Despite financial rescue, rough road still ahead for Pike

By approving a financial rescue of the Massachusetts Turnpike Authority in the wee hours yesterday, the Legislature may have avoided what one turnpike board member called a "doomsday scenario" for the troubled agency.

But the same issues that made a toll increase likely next year are still in place for the turnpike: a deficit of $70 million this budget year and $100 million next year.

The intense debate and backroom dealing that took place over the final hours of the legislative session put a fine point on just how troubled the Turnpike Authority's finances are, largely because of the decision made a decade ago to put the tolling agency in charge of the Big Dig.

Many lawmakers called in recent days for abolishing the Turnpike Authority, an action that would leave the state holding the agency's $2.4 billion debt load. The measure approved yesterday - which insures about $1 billion in turnpike debts and investment obligations - also establishes another commission, this one charged with examining the authority's viability and structure.

Without the last-minute help from lawmakers yesterday, the situation at the Turnpike Authority would have been even worse - with the likelihood the agency would have to make an extra $2 million in monthly payments on sour investments beginning in January. There was also a lingering threat that the authority would owe something close to $200 million within the year because of other problems in the financial markets.

The plan backed by the Legislature is not expected to cost taxpayers more money unless the Turnpike Authority defaults on its loans. But it does nothing to address the authority's mounting deficit, which has left officials with few options other than another toll hike.

Governor Deval Patrick's transportation secretary, Bernard Cohen, continues to call a second toll hike in as many years a last resort, but he has not been able to accomplish the major goals he set last year to avert one.

"Nobody wants a toll increase, and it's not something that anyone relishes," said Cohen, who also chairs the turnpike board. "And until we make a final decision, I'm hoping there will be a way to avert a toll increase."

But Cohen has offered no plan to find the money elsewhere. Last fall, as his board voted on toll hikes of 25 cents and 50 cents at booths and tunnels around Boston, Cohen said he would avoid larger increases only if the Legislature passed major reforms intended to save money and approved a casino proposal intended to raise money within the year.

Cohen has not proposed major reforms, and the Legislature rejected casinos. The Turnpike Authority has to decide whether to raise tolls this fall.

Mary Z. Connaughton, a board member and a fierce opponent of toll increases, said it's nearly impossible to avoid hikes.

"We're likely looking at a toll increase unless a miracle happens here," Connaughton said. "The numbers just aren't adding up."

Michael Widmer, president of the Massachusetts Taxpayers Foundation, agreed. "Short of some radical surgery here, toll hikes are inevitable," he said. "They were inevitable before this and they're inevitable after this."

Yesterday's legislative action was an attempt to solve only the latest and most onerous crisis. Earlier this decade, Turnpike Authority managers entered into complex debt swaps with UBS and Lehman Brothers to take in some quick cash for the Big Dig - an arrangement that has since haunted the agency. Now, amid troubled financial markets, the authority faces problems that can be solved only with the Commonwealth agreeing to act as an insurer on some of its debts.

The deal approved yesterday will let the authority refinance $800 million in debt, with backing from the Legislature. This will allow the agency to avoid making $900,000 monthly payments, which were expected to rise to about $2 million in January. If the authority defaults on its debts, the state has pledged to make up the difference.

Lawmakers also agreed to act as insurer if the authority's private bonding insurance company, Ambac Financial Corp., faces further problems. Ambac's credit rating has been going down, and if that continues, UBS could require the authority to pay about $200 million at once under the terms of its deal. The Legislature is hoping that by its action, UBS would agree not to demand that payment.

The Patrick administration, with agreement from State House leaders, wanted a more aggressive bailout, one that would have extended the state's credit rating over the authority's entire $2.3 billion debt load.

That would have done two things: It would have made borrowing money less costly, saving about $1.2 million a year for the Turnpike Authority in interest. And it would have offered a further guarantee that the authority would not have to pay out the $200 million lump sum payment. The agency's financial adviser warned in a memo last week that anything short of full backing could leave the Turnpike Authority exposed. But critics - led by Widmer, Senator Mark C. Montigny, Democrat of New Bedford, and State Treasurer Timothy P. Cahill - warned that Patrick's plan was too risky, especially given the volatile financial markets.

Noah Bierman can be reached at nbierman@globe.com.