Agency downgrades turnpike's bond rating, raising prospect of toll increases

By Noah Bierman, Globe Staff

Another day brought another piece of dismal financial news for the Massachusetts Turnpike Authority. One of the authority's two rating agencies downgraded its credit rating Thursday, putting its bonds just a notch above junk status and increasing the likelihood that a significant toll increase is coming very soon.

“I think we all recognize that we need to do that promptly," said Michael Angelini, part of a majority of board members who say a toll increase is needed. "We're going to be meeting again in October and I’m sure that’s the first item on the agenda.”

The news that Moody's Investor Service downgraded the authority came on the same day that Governor Deval Patrick announced a still-undefined plan to abolish the turnpike authority and assign its responsibilities and debt to other state agencies. But regardless of who controls the turnpike, the debt will remain on the books.

Moody's decision increases the threat that the agency will be forced to pay Lehman Brothers $37 million as part of a complex financial deal entered into earlier this decade. Lehman, or whoever assumes the assets of the bankrupt company, can demand the money if the authority's other rating agency, Fitch's, follows Moody's with its own downgrade, something it has threatened to do.

Turnpike officials said the authority may also have to set aside another $9.5 million from its reserve account as collateral on another investment as a result of the downgrade, though that issue is still being researched.

"This was not unexpected, and while disappointing, it’s further evidence of our serious fiscal situation at the turnpike," Alan LeBovidge, the authority's executive director, said in a written statement. "This downgrade supports the governor’s recognition that real reform is needed at the turnpike authority."

In their report, Moody's analysts pointed to the need for either more credit support from the state "on a timely basis" or a toll increase. The rating will continue to go down if there is "continued inaction."

"Although the authority's board has independent authority to increase tolls, all board members are appointed by the governor and are subject to political pressure," the Moody's analysts wrote.

Board members had discussed the possibility of a lower rating at their meeting last month, but failed to pass a measure promising a quick toll hike that some members felt would prevent a credit downgrade. Board member Mary Connaughton tried unsuccessfully to call an emergency board meeting Wednesday night when the authority received informal notice that the downgrade was imminent. Secretary of Transportation Bernard Cohen, who chairs the turnpike's board, is out of the country on vacation.

“They made a huge mistake in not having the meeting last night,” Connaughton said.

Patrick's spokesman Joe Landolfi said Cohen would speed up his effort to design a turnpike reorganization bill in hopes of getting something in front of the Legislature by Jan. 1. Patrick will probably face a receptive audience in the Legislature, said Senator Steven A. Baddour, the Methuen Democrat who co-chairs the transportation committee.

“People have seen ... the decades of poor decision making, poor management,” he said.

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