The Massachusetts Turnpike Authority is looking for state protection to avoid being forced to pay back as much as $200 million to investors.
Governor Deval Patrick's administration has signaled its support of the plan, which it says would cost the state no money but would expose the state to some measure of additional risk.
"We believe this is the best of a number of bad options the turnpike faces," said Jay Gonzalez, undersecretary for administration and finance. "We don't expect to ever have to pay $1 in the turnpike's debt. But does it expose us to some level of additional risk? Yes."
In essence, the plan proposed by the Patrick administration and the authority would have the state step in and guarantee part of the authority's debt, like a cosigner on a loan. And because the state's credit rating is better than the authority's, investors in complex turnpike debt securities issued in 2001 and 2002 would be blocked from requiring the authority to pay off a portion of the debt at unfavorable terms.
Gonzalez said the debt-related problems the authority faces originated years ago, rooted in a series of complex financial deals it made in 2001 and 2002 to raise cash to meet Big Dig costs.
"This was an arrangement that did not work out well for the turnpike and one that the current leadership of the turnpike and this administration inherited," said Gonzalez.
The deals were made under the leadership of Matthew J. Amorello, who was forced to resign as Turnpike Authority chairman in 2006 after a prolonged battled with Governor Mitt Romney. The agency is now run by Alan LeBovidge.
In a statement yesterday, LeBovidge said: "Thanks to a series of poor decisions by past Turnpike administrations, we're dealing with a grim financial picture while working hard to find steadier ground. As we continue in our efforts to reform the authority and find all possible cost savings and efficiencies, we are working with the governor's office and the Legislature on possible solutions."
Even with Patrick's backing, the plan faces questions in the Legislature. This week, the House attached a version of the plan to a transportation bond bill. But Senator Mark C. Montigny, a New Bedford Democrat who is Senate chairman of a committee that oversees state bonds, said yesterday that he plans to grill administration and Turnpike Authority officials in a public hearing next week. Montigny said he is concerned that there is nothing to prevent other boards and authorities from making such deals.
The Turnpike Authority is an independent agency, with the ability to borrow money on public markets by pledging revenues collected in tolls. In 1996, the Legislature gave the authority the responsibility for managing construction of the $15 billion Big Dig and, later, for operating it.
As cost overruns mounted, the authority accumulated $1.8 billion in debt for the Central Artery/Tunnel Project. In 2001 and 2002, the authority, short on cash, made deals with the investment firms UBS and
The so-called swaption deals allowed the investment banks to hedge against disadvantageous changes in interest rates. Already, the banks have exercised options that cost the authority about $10 million a year in increased payments. And another option available to the banks in January could double the additional cost.
One way out of the deals for the authority is to refinance, but because its credit rating is so poor, the authority cannot find willing purchasers of its bonds.
Sean Murphy can be reached at firstname.lastname@example.org.