Wednesday, December 30, 2009

Sound Business Principles


I turned on the local news this morning, and heard, once again, that the MBTA [Metropolitan Boston Transit Authority] has to increase fares and reduce service in order to make ends meet this fiscal year. As a business person who has had total profit and loss responsibility for several firms over the years, I was curious how reducing product quality and increasing the price charged to customers could ever work in the marketplace. So, I started to look into the MBTA budget for 2009. The first thing I noticed (and you can also go to the MBTA Web site and follow along) is that salaries and fringe benefits are nearly HALF of the total operating expenses. Having been the vice president of a major ground transportation company at one time, it was a rule that salaries and fringe could not exceed 1/3 of total operating expenses in order to remain viable and competitive. But unlike a "for profit" private sector business, the "T" doesn't have to control costs - it just has to increase fares and cut services.

As I continued to peruse the budget, I searched for the cost of pensions and health insurance for retirees - since they have to be fully funded and increased each year to keep up with the rising costs, and since they combined to be the Achilles heal for General Motors, I thought I'd be able to find out what kind of burden they continue to impose. Unfortunately, unlike any other public agency in the commonwealth, the MBTA does not have to publish its pension obligations because it operates outside the state's retirement agency. I was able to find out a few of the generalities of the burden all commuters are paying - maybe you knew this, but as a daily commuter looking at working to pay off my home, my kid's college debt and keep up with rising taxes, I was appalled - especially since I will still be working at age 75 in order to pay everything off!

MBTA workers can receive a full pension after 23 years of service, regardless of age. So, if an MBTA worker graduated from high school and got a job at age 19, he or she is eligible to receive a full pension at age 42! Not only that, he or she will also receive free health insurance for life. And, since 42 is a prime working age, MBTA pensioners can work at other jobs and earn as much as possible, unlike other state retirees, and pile those wages on top of their MBTA pension.

So, when I heard that commuter rail weekend service may be suspended, and that there is a real potential for weekday service reductions - AND, fares may have to be increased dramatically, I asked myself, "Why are the struggling commuters who are paying the salaries of these people, just sitting there and taking it?" The MBTA general manager, Dan Grabuaskas, says his hands are tied. In fact, according to a local daily paper, Grabuaskas even tried to give his management team a 9 percent pay raise, until pressure from the governor's office convinced him to back it off to 3 percent.

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