Role in financing Big Dig may test Baker’s campaign

In exchange for $1.5 billion upfront, the state pledged to surrender to bondholders more than a quarter of its federal highway grants from 2006 through 2015, about $150 million per year.

Governor Paul Cellucci’s top financial adviser when the program was conceived and passed into law was Charles D. Baker, who announced last week that he is running for governor.

At the time, Baker defended a plan to increase short-term borrowing as a way to save money over the long term, by getting as much work done as possible before the cost of labor and materials went up.

“The thing that really drives up costs is inflation,’’ he told the Globe in 1997.

Now that Baker has reentered the political arena at the state’s highest level, his decisions as the state secretary of administration and finance from November 1994 through September 1998 and the impact they still have on state government will provide a significant test of the Republican’s ability to pitch himself as a fiscal conservative against primary opponents and, potentially, Treasurer Timothy P. Cahill, an independent, and Governor Deval Patrick, a Democrat.

His reputation as a strategic player inside the administrations of governors William F. Weld and Cellucci could also grow more complicated if he attempts to distance himself from some of their more controversial actions.

“If you are paying with tomorrow’s dollars to build something you can’t afford today, it’s inevitable that sooner or later the financial structure is going to implode,’’ said Senator Mark C. Montigny, a New Bedford Democrat who voted for elements of the Big Dig financing structure, but later became a vocal critic.

Baker declined several requests to speak about his role in financing the Big Dig, stating in an e-mail and through a spokesman that he is in a transition period, leaving his job as chief executive of Harvard Pilgrim Health Care, and will not be an official candidate until the end of the month.

He referred inquiries to a spokesman, Rob Gray, who could not answer specific questions about Baker’s thought processes at the time or speak in depth about Baker’s involvement in key decisions. Gray said Baker had a “limited role in the financing process’’ of the Big Dig and that, as administration and finance secretary, he “had no control over management of the Central Artery/tunnel project.’’

Gray said Baker left state government before “peak construction and the revelation of cost overruns by the Turnpike Authority, an independent agency’’ that managed the project.

It is true that the project’s most startling cost overruns, a hidden $1.4 billion, were revealed in 2000, after Baker stepped down as secretary. But the first of the project’s three peak spending years began in 1998, before Baker left, when costs reached $4 million a day. And the overall projected price tag had already reached $10.8 billion by the time he left. It would eventually reach $15 billion.

And the decision to assign the project, and much of its debt, to the Turnpike Authority in two bills passed in 1995 and 1997, was also crafted during Baker’s time as a top finance man on Beacon Hill. In 1997, when critics were cautioning that the state was not setting aside enough money to pay for the Big Dig, he defended the turnpike plan as “the right mechanism for dealing with a situation that everyone admits is going to be challenging.’’

Since then, the Turnpike Authority’s role has been attacked by Big Dig critics, who have complained that the authority, which has an unelected board, was not directly accountable to the public for cost overruns and that commuters on the turnpike were forced to pay an undue share of Big Dig debt through tolls.

That debate is still being fought on Beacon Hill, where an overhaul of the transportation system was recently passed, eliminating the Turnpike Authority as of November, though not the $2.4 billion debt it carries, largely courtesy of the Big Dig.

Former House Transportation Committee chairman Joseph C. Sullivan, who led the panel when many financing decisions were made, said Baker had a heavy hand in the plan to assign Big Dig expenses to the Turnpike Authority.

“The primary author was the governor and, instrumental in that authorship, was Secretary Baker,’’ said Sullivan, a Democrat and now mayor of Braintree.

Sullivan, who helped pass the most significant piece of the plan in 1997, praised Baker as smart and competent and pointed out the economic and political dynamics at the time: Big Dig costs were climbing. The federal government’s promise to shoulder the burden was dwindling. And state officials at all levels were scrambling to define costs and explain how they could be paid. There was intense pressure to develop a financing plan.

“He had a role to play, but the major decisions were not made at his level, in other words, the decision to move forward and to build this project,’’ said Cellucci. “Once the governor says ‘This is what we’re going to do,’ it’s the responsibility of the secretary of administration and finance to do it.’’

Although it was clear the state did not have the money for its share, there was no political will to raise taxes. The state was running out of places to borrow money, so it hatched a plan akin to a debtor who agrees to have future wages garnisheed to pay urgent bills.

“We already were so heavily borrowing, the state, through the normal processes of borrowing,’’ said Michael J. Widmer, president of the Massachusetts Taxpayers Foundation. “And in this case, the price, I would argue, is high . . . almost a decade of sacrificing a third of our highway money.’’

In addition to an average of $150 million a year that gets taken out of statewide highway and bridge grants, Massachusetts pays an average of $60 million a year in interest out of the state Treasury.

Yet even as the original plan was taking shape, Baker told legislators in 1998 that regional projects would not be hurt. “I don’t see how anybody could argue that the artery will be pulling money away from non-artery projects.’’

The debts taken out at the time have made it harder for the Patrick administration to pay for bridge repairs that engineers say are desperately needed.

So Patrick has settled on the same solution. As part of his own $3 billion bridge repair program, Patrick is borrowing $1.1 billion from future federal grants, agreeing to make payments between 2015 and 2021, when the Cellucci loans are paid off.

Patrick has made the same argument Baker made, that it saves money to spend money now, before inflation and wear and tear make repairs more expensive.

And Widmer and other fiscal watchdogs are making similar criticisms, that borrowing into the future will extend the state’s cycle of poverty.

None of the earlier decisions were Baker’s alone, of course. Key members of the Legislature, Weld and Cellucci and their staffs, and, significantly, former transportation secretary James J. Kerasiotes, and the Turnpike Authority all weighed in. Patrick’s transportation secretary, James A. Aloisi Jr., a former general counsel for the Turnpike Authority, drafted the actual legislation that put the turnpike in charge of the Big Dig.

But Montigny, who was not in leadership at the time but has since controlled key financial committees, said those decisions could not have been made without significant input from the state’s top finance adviser.

“It would be impossible to get that kind of a monster created without the [administration and finance] secretary, the governor, and the legislative leadership,’’ he said. “It’s just too big of an undertaking.’’