Chapter 6 COSTS, FUNDING AND IMPLEMENTATION 6.0 COSTS, FUNDING AND IMPLEMENTATION This chapter describes the costs for Urban Ring Phase 2 and the anticipated general sources of funding to be used to cover those costs. Section 6.1 is a brief description of the estimated capital costs and operating and maintenance (O&M) costs; Section 6.2 describes the financial framework of the recommended Locally Preferred Alternative (LPA) for the Urban Ring Phase 2, with potential sources of federal and non­federal funding listed; and Section 6.3 discusses implementation issues for the LPA. 6.1 Costs Capital costs and O&M costs are discussed below. 6.1.1 Capital Costs The capital cost of the LPA is estimated to be $2.4 billion in year 2007 constant dollars. The capital costs of all the Phase 2 alternatives considered are summarized in Table 6­1 below. All costs are expressed in 2007 constant dollars exclusive of debt services. These cost estimates include a 30 percent contingency plus 30 percent “soft costs” that comprise design and construction management, administration and insurance. Table 6­1: Urban Ring Phase 2 ­ Capital Cost Summary Capital Cost $ millions (2007 dollars) Alternatives Baseline $444 Alternative 1 $708 Alternative 2 $802 Alternative 2A $755 Alternative 3 $3,756 Alternative 3A $2,465 Alternative 3B $2,089 Alternative 3C Alternative 4 AA Alternative 4a $4,254 $6,669 $7,614 Hybrid Alternative H1 $783 Hybrid Alternative H2 $723 Hybrid Alternative H2T $2,126 LPA $2,401 The cost comparison shows that the alternatives considered for Urban Ring Phase 2 had a very wide range of capital costs within the same corridor. The wide range in costs is directly related to the amount of busway tunnel and the number of underground stations. The LPA contains what the analysis determined is the most cost effective combination of busway tunnel and underground stations, and is most similar to Alternatives 3B and H2T that were analyzed earlier in the study. A further breakdown of the LPA capital costs by major cost category is provided in Table 6­2. Urban Ring Phase 2 RDEIR/DEIS Page 6­1 November 2008 Chapter 6 COSTS, FUNDING AND IMPLEMENTATION Table 6­2: LPA Capital Cost Summary
Capital Cost $ millions (2007 dollars)7 Capital Cost Category Guideway and track elements $939 Stations, Stops, Terminals, Intermodals $401 Support Facilities, Yards, Shops, Admin. Bldgs $196 Site work and special facilities $344 Systems $160 Right­of­way $170 Rolling Stock $191 Total $2,401 The LPA contains approximately 1.5 miles of busway tunnel extending from Leon Street adjacent to Ruggles Station on the east to the Landmark Center on the west, with one underground station near its mid­point in the Longwood Medical and Academic Area (LMA), and has an overall project cost of $2.4 billion. By comparison, the FTA Baseline Alternative, which contains no exclusive running way for the BRT, has a capital cost of $444 million. The mid­point year of project construction will determine the amount of cost escalation to be added to the 2007 constant dollar costs shown above, as addressed in the conceptual financing framework that follows in Section 6.2. The Federal Transit Administration (FTA) engaged a Project Management Oversight Consultant (PMOC) to undertake a review of the preliminary cost estimate for the Urban Ring Phase 2 LPA. The PMOC review identified a number of issues that introduce risk into this preliminary cost estimate. The most significant issues relate to uncertainty about a final tunnel alignment and construction methodology; assumptions related to dimensional and other specifications for the tunnel and underground stations (many of which were flagged as resulting in higher than expected cost estimates); and the lack of a definite project implementation schedule and mid­year of construction assumption. As a result, FTA is not able to endorse these cost estimates at this time. EOT recognizes these issues, which are principally related to the current state of conceptual engineering for the LPA, as appropriate to a draft environmental document. EOT will continue to work with FTA and the PMOC process to address these issues and ensure FTA endorsement of Urban Ring Phase 2 cost estimates as the project develops through preliminary engineering, final environmental review, and final design. 6.1.2 Operating and Maintenance Costs Preliminary operations and maintenance (O&M) costs were developed using the operating statistics from the travel demand model run and unit costs for hybrid electric bus technology, and estimated using an average of the revenue vehicle miles method and the revenue vehicle hours method. The result is a preliminary O&M cost for the LPA of $35 million per year; it is important to compare this cost to the Baseline Alternative cost of $43 million per year (both in 2007 dollars), and also to review the operating parameters of the two alternatives relative to that cost. Baseline Alternative Locally Preferred Alternative (LPA) $ 43 million per year (2007) $35 million per year (2007) 7
Capital costs include 30% construction contingency and 30% soft costs. Urban Ring Phase 2 RDEIR/DEIS Page 6­2 November 2008 Chapter 6 COSTS, FUNDING AND IMPLEMENTATION The higher cost for the Baseline Alternative relative to the LPA is primarily due to the less direct, longer alignment in the Baseline (requiring somewhat more bus vehicle miles) and a significantly slower bus travel speed (requiring significantly more bus vehicle hours to provide comparable service in the absence the exclusive running ways of the LPA). As demonstrated in the LPA chapter and the Alternatives and Evaluation chapter, the LPA and its associated fixed guideway improvements would attract a significantly higher number of new fare­paying transit riders to the Urban Ring Phase 2 relative to the Baseline Alternative. The following is a summary of the key operational characteristics of the LPA relative to the Baseline Alternative: • Revenue Miles. By providing more direct routing, the LPA would reduce the number of bus vehicle miles required to serve the same travel markets and stations. • Revenue Hours. By providing faster travel times, the LPA would also reduce the number of bus vehicle hours required to traverse a given alignment length, thereby requiring fewer bus vehicles in operation. • MBTA Transit System Passenger Miles. The LPA is projected to significantly increase systemwide transit ridership while reducing systemwide transit passenger miles, thereby improving transit system efficiency and saving passengers time. Compared to the 2030 Baseline Alternative, the LPA is expected to result in a net reduction of 82,183 passenger miles per day on the rapid transit system, and a net reduction of 242,077 passenger miles per day on the local bus network. This net reduction in MBTA rapid transit and local bus passenger miles clearly demonstrates that the Urban Ring Phase 2 would offer more direct and attractive transit connections for many riders, which could allow for restructuring of some other existing services elsewhere in the system, with associated reductions in O&M costs. 6.2 Financial Framework This section describes the capital funding plan the operating and maintenance plan. 6.2.1 Overview Federal guidelines for the DEIS portion of the RDEIR/DEIS document require a general framework for how costs of Urban Ring Phase 2 would be funded. While it does not include commitments or a detailed breakdown of funding sources, this RDEIR/DEIS financial framework does provide an overview of the project financing strategy. It describes the nature of the financial challenge associated with the project, a general cost allocation approach, and the potential funding sources that could be used for meeting capital construction needs for the LPA and the operating and maintenance needs for the resulting transit system. Work must continue beyond the filing of the RDEIR/DEIS to develop a more detailed financial plan for the federal New Starts program application. The ongoing financial analysis of the LPA will consider estimated capital and operating costs, as well as anticipated sources of revenue for capital and operating purposes. The financial plan in the New Starts application must demonstrate how the project would be funded within the context of the existing and committed program of services and projects of the Massachusetts Bay Transportation Authority (MBTA). Because federal New Starts funds and forecast state revenues from existing and anticipated sources will not support the capital and operating costs of the LPA, it will be necessary to identify supplemental financing sources. EOT will continue to work with project stakeholders to identify potential sources of the non­New Starts portion of the capital and operating costs, and to build the necessary support and financial commitments for these strategies in advance of the New Starts application and the FEIR/FEIS filing. Urban Ring Phase 2 RDEIR/DEIS Page 6­3 November 2008 Chapter 6 COSTS, FUNDING AND IMPLEMENTATION This section describes the resource requirements and general financing strategies available to construct, operate, and maintain the LPA for Urban Ring Phase 2. Included are an overview of the process used to develop the plan, assumptions regarding the sources and uses of funds, and a basic funding strategy for the Phase 2 Build Alternative that utilizes a combination of FTA New Starts funds with state and other funds. The section also includes a discussion of innovative funding approaches that have been discussed with the Citizens Advisory Committee (CAC) Financial Subcommittee during the course of the RDEIR/DEIS planning process. 6.2.2 Capital Funding Plan As discussed in the Purpose and Need and the LPA chapter, the Urban Ring Phase 2 LPA proposed herein exhibits strong project justification characteristics and good cost­effectiveness, and it is expected to be competitive for funding through the Federal Transit Administration (FTA) Section 5309 New Starts funding program. Therefore, a fundamental part of the capital finance plan is an assumption that a major portion of the project's capital funds would be provided through the New Starts program. The basic framework proposed for project capital funding in the DEIS recognizes that a project is most competitive in the New Starts funding program if it requests 50 percent or less of its capital funding requirements from the New Starts program. However, typical practice for projects currently entering the New Starts program is for a maximum New Starts funding share of approximately $800 million. Therefore, it is assumed that the federal New Starts share will fall within this range: from the equivalent of $800 million (relative to the 2007 current dollar cost of $2.4 billion) up to 50 percent. As a result, the overall cost allocation is assumed to be: • Federal, Section 5309 New Starts • State and other funds, to be determined 33% ­ 50% ($800 M to $1.2 B in 2007 dollars) 50% ­ 67% ($1.2 B to $1.6 B in 2007 dollars) EOT assumes that the magnitude of the maximum typical New Starts award can grow commensurate with project inflation. Therefore, EOT assumes that the share of New Starts funding would remain constant relative to a 2007 program regime at 33 to 50 percent. The remaining 50 to 67 percent of capital funds would be provided through a combination of non­New Starts federal sources, state funding, and other funding sources. Given the financial constraints facing the Commonwealth of Massachusetts, the project must consider non­state conventional and innovative sources for the required matching share of the capital costs, including direct financial participation by private stakeholders in the corridor who are expected to benefit from the proposed project. With the importance of the project to improved transit access and development potential for municipalities, private entities and major institutions located in the corridor, special emphasis needs to be placed on defining strategies to capture a portion of the increased value of new and existing development served by the project as a source of project funding. The financial framework includes a listing of potential funding sources that could make up a portion of the 50 to 67 percent of capital funding required for the non­New Starts share. 6.2.2.1 Capital Costs The capital cost for Urban Ring Phase 2, in 2007 dollars, is estimated to be $2,401 million (Table 6­1). The distribution of costs by the various cost components is shown in Table 6­2. Based on an annual inflation rate of 3.5 percent, consistent with the Boston Region MPO’s Journey to 2030 Regional Transportation Plan, assuming construction start in 2015 and an opening year of 2020, and mid­point of construction (year 2018) costs are estimated to be $3,505 million. Urban Ring Phase 2 RDEIR/DEIS Page 6­4 November 2008 Chapter 6 COSTS, FUNDING AND IMPLEMENTATION 6.2.2.2 Federal New Starts Funding As discussed above, EOT assumes that 33 to 50 percent of the project's capital funds come from FTA's Section 5309 New Starts program, a competitive, discretionary program that provides funding for new fixed guideway transit projects. Based on cost estimates, ridership projections, transit travel time savings, cost­effectiveness, and other measures, the Urban Ring Phase 2 project has a strong project justification and is expected to be competitive for federal New Starts funding. The remaining 50 to 67 percent of capital funding would come from a variety of non­New Starts sources that could include other federal sources, state sources, and other funding sources. EOT will determine the recommended mix of funding sources and allocations by working with the Massachusetts Legislature, the Urban Ring CAC and its Finance Subcommittee, and appropriate agencies of the Commonwealth, including the Executive Office of Administration and Finance. Table 6­3 illustrates the basic distribution of funding sources. Table 6­3: Sources of Capital Funds, Midpoint of Construction (2018 dollars) Sources of Funds Funding Level Funding Share Section 5309 New Starts(1) $ 1,156 – 1,753 million 33­50 % Non­New Starts Sources $ 1,753 – 2,349 million 50­64 % $ 3,505 million 100% Total Project Budget (1)
6.2.2.3 Assumes current maximum federal funding share of $8000 million increases by 3.5% per year to 2018. Other Federal Funding Sources Project proponents may use other federal funding sources for a portion of the non­New Starts capital costs. A review of transit projects nationally that have Full Funding Grant Agreements (FFGA) or are currently in final design shows that a variety of federal funding sources, in addition to the discretionary New Starts program funds, are in use. These federal funding sources currently in use on New Starts projects include formula funds from various federal programs, federal earmarks for infrastructure improvements, and federal infrastructure loan programs. A number of New Starts projects with FFGAs use federal formula funds for a portion of their capital funding, although the total amount of non­New Starts federal formula funding is less than 4 percent of total capital costs for projects with FFGAs. An important consideration for use of formula funding sources is the fact that these funds are allocated to states at a set level. This means that any such funds used on the Urban Ring Phase 2 project would have to be re­allocated from other state transportation priorities. Several New Starts projects use FTA Section 5307 Urbanized Area Formula Funds and Section 5309 Fixed Guideway Modernization Funds; these funds are generally used for capital reinvestment needs such as infrastructure maintenance and rehabilitation, rolling stock, signal systems, and other improvements. Given the age of the MBTA system and the state of MBTA finances, the demands on these funds are great, and diverting these funds to expansion of the system would be problematic. Another source of federal formula funds for New Starts projects is Congestion Mitigation and Air Quality (CMAQ) funds. CMAQ funds are federal formula funds that are generally used for small­scale transportation projects and programs that reduce congestion and improve air quality, such as bicycle facilities and programs, travel demand management (TDM) programs, engine retrofit and pollution reduction initiatives, traffic management improvements, and transit improvements. Needs and competition for CMAQ funds is high, and are generally apportioned in fairly small allocations that fund important priorities; a large, capital­intensive project such as the Urban Ring may not be the most appropriate use of such funds. Urban Ring Phase 2 RDEIR/DEIS Page 6­5 November 2008 Chapter 6 COSTS, FUNDING AND IMPLEMENTATION There are a number of Congressional highway project earmarks in SAFETEA­LU that could be used for Urban Ring­related improvements. However, some of these earmarks are for broader improvement projects, and the specific Urban Ring­related costs (that are included in the overall Urban Ring project cost) are only a portion of the cost. In addition, these earmarks could only be used for Urban Ring project elements after the Urban Ring Phase 2 has completed the NEPA process and has a Record of Decision (ROD). That may not be until after SAFETEA­LU has expired, so these earmarks would have to be extended. • Melnea Cass Boulevard reconstruction. There is a $6.5 million earmark for reconstruction of Melnea Cass Boulevard in Roxbury. It is expected that this will include streetscape improvements and a shared­use path, along with the Urban Ring center median busway. • Sullivan Square reconstruction. There are a total of $13 million in earmarks for improvements at Sullivan Square in Charlestown. The City of Boston is currently conducting a planning study for roadway reconfiguration and improvements for pedestrian access and development potential. EOT is working with the City of Boston to ensure that the plan facilitates Urban Ring access. • East Boston Haul Road. There is a $5 million earmark for construction of the East Boston Haul Road, a new restricted access roadway in an abandoned railroad cut. The East Boston Haul Road would be available for use by Urban Ring vehicles and by trucks and shuttles traveling between Logan Airport and Chelsea. In addition to direct allocations of federal funds, there are also a number of federal loan programs that can enable project proponents to borrow money and fund projects under favorable terms. Transportation Infrastructure and Innovation Act (TIFIA) loans are federal loans, loan guarantees, or lines of credit for infrastructure improvement projects that are available at favorable terms, but must be repaid with non­
federal revenues. Grant Anticipation Revenue Vehicle (GARVEE) bonds are bonds that are to be repaid by future federal transportation funds. Similar mechanisms for generating funds to be repaid with future federal transportation funds include Grant Anticipation Notes (GANs) and advance construction (AC) project financing. Other federal programs include revolving State Infrastructure Banks (SIB) and Section 129 loans. All of these loan programs could help to fund project construction costs, but they do not represent new revenues or funding sources. They are therefore potentially useful mechanisms for generating funds, but they would increase the Commonwealth’s overall transportation system indebtedness, and would require some funding source for repayment. In general, these other federal, non­New Starts categories offer low potential for addressing a significant portion of Urban Ring capital cost requirements. This is consistent with practice in other New Starts projects. Among the 17 projects currently in FFGA, non­New Starts federal funding accounts for only 3.7 percent of total capital costs. 6.2.2.4 State Funding Sources Under the terms of the Forward Funding legislation of 1998, the Commonwealth of Massachusetts is responsible for capital costs of transit expansion projects on the MBTA transit system. As a result, the Commonwealth of Massachusetts is working on a strategy to enable it to make a major contribution to the capital funding of the Urban Ring Phase 2 project. However, in light of the Commonwealth’s financial constraints, and the wide range of the Commonwealth’s other financial commitments (including a number of other major transit expansion projects), it is expected that the Commonwealth will not be able to cover the full non­federal share of project costs. For planning purposes, the Commonwealth share of roughly half of the non­federal capital costs of the Urban Ring Phase 2 project should be used as a placeholder until additional information relative to the Commonwealth’s overall financing situation can be clarified. The major funding stream for the state financing of a major project such as the Urban Ring Phase 2 would most likely come from bonds, typically general obligation (GO) bonds. These are the most common means used by the Commonwealth to finance major public infrastructure initiatives. These bonds are Urban Ring Phase 2 RDEIR/DEIS Page 6­6 November 2008 Chapter 6 COSTS, FUNDING AND IMPLEMENTATION backed by the full faith and credit of the Commonwealth, and would ultimately be repaid out of the state’s general tax revenue. In order for the Urban Ring to make use of GO bond proceeds to fund capital costs, the Legislature would have to authorize such bond expenditures and the Commonwealth would need to appropriate the funds. The value of the incremental state tax revenues expected to result from implementation of the Urban Ring Phase 2 project has been suggested as a potential source of this state funding. Such a justification would be based on the fact that the increased transit capacity and access would increase the development potential of the Urban Ring corridor. The increased development attributable to the Urban Ring project would generate increased state income tax, sales tax, and corporate tax. Some portion of this tax increment could be identified as a source for bond servicing. In addition, other state expenditures may be able to count toward the non­New Starts project funding match, or at least reduce overall Urban Ring project costs. • State purchase of CSX right­of­way. The Commonwealth of Massachusetts has reached agreement with CSX Transportation on a broader plan that can lead to the purchase a number of railroad properties, including corridors in the Urban Ring alignment. A portion of this expenditure (commensurate with the cost of the right­of­way required for the Urban Ring) could be counted toward Urban Ring project costs. • Economic Stimulus Bill funding for Yawkey Station. The state’s 2006 Economic Stimulus package included $12 million for improvements to improve Yawkey Station and make it a full­time commuter rail station. While this project would improve the connectivity of the Framingham/Worcester line and improve the effectiveness of the Urban Ring, these costs are not included in Urban Ring project capital costs. • Malden River bridge cost sharing. The Weeks Memorial Bridge, which carries Revere Beach Parkway/Route 16 over the Malden River, is in need of reconstruction. The Department of Conservation and Recreation (DCR), which owns Revere Beach Parkway and the Weeks Memorial Bridge, is working on the design for this bridge reconstruction. The project may require construction of a temporary bridge to carry traffic during construction of the permanent span. EOT will coordinate with DCR to determine whether this temporary bridge could be converted for Urban Ring busway use (and a potential shared­use path connection). This could reduce overall bridge construction costs for the two bridges. Further discussion and review is required to determine how that cost savings would be allocated between the two projects. 6.2.2.5 Non­Federal, Non­State Funding Sources Given the limits on federal and state funding that are expected to be available, other funding sources will be required aside to cover the capital costs for the Urban Ring Phase 2 LPA. The following is an overview of other potential revenue sources for Urban Ring Phase 2 capital funding. EOT is neither assuming nor prescribing any specific funding mechanism, nor any specific funding responsibility. EOT is eager to continue working with Urban Ring CAC members and other stakeholders on this important issue, and to ultimately gain funding commitments that would enable EOT to apply for New Starts funding for the Urban Ring Phase 2 LPA. Local Revenue Sources The following are potential municipally­based revenue sources, including some that would require cooperation from both municipalities and the state Legislature. • District Improvement Financing. District improvement financing (DIF) is a method of funding infrastructure improvements by capturing the value of future local property taxes to service bonds. In Urban Ring Phase 2 RDEIR/DEIS Page 6­7 November 2008 Chapter 6 COSTS, FUNDING AND IMPLEMENTATION Massachusetts, a municipality may identify a qualifying district (in conjunction with the state), and issue bonds to fund improvements that would be backed by incremental property tax revenues. • Tax Increment Financing. Tax increment financing (TIF) allows municipalities to facilitate infrastructure improvements by private developers by providing those developers with property tax relief. A municipality could provide these tax exemptions on a set schedule that “pay back” the private developer for the infrastructure improvement. Meanwhile, the municipality would benefit from an increased property tax base enabled by the infrastructure improvement. • Local Option Tax. Local option tax or taxes could be assessed within a given municipality or municipalities, and could be dedicated to a specific purpose, such as Urban Ring construction. Local option taxes could include such measures as a sales tax, restaurant tax, gasoline tax, or other tax. Such local option taxes would require approval by the state Legislature and adoption by the municipality. • Parking surcharge. Based on the number of commercial and private off­street parking spaces within the catchment areas of the Urban Ring Stations, a parking surcharge could be charged per use of the parking space. Such a surcharge could be applied only to public (commercial) spaces, or it could be applied to both public and private spaces. The parking surcharge could be applied to specific parking transactions (for commercial parking spaces), or it could be assessed on parking facility owners. In recognition of the different levels, types, and values of parking in different areas of the corridor, there could exemptions for certain types of parking or certain areas of the corridor. This parking surcharge would require approval by the state Legislature and adoption by the municipality. This strategy is assumed to generate revenues on an annual basis. Given municipal budget constraints, it would be a challenge for corridor municipalities to raise significant funds toward the Urban Ring Phase 2 through bonds, taxes or fees. In addition, given the very high current value of taxable land in the Urban Ring corridor, coupled with the relatively small scale of any given private development, DIF and TIF are not expected to offer major funding potential. Local option taxes or a parking surcharge may have some potential to raise funds, but these mechanisms would require Legislative approval, and municipalities have many pressing needs for such funds aside from the Urban Ring. A parking surcharge in particular could have significant potential for generating funds, and it is a logically related funding source: it would use funds generated by the parking supply within a congested corridor to support public transit improvements. Private Contributions Another potential source of funding for the Urban Ring Phase 2 is private contributions to project capital costs, based on the appreciation in value and the increase in development potential that the Urban Ring Phase 2 could enable. In particular, educational and medical institutions in the corridor are significant land­owners and employers. Some of these institutions, such as those in the Longwood Medical and Academic Area, have major impacts on travel demand and other services, and face significant constraints to growth in the absence of significant improvements to transit access and capacity. The following are mechanisms through which private employers, land­owners, and institutions could make contributions to Urban Ring capital costs. • Property Transfer. Some of the costs of building the Urban Ring may be offset by property transfer arrangements between the MBTA and private landholders. This will apply when the MBTA needs to acquire a new right­of­way, and is able to trade MBTA property for property in the proposed right­of­
way. This strategy is assumed to generate revenues on a one­time basis. While this would be beneficial, the total value of property takings in the Urban Ring corridor as a whole is estimated at only about 2 percent of the project’s capital cost. Urban Ring Phase 2 RDEIR/DEIS Page 6­8 November 2008 Chapter 6 COSTS, FUNDING AND IMPLEMENTATION • Betterment Fees. Possible funding from instituting a betterment fee within the Corridor, a one­time fee rate per square foot could be applied to new and/or existing non­residential uses within the station catchment areas. This strategy is assumed to generate revenues as a one­time charge, although that charge may be collected in one or several installments. Furthermore, because a betterment fee is not technically considered a tax, it may be applied to tax­exempt, as well as taxable, properties. • Impact Fees. Possible funding from instituting a transit impact fee within the Corridor, a fee rate per square foot of new non­residential uses could be applied to development within the station catchment areas. This strategy is assumed to generate revenues on a one­time basis. • Joint Development. Joint development is the construction of an element of a public project by a private entity, typically as a part of a private development project being undertaken at or near the site of the public project. Examples of joint development in the MBTA system include construction of Silver Line infrastructure as part of the Massport Commonwealth Flats Development, and parking facility construction as part of the Riverside MBTA Station development. • Payment in Lieu of Taxes (PILOT). Many of the potential non­federal strategies above are based ultimately upon state or municipal tax revenues. Many of the major employment centers served by the Urban Ring, however, are tax­exempt educational and medical institutions. Boston and Cambridge already have programs with these institutions for Payments in Lieu of Taxes or PILOT as a means of generating revenue to support city services provided to institutions that are otherwise exempt from property taxes. • Linkage Payments. Linkage Payments are fees are assessed by municipalities for certain types of development to support provision of municipal services and/or construction of municipal facilities. In the cities of Boston and Cambridge, linkage payments are applicable to certain type of large projects, planned development areas (PDA), and institutional developments. Such a mechanism applied to the Urban Ring would potentially generate revenue on a one­time basis through major developments within the Urban Ring catchment areas. As in the case of the PILOT program discussed above, the case specific nature of a linkage program prevents the quantification of the potential revenues resulting from such a program. • Parking surcharge. Although it was identified as a potential municipally­based revenue source, a parking surcharge could also be assessed through a private betterment district mechanism. As with a municipally­based parking surcharge, a privately­assessed charge could generate significant annual revenues for servicing infrastructure bonds. However, a privately­assessed charge could be more narrowly­targeted, and could generate funds from parking in a congested corridor for use on transit improvements in that same corridor. 6.2.3 Operating and Maintenance Plan Preliminary operations and maintenance (O&M) costs were developed using the operating statistics from the travel demand model run and unit costs for hybrid electric bus technology, and estimated using an average of the revenue vehicle miles method and the revenue vehicle hours method. The result is a preliminary O&M cost for the LPA of $35 million per year. It is expected that operating and maintenance costs for the LPA would be funded through a combination of existing sources: sales tax revenue, local assessments, federal aid, fare revenue, and non­fare revenue. To the extent necessary, funding strategies for operating and maintenance costs may also need to consider supplemental sources, which could be drawn from among the revenue sources identified for the capital costs. Urban Ring Phase 2 RDEIR/DEIS Page 6­9 November 2008 Chapter 6 COSTS, FUNDING AND IMPLEMENTATION 6.2.3.1 Operating and Maintenance Costs The annual operating and maintenance costs for the LPA are estimated to be $35 million per year in 2007 dollars. 6.2.3.2 Operating and Maintenance Cost Funding The MBTA's current operating revenues comprise five sources: sales tax revenue, local assessments, federal aid, fare revenue, and non­fare revenue. These sources are described below: Sales Tax Revenue – The state sales tax revenues is the largest source of revenue for the MBTA. In 2006, about $710 million was generated from sales tax revenue, representing 60 percent of all revenues 8
dedicated to operations and maintenance. As part of the fiscal year 2000 annual appropriations act, the Commonwealth repealed the MBTA's original enabling legislation and enacted "Forward Funding" legislation, which is intended to establish the MBTA as a financially sustainable transit system. The term "forward funding" was used to reflect the fact that the MBTA's costs are no longer funded in arrears. Among the Forward Funding act's objectives are to position the MBTA to meet its operating cash flow needs without relying on additional short­term debt and to rationalize the Capital Program by prioritizing projects based, in part, on their contribution to revenue enhancement and cost control. As a result of Forward Funding, since July 1, 2000, the MBTA no longer receives the previously unlimited Net Cost of Service. Instead, the Authority receives a dedicated revenue stream consisting of the amounts assessed on cities and towns of the Authority in accordance with the Forward Funding legislation and the Dedicated Sales Tax. Sales tax revenue increased by an average of 5 percent per year until 2000. The 2000 Finance Plan assumed an average growth rate of 3 percent per year. However, due to a declining economy and increased internet sales, the sales tax revenues could not be achieved as previously forecasted. MBTA received $21 million less than the finance plan forecast in 2004, $21 million in 2005 and $35.1 million in 2006. Historical sales tax receipts from 1977 through 2007 show the average annual increase was 7.9 percent for the past 31 years. Between 1998 and 2002, the sales tax revenues increased at an annual average growth of 5.2 percent. However, sales tax revenues decreased by 2.4 percent in 2002, due to the economic downturn experienced in the nation in the past year. Sales tax revenues increased by an average of 1.6 percent between 2003 and 2007. Therefore, the sales tax revenue growth assumptions in the finance plan are conservative compared to historical experience. Local Assessments – The 175 municipalities within the MBTA's district pay an assessment to the MBTA on an annual basis. The amount paid by each municipality varies according to the population and level of service provided. The MBTA received $136 million in assessments in 2006, which is 11 percent of its total operating revenues. The assessments are limited to a maximum annual increase of 2.5 percent by Proposition 2 ½. Federal Aid – This is federal operating assistance for federal initiatives, which accounts for a small fraction of MBTA's revenue sources. Fare Revenue – In January 2007, the MBTA instituted a fare increase that is estimated to generate an additional $70 million over the next year. In the first quarter of 2008 MBTA ridership increased 9 percent over the same period a year earlier, which likely reflects the major increase in fuel costs for operating an automobile. Additional farebox revenue is anticipated to be generated by the Urban Ring LPA, which is projected to increase MBTA systemwide ridership by 67,100 linked transit trips per day in the year 2030 compared to the No­Build Alternative. 8
Source: Transportation Finance in Massachusetts: An Unsustainable System. March 28, 2007. Urban Ring Phase 2 RDEIR/DEIS Page 6­10 November 2008 Chapter 6 COSTS, FUNDING AND IMPLEMENTATION Non­fare revenues – Non­fare revenues comprise about 5 percent of MBTA revenues. These revenues include parking fees, advertising, concessions, rent, interest income, utility reimbursements, and non­
operating revenues such as income earned on investments and sale of property. 6.3 Phasing and Implementation The Purpose and Need for the Urban Ring Phase 2 is about establishing or improving connections between and among different neighborhoods, commercial centers, and transportation corridors in order to improve mobility, reduce congestion, and contribute to sustained economic development in the Boston region. The Urban Ring Phase 2, a circumferential ring around the urban core, is a very large project, which serves a diverse corridor with a broad range of characteristics, transportation needs, potential riders, and key stakeholders. The Executive Office of Transportation recognizes the benefits generated from a project that encompasses the Urban Ring Phase 2 in its entirety, and EOT is therefore proposing the Urban Ring Phase 2 LPA as a single project. This is intended to preserve the clarity of the project’s purpose and need; recognize the usefulness of a continuous connection through the corridor; help to provide geographically equitable benefits throughout the project corridor and the region; and to provide maximum flexibility in terms of project implementation. At the same time, the Urban Ring Phase 2 is a large and challenging project. The bulk of its capital costs are concentrated in a number of discrete infrastructure investments that are spread around the corridor, such as the Fenway/LMA tunnel, the Chelsea – Everett busway, and the reconstructed Grand Junction Railroad Bridge over the Charles River, among others. In other parts of the corridor, such as locations where the Urban Ring Phase 2 would operate in mixed traffic or in bus lanes within the existing roadway footprint, capital costs are more modest. As a result, the Urban Ring Phase 2 LPA exhibits good phasing characteristics. This is expected to prove advantageous in any implementation scenario. Assuming the project is implemented in a single construction phase, the infrastructure improvements could proceed in parallel through separate construction contracts. The geographic diversity of the corridor could help to prevent these parallel contracts from resulting in great construction impacts in any given area (although local construction impacts would still be significant in certain portions of the corridor). The diverse nature of the Urban Ring corridor and the Urban Ring Phase 2 LPA infrastructure improvements could also facilitate early implementation of some project elements through related infrastructure improvements. For example, the City of Boston is pursuing a planning and design study in Sullivan Square that could facilitate roadway improvements that aid Urban Ring Phase 2 and local bus access and service quality; major development plans and a federal earmark could facilitate reconstruction of the Melnea Cass Boulevard corridor in a manner consistent with Urban Ring Phase 2 proposals. If these infrastructure projects were to advance before Urban Ring Phase 2 implementation, EOT would coordinate with project proponents and with FTA on accommodating Urban Ring improvements in these projects. EOT strongly supports the Urban Ring Phase 2 LPA reflected in this RDEIR/DEIS. However, EOT recognizes that the federal and state financial environments present significant constraints to funding the project, and that the LPA as proposed could not currently be advanced in this RDEIR/DEIS assuming only those funding sources. For that reason, it is EOT’s position that the Urban Ring Phase 2 LPA will require other sources of funding. EOT believes that the filing of the RDEIR/DEIS can spur additional dialogue on project financing, and will take adequate time to enable progress on project financing to develop. Urban Ring Phase 2 implementation is also dependent upon the findings of the RDEIR/DEIS review, public comment and support, and financial capability. While the project does have the common theme of circumferential connectivity, and while it can benefit from a unified coalition of supporters, the Urban Ring Phase 2 is made up of individual elements that could have independent benefits and utility, but that face different challenges. These challenges range from local environmental and property impacts to major cost and financing challenges. EOT is eager to use this environmental filing to solicit feedback from the Urban Ring Phase 2 RDEIR/DEIS Page 6­11 November 2008 Chapter 6 COSTS, FUNDING AND IMPLEMENTATION general public, corridor residents, municipalities, public agencies, elected officials, and project stakeholders in order to inform the future direction of the project and its implementation plan. The federal, state, local and private financial environment in coming years will also inform project development and financing. The following is a preliminary schedule for Urban Ring Phase 2 planning, environmental review, design, and implementation, based on our current understanding of project development and financing. Given the uncertainty about project financing and implementation, the schedule is expressed in general time frames from the November 2008 RDEIR/DEIS filing date. • 1 ­ 1.5 years File New Starts program application • 1.5 ­ 2 years FTA approval to enter Preliminary Engineering • 2.5 ­ 3 years File Urban Ring Phase 2 FEIR/FEIS • 3 ­ 3.5 years Complete Preliminary Engineering • 3.5 ­ 4 years FTA approval for Final Design • 5.5 ­ 6 years Complete Final Design • 6 ­ 6.5 years FTA Full Funding Grant Agreement • 6.5 ­ 7.5 years Construction begins In addition, the Urban Ring corridor could benefit from interim improvements to conventional bus service. The 2001 Urban Ring Major Investment Study included a proposal for such improvements as Urban Ring Phase 1, which included the existing CT1, CT2, and CT3 bus routes, along with a series of other routes in other parts of the corridor. While these additional routes were not implemented due to MBTA service planning and financial constraints, EOT will continue to coordinate with the MBTA, municipalities, and corridor stakeholders to identify opportunities for bus service improvements in the corridor, and to identify opportunities for roadway design, traffic signal, and circulation enhancements that could make conventional bus service more effective. Urban Ring Phase 2 RDEIR/DEIS Page 6­12 November 2008