The MBTA, which recently depleted its rainy-day fund to plug a $75 million budget deficit, learned this week that it is facing an additional $150 million in wage increases and back pay over the next two years, and officials acknowledged they do not know how they will pay for it.
"I don't have an answer for you today," said Daniel A. Grabauskas, general manager of the Massachusetts Bay Transportation Authority. "It's going to be very difficult, and that's one of the things that we're going to have to figure out."
An arbitrator gave T management a major victory this week in its negotiations with its largest union, requiring retirees to contribute to their healthcare costs for the first time and requiring all employees to pay a bigger share of the costs.
But the same ruling gave the union a 13 percent pay increase over four years, including retroactive payments for the past two years. If the same wage increase is included in the T's contract with its other unions, as is customary, it will cost the agency an additional $150 million over the course of the contracts, according to T estimates.
While the T knew that raises were likely as part of these contract negotiations, it had not set aside money to cover the cost.
The arbitrator's ruling presents a new complication for an agency that was already living a paycheck-to-paycheck existence, tapping credit to meet basic expenses, even as high gas prices send more commuters to public transit.
Grabauskas has previously ruled out a fare increase for 2009, but has declined to discuss what might happen in 2010. The agency's financial troubles continue to mount, with rising gas prices hitting the T especially hard, despite the rise in ridership. Transit advocates fear there will be another fare increase unless the Legislature steps in to help the T with its multibillion-dollar debt. The T last raised fares in January 2007.
Earlier this month, the T's budget managers took $20 million out of the $55 million rainy-day fund and delayed another $50 million in debt payments to plug a budget hole. But Jonathan Davis, the MBTA's chief financial officer, said in March that he was running out of options and would have little recourse if faced with a real emergency.
Aware that the arbitrator would probably award a raise, MBTA management fought hard to save money on health expenses.
"We didn't expect that there was going to be no wage increase," Grabauskas said. "What we needed to do was to, for the first time ever, to get concessions in healthcare to try to offset some of the increases."
The changes in healthcare benefits will have long-term impacts on the T's finances, but not as large as the immediate wage hit.
"I don't begrudge the unions their money, but I just have no idea where the money's going to come from," said Paul Regan, executive director of the MBTA Advisory Board, which represents the cities and towns served by the T.
The Boston Carmen's Union Local 589, which represents 3,600 workers and more than 60 percent of the T's labor force, had been without a contract for two years. The union's wages and benefits are among the largest in the industry. This week's ruling on the workers' new four-year contract by arbitrator Nancy Peace gave ground to both T management and the union. It granted workers the 13 percent pay increase over the life of the contract, including back pay to July 1, 2006.
Peace's ruling required the T's retirees to contribute 10 percent toward their healthcare costs for the first time. Previously, retirees and their families got free healthcare for life, a benefit unheard of for most American workers.
Workers, both active and retirees, will also see an increase in their co-payments, which have not changed in at least 20 years, Grabauskas said. Under the old contract, workers paid $3 or $4 to fill a prescription and $5 to visit a doctor. The new contract raises those co-payments to between $5 and $20 for prescriptions and $20 for a visit to the doctor.
"We don't view the wage adjustments or the retroactivity as exorbitant," said Steve MacDougall, president of the carmen's union. "We believe they were modest and appropriate. If someone were to ask me if I was surprised about the healthcare stuff: No, we're not surprised."
MacDougall said he is concerned about the T's financial health. But long-term debt and expansion are the source of the problem, not labor costs, he said.
Noah Bierman can be reached at firstname.lastname@example.org.