An unexpectedly low bid to build a replacement Tappan Zee bridge in New York reduces financial pressure on the New York Thruway Authority, an analyst says.
New York Gov. Andrew Cuomo announced Wednesday that a state advisory board was favoring a $3.14 billion plan for constructing the bridge. There are two other options: one costing $3.99 billion and another costing $4.06 billion.
Since figures around $5 billion to $6 billion had recently been discussed, many greeted the lower amount with relief. Indeed, over the years figures up to $16 billion had been mentioned.
“If they have to finance less, it will ease the potential challenges,” said Bank of America Merrill Lynch head of municipal research John Hallacy. “It’s certainly great news to get the bid.”
The authority will vote on which plan to accept. Then there will be contract review and the start of construction in 2013. Construction on the first option would be expected to take five years and two and a half months.
Standard & Poor’s credit analyst Peter Murphy, responding to the announcement of the unexpected low price, said, “Lower leverage and lower debt service is better than higher leverage and higher debt service.”
On June 12 Standard & Poor’s put a negative outlook on its A-plus rating for the New York Thruway Authority.
The authority has not yet chosen which plan to accept and so it is too early to say if S&P’s outlook or ratings of the authority will be affected, Murphy said.
“The outlook revision reflects what we believe is the potential for lower debt service coverage (DSC) if the authority does not obtain formal board approval in September this year to increase commercial vehicle tolls 45%,” wrote Standard & Poor’s credit analysts Joseph Pezzimenti and Murphy. The authority has since postponed its vote on the commercial vehicle toll hike to December 17. “Uncertainty related to [the authority’s] plan of finance and long-term tolling strategy related to the replacement of the Tappan Zee Bridge and ongoing capital needs also contributed to the outlook revision.”
Moody’s has an A1 rating on the authority, also with a negative outlook.
Along with the three plans, Thruway Authority projected that there would be additional costs of $600 million to $800 million over five years for project financing and management, oversight, contingencies and aesthetic improvements.
The authority did not respond by press time to a question as to why this sum was not included in the announced bridge cost. A source at the governor’s office said that all these expenses were external to the construction of the bridge and thus were kept separate.
Usually the capitalized interest costs would be included in the bridge costs, Hallacy said. “I don’t know why they’re separating it.” It may depend on how the bid is structured, he said.
New York State has requested a federal loan to finance as much as 49% of the bridge’s cost, The Wall Street Journal reported. It is generally assumed that the authority will have to raise the bridge’s tolls to finance a new bridge.
“We are working productively with our partners at the federal level on our request for a long-term low interest loan,” wrote Thruway Authority director of public affairs Dan Weiller in an e-mail. “The discussions have been very positive and we have the support of our federal representatives in Washington.”
Hallacy pointed out that a financing plan has not yet been disclosed.
A source at the governor’s office said it was too early to speculate about how the financing will be structured.
Some of the reasons the authority gives for a needing a new bridge are the current bridge’s high accident rate, excessive traffic, lack of emergency lane, and high costs of maintenance over the next 20 years.