Turnpike managers scramble for plan B
Authority a victim of recent turmoil in finance markets
The Big Dig's lingering financial hangover and the nation's credit crisis are conspiring against the Massachusetts Turnpike Authority. The result: new monthly debt payments that could reach $2 million a month by January, absorbing a hefty chunk of the funds raised by a recent toll increase.
Initial attempts to stave off the new payments were thwarted late Friday when a bank rejected a plan to refinance $127 million in debt. That leaves the managers scrambling for a Plan B.
Like governments and nonprofit organizations around the country, the authority is the victim of turmoil in the lending markets. In this case, the seeds of the debt payments were sown through a series of complex deals meant to get quick cash to pay for the Big Dig.
The new financial hit came as Bernard Cohen, the state transportation secretary, tried to downplay earlier threats of new tolls on the Pike. But as the bad financial news mounts, the pressure grows. Under the newest worst-case scenario, the debt payments would wipe out most of the money generated by the toll increase that took effect in January.
"We thought last week we were getting ready to solve a problem," Cohen said at the Pike's monthly meeting yesterday. "Now we're finding out it's a greater concern."
The extent of the problem will depend on volatile financial markets and on the ability of Turnpike Authority managers to come up with another borrowing strategy, something the authority's financial advisers,
"The reality is, we don't know where we'll come out on this thing," said Alan LeBovidge, the authority's executive director.
At the same meeting, the authority's board discussed a preliminary report on how to create a fairer toll system, which could mean adding tolls in some areas that are currently free, including the Interstate 90 extension. Cohen said the board remains in a "research phase" on the toll issue, which will take four to six months as the Patrick administration looks for cost savings elsewhere.
Cohen has been cautious on the issue, trying to steer clear of controversy since an aide public discussed adding tolls to Interstate 93.
But the report from Cohen's staff suggested Turnpike Authority officials might look at reinstating some Western Turnpike tolls for cars, as well as a Newton toll that ended in 1996. The report also said that the state could add an optional toll lane on I-93 that would let solo drivers use the carpool lane if they pay a fee. That idea, often called a HOT lane, has been raised in the past and has gained support nationally as US Secretary of Transportation Mary Peters has encouraged states to try it.
Turnpike Authority board member Mary Connaughton said the latest financial news is increasing the likelihood of a toll increase.
She advocates reinstating tolls in Western Massachusetts.
She blamed past administrations for creating the current obligations.
"It was taking on risk," Connaughton said. "There were too many unknowns."
The bind began in 2001, when the managers entered into three complex financial deals known as swaptions. At the time, the authority received $29.1 million in payments from
UBS began exercising that right on the first of the three deals last year, with the first payments due in January.
Now, the authority has to pay its current interest, plus additional rates that get higher, even as the Federal Reserve lowers interest rates for everyone else. The payment amounts change daily, depending on interest rates. But the cost to the Turnpike Authority has been steadily rising.
Based on Monday's interest rates, the monthly payments are currently $336,000, LeBovidge said. They would increase to an estimated $857,000 in July and to more than $2 million in January, assuming that UBS exercises its third contract and that the authority is unable to refinance.
"My worries, unfortunately, are becoming reality here, because the interest rates are coming down," LeBovidge said.
He said the authority is looking at a series of options to prevent the continued payments, including doing nothing in hope the financial markets will stabilize. He said that the authority has set aside the $14 million for the deals, but that the reserve account would not last long. "We're stuck with that" situation, he said. "We can't control it. It's bad for today."
Although some governments face similar problems, cities and towns in Massachusetts are legally forbidden to enter similar deals, said John Malpiede, the authority's financial adviser.
A UBS spokeswoman said the company declined to comment.
Noah Bierman can be reached at nbierman@globe.com. Ross Kerber of the Globe staff contributed to this report.
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