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40 T R A N S P O RTAT I O N F I N A N C E finance expertise, and top-level leadership throughout MBTA is engaging in financial reform and, as the process. described by Davis, now deploying a balanced operat- ing budget and a sustainable capital program. The $4 billion of debt on the balance sheet currently consumes What Are the Ingredients of about one-third of the system's operating budget. The Good Financial Planning? system has a dedicated new source of funding: 20 per- cent of the state sales tax, which generates approxi- Dane Ismart mately $645 million, plus assessments from cities and towns served by MBTA. Dane Ismart provided an overview of the characteristics With this new funding system, MBTA will need to of a strong financial plan, focusing on maximize its own revenues. There was no incentive to do this before financial reform. Since financial reform, Assessment of financial condition, the agency has successfully enacted a fare increase. Assessment of financing capability, and MBTA also will seek nonfare revenue from sources such Preparation of a financial plan. as advertising, concessions, and parking. The agency will attempt to meet its operating cash flow needs, main- Ismart described factors that may affect the ability to tain a reasonable level of cash reserves, and minimize its operate, maintain, and make needed investments in reliance on debt. existing systems: Davis explained that MBTA now has control of the capital program and recognizes that some projects are Economic vitality of the state or region, not affordable through existing revenue sources. MBTA Debt management history, has been able to communicate this message to propo- Historical financial burden of transportation nents of potential new projects, such as the new Fall expenditures, and River/New Bedford commuter rail line; therefore, the Analysis of financing burden of transportation project has secured separate funding from the legislature compared with nontransportation investments. and other sources. Ismart described a comprehensive financial plan as including consideration of financing alternatives Discussion through the use of cash flow analysis, risk and sensitiv- ity analyses, and funding flexibility--with a good finan- Barbara Bych cial plan allowing quick response to changing conditions. He described financial plans as being con- Barbara Bych kicked off the discussion for this ses- tinuously evolving tools--with short- and long-term sion by opening the floor to the audience. The components--and requiring coordination among state, group discussed the benefits of joint development local, and federal actors. and publicprivate partnerships. Jonathan Davis noted that MBTA would look to these techniques where they make sense. He also noted the impor- Balancing Debt and Pay-as-You-Go Financing tance of good communication to good financial planning, including telling the public when a project Jonathan Davis is simply unaffordable. Jonathan Davis addressed the issue of balancing debt and pay-as-you-go financing in a major transit system. SESSION 2: INNOVATIVE FINANCING TO First, he described the Massachusetts Bay Transporta- ADVANCE STATE AND LOCAL TRANSPORTATION tion Authority (MBTA) system, noting that 60 percent PROGRAMS AND PROJECTS of people commuting to the financial district take "the T" (Boston's subway system) and that it is vital to the Lowell R. Clary, Florida Department of Transportation economy of the city. (Moderator) Second, Davis described the past funding structure John Horsley, American Association of State Highway for the T as being through a state appropriation, pro- and Transportation Officials (Discussant) vided in arrears. MBTA would spend the money first Wendy Franklin, Goldman Sachs and then deliver the invoice to the legislature, which Thomas McPherson, Ohio Department of Transportation would in turn appropriate the funds. Denise Jackson, Michigan Department of Transportation