“Folks should realize that what is spectacularly prudent about the way that Honolulu has been approaching this project is that very shortly after it is constructed, it is paid; there is no debt,” he told the council last month. “I come from an old system where 30 percent of our operating budget goes to debt service. When this project is built, in the wisdom of the way that this is structured with both federal and GET funding, you’ll be having an operating obligation but no debt service.”
In a follow-up interview with Civil Beat, Grabauskas repeated his assertion that Honolulu’s project is great because debt won’t eat up its operating budget over the long haul.
He likened Honolulu’s rail project to “a house with no mortgage.”
Nice analogies aside, we wanted to know if 30 percent of the MBTA’s operating budget does in fact go to debt service as Grabauskas claimed. So we took a look at the budget for the Boston project.
From 1991 to 2012, MBTA’s debt service expenses averaged 28 percent of overall operating expenses. The ratio maxed out at 32.8 percent in Fiscal Year 1997, and has bottomed out in FY2012 at 21.9 percent. In the years Grabauskas led the MBTA, debt service hovered around 26 percent of the operating budget.
Grabauskas said Honolulu’s approach is unusual.
“Most all the old transit systems carry some amount of debt, and then some among of their operating budget goes to debt,” he said. “Typically, you float fairly long-term 20- to 30-year-long bonds and then come up with some source to service that debt.”
Indeed, the Chicago Transit Authority plans to make $3.9 billion in interest payments as well as $3.3 billion in principal repayments between 2011 and 2040, according to its 2012 budget book. The total debt service of $208 million this year would represent some 15 percent of the CTA’s annual operating budget.
The Metropolitan Transit Authority in New York spends about $2 billion — or 17 percent — of its $12.5 billion operating budget on debt service, according to its budget for 2012. That’s less than the MTA spends on New York City subways and buses, but almost as much as it spends on the Long Island Railroad and Metro-North Railroad — a commuter line to Connecticut — combined.
The Honolulu rail project plans to borrow a total of about $3 billion over the life of construction. Officials hope to pay off much of that each year with federal funds and general excise tax surcharge revenues. According to the city’s rail financial plan, the debt balance will max out at $1.1 billion in 2017. The plan calls for the debt to be entirely paid off by 2023, when the GET surcharge sunsets.
The plan says HART will have to spend about $300 million in interest payments overall.
HART Finance Committee Chair Don Horner describes the rail debt as a cash flow problem due to “timing differences.” The plan has dedicated funding to cover all of construction and all of the debt service.
BOTTOM LINE: Grabauskas said 30 percent of MBTA’s operating budget goes toward paying debt service. The truth is that on average over the past 20 years, 28 percent of MBTA’s operating budget went toward debt payments. That’s close enough to 30 percent for us to give him a grade of True in his first Fact Check.