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A new report says the MBTA is on the verge of ‘fiscal calamity.’ Is the millionaires tax the solution?

"One-time budget surpluses and federal aid won’t be enough."

A Red Line train arrives at South Station in Boston last month. Craig Walker / The Boston Globe

Even with $2 billion in federal COVID-19 relief funds, the MBTA’s long-term money problem isn’t going away, as hundreds of thousands of previously regular riders stick to their cars and home offices.

A new report released Thursday by the Massachusetts Taxpayers Foundation says the MBTA faces a growing budget shortfall in the years ahead, due to the sluggish recovery in ridership and, as a result, fare revenue, which accounts for a quarter of the agency’s overall budget.

According to the report, the MBTA could need to address a budget gap of between $200 million and $400 million in the fiscal year beginning in July 2023, depending on how quickly ridership rebounds and the amount of federal funds the agency needs to spend to make up for lost revenue.

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However, once those federal funds run out, the business-backed policy research group estimates that the budget gap could balloon to $450 million and then $500 million in the 2025 and 2026 fiscal years, leaving the agency with “few options” other than layoffs, fare increases, and service cuts.

“The trend is unequivocal and unsettling,” the report said. “This is a fiscal calamity.”

MBTA ridership, which virtually evaporated at the onset of the pandemic, has slowly crept back over the last 18 months but remains at roughly 50 percent of its normal levels on rapid transit and less than 60 percent on buses. The report also noted that ridership on the commuter rail, which accounts for 36 percent of the MBTA’s fare revenue, remains at just 25 percent of its normal levels and is “unlikely” to ever fully recover due to continued remote work and its expensive price.

Additionally, funding from one-time investments for projects to improve and expand service begins to drop off in fiscal year 2025, leaving the MBTA in need of $700 million to $800 million in dedicated revenues, the report said.

All in all, the group said that the MBTA needs a commitment of $1.2 billion to $1.3 billion by 2023 in order to fund and plan its future budgets.

“Patches and quick fixes cannot buy enough time, nor can the MBTA fix this,” the report concluded. “The MBTA’s future depends on the actions [the governor] and others take.”

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In this instance, “others” could include Massachusetts voters.

Supporters of a 2022 ballot question that would impose an additional 4 percent tax on annual income over $1 million contend that their so-called Fair Share Amendment is the solution to the MBTA’s dilemma.

The proposed tax, which would take effect in 2023 if approved by voters, would generate between $1.6 billion and $2.2 billion, according to most recent state estimates. And the ballot measure would direct those funds to be spent on public education and transportation.

“Liberal and conservative researchers agree that the MBTA needs new long-term funding to operate trains, buses, and the commuter rail without fare increases, to invest in the modern infrastructure necessary for faster, more reliable service, and to protect critical infrastructure from the effects of climate change,” Andrew Farnitano, a spokesman for Raise Up Massachusetts, the coalition backing the Fair Share Amendment, said in a statement in response to the report Thursday.

“In November 2022, voters will have the chance to support sustainable, long-term revenue for investments in transportation and public education, without asking low- and middle-income families to pay a penny more,” Farnitano added.

The current governor, however, doesn’t support that approach.

During an appearance Thursday afternoon on GBH’s “Boston Public Radio,” Gov. Charlie Baker reiterated his opposition to the Fair Share Amendment and noted that, even if passed, there is no requirement the revenue from the tax would be allocated to the MBTA.

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“It’s going to be general appropriation money that people can spend it on whatever they want,” Baker said.

The Republican governor also cast doubt on the estimates of how much the millionaires tax would raise, given the increased ability of remote work, suggesting the tax could induce high-earners to move out of Massachusetts.

“We should be very careful about that as we think about things like how much we think we might raise through something like the fair share tax,” he said.

Baker also said the Massachusetts Taxpayer Foundation’s estimates were based on “very, very pessimistic” ridership forecasts.

“I don’t think we should panic quite yet,” Baker said.

Still, he suggested other ways of closing the MBTA’s forecasted budget gaps, such as the expected federal infrastructure bill or existing state funds.

“There is a very significant amount of money, almost by every calculation with respect to what the feds are talking about on infrastructure, that’s going to be coming to the commonwealth to be used for transportation,” Baker said. “Very significant — you know, billions and billions of dollars over time.”

The governor also noted that state lawmakers still have $5 billion in American Rescue Plan Act funds and $1 billion in surplus from fiscal year 2021, which ended in June, to allocate.

“We have a lot of resources here,” he said.

Fair Share Amendment supporters argue that, like the last rounds of federal and state funding, that money will eventually dry up, too.

“One-time budget surpluses and federal aid won’t be enough; Massachusetts needs a sustainable source of funding to invest in the MBTA and regional transit authorities across the state, and to repair our roads, bridges, and tunnels,” Farnitano said Thursday. “The Fair Share Amendment is the answer.”

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The Massachusetts Taxpayer Foundation suggested Thursday that another potential exacerbating variable in the MBTA’s budget challenges are the “ongoing calls to reduce or eliminate transit fares,” though so far such pilots have been financed with city funds.

Notably, the report was released one day after vote-counting finished in Boston’s preliminary mayoral election, in which City Councilor Michelle Wu, perhaps the most outspoken local advocate for eliminating some MBTA fares, was the first-place finisher. Democratic gubernatorial candidate Ben Downing has also pledged to make the MBTA free by the end of his first term.

In response to the report Thursday, Downing pointed to his transportation plan to use Fair Share Amendment money, in addition to an incremental 10-15 cent gas tax increase and congestion pricing, to provide more constant revenue.

He also suggested shifting some of the $35.7 billion the state spends on its car infrastructure toward the MBTA.

“We have all of the tools to implement robust revenue streams and fund a modernized, electrified, fare-free MBTA, Downing wrote. “What we don’t have is the sense of true urgency needed from [Baker] to get it done.”

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