Concerns about reform and taking on additional debt surround Massachusetts Gov. Deval Patrick's proposal to abolish the Massachusetts Turnpike Authority and raise the state's gas tax to 42.5 cents per gallon.
The governor on Tuesday filed legislation for his long-awaited transportation reform plan, which includes terminating MassPike and folding its operations within the Executive Office of Transportation by July 1, 2010.
Since the authority would no longer exist, the state would then take on MassPike's $2.3 billion of bonds as special obligation debt, according to the legislation. Toll revenue and four cents of the proposed 19-cent gas-tax increase would support the repayment of MassPike bonds.
Massachusetts has $27.1 billion of total outstanding debt, including $16 billion of general obligation bonds, according to Standard & Poor's.
Michael Widmer, president of the Massachusetts Taxpayers Foundation, said his organization supports the governor's overall plan and also a gas-tax increase, but questions the commonwealth adding $2.3 billion of debt onto its books.
Widmer said he prefers merging MassPike and the state's Department of Highways into a new independent authority that would have responsibility for the debt, along with a proper revenue stream to support debt-service costs.
"That would be our preferred way of restructuring transportation, by pulling the highway agencies together, and one of our concerns is the obvious one that having the commonwealth take on this additional debt at a time when we are already heavily leveraged is certainly a risk," he said.
The state Treasurer's office did not respond to phone messages and e-mails requesting a comment.
Massachusetts, which is rated double-A by all three major rating agencies, has higher-than-average debt per capita ratios and debt as percentage of personal income ratios, due in part to borrowing at the state level for projects, such as school construction.
For 2008, the state's debt per capita is $4,529 compared to the national median of $889, and its debt as percentage of personal income is 9.9% compared to the national average of 2.6%, according to Moody's Investors Service analyst Nicole Johnson.
While Massachusetts does have higher debt levels compared to other states, Johnson said Moody's would need to evaluate the governor's plan before assessing what impact it may have on the state's credit quality.
"I think we need to see the entire plan, how it would work, and evaluate it once we can see the full picture," Johnson said.
The Patrick administration has limited total debt service costs to 8% of annual budgeted revenues.
Jay Gonzalez, undersecretary of the Executive Office for Administration and Finance, said Massachusetts will continue to analyze its debt affordability levels, and that while the state will take on the $2.3 billion of MassPike debt, the toll revenues and gas-tax increase will support the repayment of the bonds.
"The important thing we're looking at - to the extent that the commonwealth is going to take on additional debt or issue additional debt - the important thing is that we have the capacity to pay it from existing resources and that it's affordable," Gonzalez said.
Yet not everyone supports the Democratic governor's 19-cent boost to the gas tax. The Massachusetts Republican Party yesterday held a rally in front of the statehouse in Boston to protest the proposed increase.
In addition, Senate President Therese Murray, D-Plymouth, and Sen. Steven Baddour, D-First Essex, have pushed for further reforms of the state's transportation agencies before asking motorists for additional tolls and fees. Baddour earlier this month filed legislation that would merge all state surface transportation agencies into one entity called the Massachusetts Surface Transportation Authority, or MassTrans. The measure did not include toll hikes or a gas-tax increase.
Meanwhile, the Senate Committee on Bonding, Capital Expenditures, and State Assets today will hold a public hearing on a measure that would extend the state's GO pledge to five MassPike swaps with UBS Securities LLC. A prior GO-commitment on those derivatives expired in mid January.
Have the state's backing would help the agency, which carries triple-B credit ratings, avoid a termination-event payment of roughly $425 million, which MassPike is in danger of facing if the monoline that insures the swaps, Ambac Assurance Corp. is downgraded further.
Yesterday, Ambac Financial Group Inc. reported a fourth-quarter net loss of $2.34 billion in 2008. Standard & Poor's in November downgraded Ambac to A from AA and assigned a negative outlook. That same month Moody's dropped the bond insurer to Baa1 from Aa3. The outlook is developing. Fitch Ratings does not rate the monoline.
