast)

FY17 Recast vs. FY17 Actual Results Agenda Executive Summary FY17 Recast vs. FY17 Actual Results FY16 Actual Results vs. FY17 Actual Results FY17 Service Metrics FY18 & FY19 Update Appendix FY17 Budget vs. FY17 Actual Results

Structural deficit 63% below budget ($51M) in FY17 FY17 Budget vs. FY17 Actual Results Structural deficit 63% below budget ($51M) in FY17 FY17 Budget vs. FY17 Actual Results ($M) FY17 BUDGET FY17 ACTUAL $ VARIANCE NOTES REVENUES Operating Revenues $722.7 $715.6 ($7.0) Fare revenue increase offset by lowered than expected own-source revenues Non-Operating Revenues $1,218.8   $1,209.5 ($9.3) Total Revenues $1,941.5 $1,925.2 ($16.3) EXPENSES Wages, Benefits and Payroll Taxes $784.1 $771.8 ($12.3) Planned headcount reductions Non-Wage $779.6 $755.3 ($24.3) Cost controls Operating Expenses $1,563.7 $1,527.1 ($36.6) Debt Service $458.1 $427.9 ($30.2) Termination of swaps and debt restructuring Total Expenses $2,021.8 $1,955.1 ($66.8) Structural Deficit ($80.4) ($29.9) $50.5 63% below budget Fare Recovery Ratio 42.2% 43.2% Revenue Recovery Ratio 48.0% 50.4%