Mass Pike board defers budget to consider credit risks

The Massachusetts Turnpike board last week deferred decisions on a budget for the next financial year amid fears that its deteriorating financial situation might cause its credit rating to be downgraded to junk bond status. Secretary of transportation and chairman of the Board Bernard Cohen has blocked moves to increase toll rates, or levy tolls on the I-93 segment of the Big Dig which is at the root of the Turnpike's troubles.

According to a budget document from the Turnpike debt service on the untolled Big Dig is due to grow this year to $137m and swaption-related debt incurred several years ago to push back repayment will go from $1.8m to $17.4m. That absorbs all but about $20m of the $175m in expected toll revenues on the metro part of the Turnpike which includes the mainline of the Turnpike (I-90) inside MA128, and the Sumner and Williams harbor tunnels. Operating expenses on this metro section of the Turnpike are $105m, so there's a $85m deficit looming that is only partially covered by non-toll revenues, earnings on reserves and the like.

Blocked by the Patrick Administration from raising toll rates CEO Alan LeBovidge suggested a set of measures:

- tapping the Turnpike's cash reserves to the tune of $20m+

- abolishing the transponder (Fast Lane) discount $13m

- abolishing discounts for residents near the tunnels $5m

- aggressively selling Turnpike property

- help from the state to pay Big Dig debt service

- laying off toll collectors

LeBovidge said that in a year's time the Authority could raise toll rates having shown that it had "left no stone unturned" in reducing costs.

Board members rejected that plan saying it was unacceptable to pile tolls higher on I-90 commuters from the western suburbs to pay the debt service and maintenance costs of untolled I-93. Michael Angelini of Worcester called the Cohen-LeBovidge plan the "least fair" approach to solving the Turnpike's financial mess.

Also critical was another board member Mary Connaughton who agrees with Angelini about the dead-end of trying to hike tolls only on existing Turnpike users in the west.

She said the Cohen-LeBovidge plan did not even, as claimed, avoid a toll increase. By abolishing the transponder account discount tolls were effectively being increased on the core clientele of the Turnpike, while not increasing tolls on occasional users who pay cash.

Almost every toller in the US provides a discount to motorists who establish a  transponder account, both to encourage use of transponders, and to reflect the lower cost to the toll authority of collecting tolls by transponder as compared with cash.

Connaughton - who makes her living as a financial consultant - told us in an interview Friday that the Turnpike is in danger of having its credit rating downgraded to junk bond status if it keeps avoiding hard decisions.  The Turnpike is presently on the lowest rung of investment grade ratings.

Junk bond status would have several adverse consequences. It would put Turnpike bonds off limits to many institutions, raise the interest charges on debt, and trigger costly fees  from several lenders guaranteed investment grade status.

"There has to be a broader solution. The bottom line is that the Big Dig has saddled us with costs which we cannot support with our existing revenues," said Connaughton.

"We have a fiduciary responsibility to bondholders to make hard decisions and put the Turnpike on a sound financial footing. We haven't yet got a plan to do that. I think that is recognized."

The board last week only approved a two-month interim budget, leaving staff to come back with a better proposal for the fiscal year at the meeting next month.

The present crisis have arisen, Connaughton said, because the Turnpike has not faced up to problems, but instead has found ways of pushing them off to tomorrow.

"Today is the tomorrow we feared to face yesterday," she said in a takeoff of "Today's the tomorrow we dreamed of yesterday."

TOLLROADSnews 2008-08-24