Massachusetts Bridge Bond Plan Would Restructure, Tap Future Capacity

Massachusetts Gov. Deval Patrick's proposal this week to sell $3.8 billion of debt in the next eight years for bridge upgrades requires the state to restructure outstanding obligations and use future borrowing capacity now.

The governor yesterday announced a strategy to repair 411 structurally deficient spans throughout the state and help boost the commonwealth's economy as officials prepare for a possible recession. Yet to make room for $3.8 billion of additional general obligation borrowing, Massachusetts would need to push maturities on $366 million of debt to 30 years from 20 years and, in addition, take a portion of bonding capacity from fiscal years 2017 through 2028 for the increased borrowing in the next eight years.

Cyndi Roy, a spokeswoman for the governor, declined to identify which GO series the state would restructure, but said officials are hoping to refinance the debt within the next couple of months as officials would like to begin the bridge repair work this summer.

"Outstanding bonds issued as a part of a number of different series were targeted for purposes of our analysis," Roy said in an e-mail. "The proposed restructuring was driven by the outstanding bonds that could be most cost-effectively restructured to provide the debt service capacity in the years and in the amounts necessary to create room within currently projected annual debt service payments and within our debt policy to support the new money bridge program bonds issued over the eight-year period of the program."

Roy said that beginning the necessary bridge upgrades now as opposed to later could save the state $1.8 billion in construction costs over the next 20 years as officials peg inflationary costs at 7% per year.

In his speech at the Massachusetts Institute of Technology with Senate President Therese Murray and House Speaker Salvatore DiMasi in attendance, Patrick said the commonwealth will have 900 structurally deficit bridges by the end of 2014 if the state chooses to follow its conventional schedule for repairs.

"If that is what the conventional schedule does, it's time to be unconventional," Patrick said. "The legislative leadership, [Treasurer Timothy Cahill], and I believe there is a better, smarter financing plan that enables us to start that work now. And by acting now, we can cut that deficient bridges backlog in half in eight years, avoid construction inflation, and create thousands of jobs. Our plan to address deficient bridges will have shovels in the ground and people at work in 90 days."

While Cahill does agree that the state should evaluate how to better address bridge infrastructure needs, he is concerned with the size of Patrick's proposal. In January, he proposed to administration officials that the state could sell roughly $700 million of grant anticipation revenue vehicles, a much smaller borrowing strategy, to help address bridge upgrades.

"It's a big offering and we're not sure if it makes sense," Cahill said. "We're not ready to say it doesn't, but we certainly don't know whether it is the right move at the right time and whether we should take off such a big chunk and commit so much money especially into the future on this. We're trying to remind people that there's a cost to the borrowing."

The treasurer estimates that restructuring $366 million of debt would increase interest costs by $3.2 billion over the life of the bonds and generate a negative present-value savings of 8% in comparison to the state's positive 4% present-value savings threshold.

Cahill said he was briefed on the proposal on Tuesday and that he and his staff in that meeting had questions that the administration is currently working on. While he agrees that the state could save an estimated $1.8 billion by jump-starting on construction projects now rather than later, Cahill questions the overall fiscal outcome of Patrick's $3.8 billion proposal.

"There's a cost of not doing it as much as there is a cost of doing it," he said. "It's just a matter of size really and how much we can afford to do because the savings is offset somewhat, maybe offset totally, by the interest costs and the lengthening of the debt."

Michael J. Widmer, president of the Massachusetts Taxpayers Foundation, an independent think-tank that offers fiscal and policy analysis, said that while Patrick's proposal does not violate the state's borrowing limits or capital plan, it does leave Massachusetts with less bonding capacity in later years.

Limiting future borrowing when the state already has a nearly $20 billion shortfall over the next 20 years for transportation infrastructure funding could be problematic, according to Widmer.

"I think the state really needs to step up to the shortfall in funding today and not simply in essence put a greater obligation on the future because you're using more of the resources of the future today and not closing the $20 billion gap," Widmer said.

 

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