1. Operations Budget Stability Committee FY17P - FY20P Baseline Pro Forma 9/9/2015 Draft for Discussion & Policy Purposes Only1

2. This pro-forma baseline projects the MBTA structural deficit based on run-rate assumptions that pre-date the formation of the FMCB. It is a status-quo pro- forma which forecasts the future financial health if MBTA continues on “current course and speed” The pro-forma financials do not include any potential impacts of any contemplated reforms or suggested actions (for cost control or revenue enhancement) by the FMCB Projected figures are likely to change in the future as reforms to both MBTA revenues and costs are considered and adopted The FMCB is working on a set of proposals for cost-control and revenue enhancement and looks forward to working with multiple stakeholders (including MBTA staff, unions, private sector, and advocates), and will make those proposals in the December report Analysis contained in the report is not meant to be prescriptive but rather to show the sensitivity of the structural deficit to various inputs Draft for Discussion & Policy Purposes Only2 Pro-Forma Baseline: What It Is (and What It is Not) DRAFT

3. The MBTA has 5 Sources of Revenue – Fares ($618M in FY16) – Other Operating Revenue – Parking/Advertising/Real Estate ($50M in FY16B) – Dedicated Local Assessments ($163M in FY16B) – Base Revenue Amount ($986M in FY16B) - MBTA gets higher of Dedicated Sales Tax or “Base-Revenue Amount” – Other Income ($35M in FY16B) – Interest income, legal settlements, Federal operating assistance, MassPORT Silver line Revenue In addition, discretionary “Additional State Assistance” ($125M in FY15A and $187M in FY16B) is provided to the MBTA to cover costs over and above sources of revenue – essentially it is the annual “plug” between revenue sources and total costs We define the Structural Deficit as the difference between the 5 sources of revenue listed above, and the forecast operating and debt expenses of the MBTA The legislation creating the FMCB calls on the FMCB to propose a plan for balancing the Structural Deficit in FY17 and onward, through a combination of cost control and maximization of own-source revenues Draft for Discussion & Policy Purposes Only3 A Note on Definitions DRAFT

4. Draft for Discussion & Policy Purposes Only4 FY17P – FY20P Current Pro-Forma Projection Assumptions (Part 1) DRAFT Revenue FY 16BAssumptionSource $50MOther operating revenue (advertising, parking, real estate) grows by 13.8% (FY17), 3.5% (FY18), 2.3% (FY19) and 2.4% (FY20) Internal $618MFare revenue increases by 4.0% (FY17), 1.0% (FY18), 3.0% (FY19), and 1.0% (FY20) due to FY17 and FY19 fare increases of 5.0% and 1.0% ridership growth in off years Internal $986MBase revenue amount increases at 1.6% in FY17 forward (based on inflation formula)Statutory $163MLocal assessment increases by 2.0% post FY2015 (based on inflation formula)Statutory Non-Debt operating cost FY 16BAssumptionSource $0MCapital employee and project transition expense is $52M (FY17), $62M (FY18), and $88M (FY19)Internal $511MWage Expense increases by 2.5% in FY17 and FY18; no increase assumed in FY19 and FY20Internal $109MTotal Net GIC Healthcare decreases by 4.7% (FY17), and increases by 6.5% in FY18 and 5.5% FY19 forwardInternal $79MEnergy costs increases by 3.5% from FY17 – FY20Internal Headcount remains at current budget level of 6,677 through the projection periodInternal

5. Draft for Discussion & Policy Purposes Only5 FY17P – FY20P Current Pro-Forma Projection Assumptions (Part 2) DRAFT Debt Service FY 16BAssumptionSource $34MLegacy debt service grows/-declines by -23.0% (FY17), 18.2% (FY18), -0.4% (FY19), and -2.3% (FY20)Contractual $109MCentral artery debt service stays flat at 0.0% growth for the projected periodContractual $305MCapital plan debt service grows at 5.9% (FY17), 11.8% (FY18), 5.3% (FY19), and 4.3% (FY20)Internal New bond issuances include $200M offerings in FY16, FY18, and FY19Internal Summary of assumption impact: Total Revenue: is projected to grow at 1.6% over the pro-forma projected period (compared with 0.2% per annum growth from FY13 – FY15) Operating Expenses (“Opex”): are projected to grow at 4.4% over the pro-forma period and at 3.1% growth if capital employee and project transfer is excluded (compared with 6.5% per annum growth from FY13 – FY15) Debt Service: is projected to grow at 4.5% over the pro-forma projected period in line with contractual payment obligations (compared with -2.7% per annum growth from FY13 – FY15)

6. Draft for Discussion & Policy Purposes Only6 FY16B $200M Bond Issuance is Adequate to Fund FY16B Capital Plan DRAFT FY16B CAPITAL FINANCING SOURCES

7. 7 From FY13 until FY15, Ridership and Revenue were Flat while Operating Expenses Grew at 6.5% CAGR Draft for Discussion & Policy Purposes Only DRAFT HISTORIC RIDERSHIP, REVENUE AND OPEX GROWTH RATES

8. Draft for Discussion & Policy Purposes Only8 Growth Rates for the Components of Operating Expense from FY15A:FY20P DRAFT ANALYSIS ON FY15A:FY20P GROWTH RATES OF KEY OPERATING COSTS

9. 9 In FY17P, the Structural Deficit is Forecast to Increase by $72M, Driven by $104M Growth in Opex Draft for Discussion & Policy Purposes Only DRAFT BRIDGE FROM FY16B TO FY17P STRUCTURAL DEFICIT NOT INCLUDING ANY ADDITIONAL STATE ASSISTANCE

10. 10 Structural Deficit will Continue to Increase if Operating and Debt Service Expenses Grow Faster Than Revenue Draft for Discussion & Policy Purposes Only DRAFT FY16B – FY20P PRO-FORMA ANNUAL GROWTH RATE

11. 11 Annual Projected Revenues, Expenses and Structural Deficits FY16B – FY20P Draft for Discussion & Policy Purposes Only DRAFT Projected Structural Deficit NOT INCLUDING ADDITIONAL STATE ASSISTANCE OF $187M in FY2016B

12. 12 Annual Structural Deficit is Forecast to Grow to $427M by FY20P, Driven by Increases in Opex and Debt Service Draft for Discussion & Policy Purposes Only DRAFT BRIDGE FROM FY15A TO FY20P STRUCTURAL DEFICIT

13. Draft for Discussion & Policy Purposes Only13 Structural Deficit Impact of Capital Employees: Even if the State Provided Funding to Transition 532 Capital Employees to the Op Budget, FY20 Deficit would exceed $300M DRAFT

14. 14 Next Steps Draft for Discussion & Policy Purposes Only DRAFT The FMCB is looking forward to developing a set of proposals to address the financial challenges laid out in the baseline pro-forma assumptions presented Next steps include exploring cost-control and revenue enhancement measures and working with multiple stakeholders (including MBTA staff, unions, private sector, and advocates) The FMCB looks forward to developing: – Comprehensive scenario development – Operating savings opportunities – Revenue generating opportunities – Items not included in the baseline, such as positive train control – Impact on the Commonwealth trust fund – Further debt evaluation – Peer comparables to benchmark cost and revenue

15. Appendix Draft for Discussion & Policy Purposes Only15 DRAFT

16. Draft for Discussion & Policy Purposes Only16 DRAFT Projected Structural Deficit Comparison to 2014 Pro-Forma COMPARISON OF MBTA 2014 PRO-FORMA PROJECTIONS: “APPLES TO APPLES” COMPARISON IS BETWEEN “A” AND “B,” BUT ACTUAL STRUCTURAL DEFICIT INCLUDING CAPITAL EMPLOYEE TRANSFER IS “C”

17. Draft for Discussion & Policy Purposes Only17 Annual operating expenses (not including debt service) will grow to $1.6B in FY16B DRAFT

18. Draft for Discussion & Policy Purposes Only18 Annual operating expenses (not including debt service) grown annually 5.5% over past 4yrs DRAFT

19. 19 MBTA Annual Debt Service Expense Will Grow to $540M by FY20 Draft for Discussion & Policy Purposes Only Note: Central Artery Debt refers to Financing Related to the Big Dig Project. Legacy Debt refers to debt inherited at the start of Forward Funding. Source: MBTA Internal Data DRAFT

20. 20 Debt service payments are split roughly evenly between principal and interest Draft for Discussion & Policy Purposes Only DRAFT ANALYSIS ON 7 YEAR DEBT SERVICE GROWTH RATES

21. 21 Wage growth, largely due to the transfer of employees to the operating budget, is the largest component of FY17P Opex increase Draft for Discussion & Policy Purposes Only DRAFT BREAKOUT OF COMPONENTS OF $104M FY17P OPERATING COST INCREASE Categories with increased year-on-year costs

22. Draft for Discussion & Policy Purposes Only22 532 employees with a fully-loaded annual cost of $126K will be transferred from the capital budget to the operating budget in FY17P, FY18P, and FY19P DRAFT PRELIMINARY ANALYSIS ON TRANSFER OF CAPITAL EMPLOYEES TO OPERATING BUDGET INCLUDES DIRECT EMPLOYEE SALARY COST. IN ADDITION, THERE IS $20M OF EMPLOYEE RELATED OPERATING COST ASSOCIATED WITH FULL CAPITAL PROJECT BUDGET TRANSFER