{"id":6503,"date":"2015-12-09T21:52:18","date_gmt":"2015-12-10T02:52:18","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/the-mbta-a-case-study-in-the-misalignment-of-operating-models-for-public-services\/"},"modified":"2015-12-09T21:52:18","modified_gmt":"2015-12-10T02:52:18","slug":"the-mbta-a-case-study-in-the-misalignment-of-operating-models-for-public-services","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/the-mbta-a-case-study-in-the-misalignment-of-operating-models-for-public-services\/","title":{"rendered":"The MBTA: A Case Study in the (Mis)Alignment of Operating Models for Public Services"},"content":{"rendered":"
Problems at the MBTA in 2015<\/strong><\/p>\n The MBTA, one of the oldest transit agencies in North America, is facing severe financial and operational issues:<\/p>\n Financial Unsustainability<\/em><\/p>\n Operational Challenges<\/em><\/p>\n Potential Solutions<\/strong><\/p>\n In 2015 Governor Charlie Baker created both the Fiscal and Management Control Board and appointed Brian Shortsleeve<\/a> (HBS 2001) to the new position of Chief Administrative Officer. This new organizational structure, which is much more deliberately attuned to fiscal imperatives, has been implemented to transform the MBTA into a more financially sustainable and operationally efficient organization. To address the problems faced by the MBTA, multiple strategies are under consideration at present[iv]<\/a>:<\/p>\n While steps must be taken to strengthen the MBTA\u2019s financial sustainability, care must be taken; many of these strategies concentrate impact on those with the greatest need.<\/p>\n How did it come to this? <\/strong><\/p>\n Prior to 2000, the MBTA was a \u201cbackward-funding\u201d organization: regardless of what it spent, the State would cover its costs at the end of the year. After years of ever-increasing budget over-runs, a program called \u201cForward Funding\u201d was introduced by the State in 2000 with the stated purpose of \u201ctransforming the MBTA from an agency that bills the State for its operating deficits to a system that sustains itself from an identifiable revenue stream<\/em>\u201d<\/em>; this program was supported by the dedication of 20% of the State sales tax to the MBTA. Budget deficits have continued, however, as costs increased instead of decreasing and the sales tax revenue stream yielded less capital than expected[vii]<\/a>.<\/p>\n As a result of this funding structure, the MBTA\u2019s business model does not support its operating model; because the MBTA has historically been able to have the State cover all of its costs, there has been little incentive for innovation. Further, the MBTA\u2019s effective monopoly smothered any drive to develop competitive advantage. For as long as the State has been willing to underwrite all costs, the urgency to achieve cost efficiencies and develop and implement a cogent business strategy has been muted.<\/p>\n What could work better?<\/strong><\/p>\n So what business model would work better? Should the MBTA be run as a for-profit organization, to incentive strategic decision making and drive efficiency? While this model is effective for private organizations, it would not be feasible for the MBTA. Across North America and Europe, there is no transit agency that can cover all of its operational costs through the revenue it generates[viii]<\/a>. If the MBTA were mandated to run at a profit, much of the system would have to shut down as most routes are not profitable. The MBTA needs some degree of funding from taxpayers to supplement generated revenue because transit addresses broader societal needs by providing:<\/p>\n This illustrates the challenge in developing a business model that can be aligned with the operational model of a public service such as education, healthcare, the military or public transportation. Public services are generally striving to fulfill multiple diverse objectives that do not relate to financial return. In comparison, a for-profit organization has a much narrower band of objectives it is striving to fulfill \u2013 generally, to maximize the return on shareholder equity, which can be achieved in the long-run by focusing on interrelated short-term objectives (i.e. maximizing market share, minimizing costs, etc.)<\/p>\n So how can the business model be improved to better support the complex operating models for social services? These three options prove wanting:<\/p>\n However, I believe that improved outcomes can be achieved by:<\/p>\n [i]<\/a> MBTA Fiscal and Management Control Board Report #1 \u2013 Baseline Analysis and Progress to Date, September 22, 2015, page 2<\/p>\n [ii]<\/a> MBTA Fiscal and Management Control Board Report #1 \u2013 Baseline Analysis and Progress to Date, September 22, 2015, page 17<\/p>\n [iii]<\/a> https:\/\/www.bostonglobe.com\/metro\/2015\/11\/30\/green-line-project-plagued-with-problems-consultants-say\/VjSlACBEmPQn6JLwVodTJO\/story.html, accessed December 4, 2015.<\/p>\n [iv]<\/a> https:\/\/www.bostonglobe.com\/metro\/2015\/12\/06\/mbta-looks-fare-hikes-reopening-union-contracts-balance-budget\/PnRwU9uHhzu0C3MfxO60qO\/story.html, accessed December 4, 2015.<\/p>\n [v]<\/a>https:\/\/twitter.com\/search?q=mbta+green+line+extension&ref_src=twsrc%5Egoogle%7Ctwcamp%5Eserp%7Ctwgr%5Esearch, accessed December 9, 2015.<\/p>\n [vi]<\/a> http:\/\/www.wbur.org\/2015\/08\/21\/mbta-privatize-bus-routes,\u00a0accessed December 4, 2015.<\/p>\n\n
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