Massachusetts Gov. Deval Patrick's administration last week announced that it will begin evaluating a potential merger of the Massachusetts Health and Educational Facilities Authority and the Massachusetts Development Finance Agency in an effort to cut expenditures and create efficiencies between the two entities, yet critics say the move could increase borrowing costs for colleges and hospitals throughout the state.

The two bonding authorities sold a combined $6.16 billion of debt in 2008, according to Thomson Reuters.

State Sen. Marian Walsh will spearhead the effort. HEFA's board on March 12 approved Walsh's appointment as assistant executive director for the authority. That position has been vacant for more than 12 years and Walsh, who has yet to relinquish her Senate seat, will receive a salary of $120,000. A start date for Walsh has not been determined, said Liam Sullivan, spokesman for HEFA.

Officials will evaluate whether combining the two authorities will generate possible savings and efficiencies. Kofi Jones, spokeswoman for the executive office of housing and economic development, stressed the state is at the beginning of this process.

"We are at the preliminary stages of looking at a potential merger for a number of reasons, the potential cost savings and opportunity to potentially eliminate some redundancies and streamline operations in these two major state bonding authorities," Jones said.

In response to HEFA's move to reach out to its sister agency, MassDevelopment spokesman Adam Bickelman said the authority is open to working with other entities to find more effective business strategies.

"We look forward to working with HEFA and the administration on this important matter," Bickelman wrote in an e-mail. "Now more than ever, it makes good sense to look for economies of scale and ways to leverage our ability to work together to ensure that colleges, hospitals, nonprofits, and for-profit businesses have ready access to capital."

Robert Ciolek, who served as HEFA's executive director from 1995 through 2002, spoke out against the initiative. He believes a potential merger of the two authorities would increase borrowing costs for higher educational facilities, hospitals, and nonprofits, as those organizations would no longer have two bonding agencies to choose from.

"Clearly the motivation behind this is to loot HEFA and to establish MDFA as the only issuer of tax-exempt bonds in Massachusetts for all nonprofits," Ciolek said. "And I think that significantly harms all of the nonprofits in Massachusetts, as it's clear to me that two things will happen. One is that MDFA will, since it no longer has to compete, raise and fix its fees, and number two, the money that's been paid to HEFA over the years - a large portion of which sits in a charitable trust that was created by HEFA to benefit those institutions that have done past bond deals - will be taken by MDFA for its own purposes. So, I think it's a remarkably bad idea, bad public policy where we should be stimulating competition where it makes sense."

Ciolek, who is now a consultant and practices law out of his Cape Cod office, said the institutions that use the two bonding authorities, and may be required to pay higher borrowing costs in the future, employ about 10% of the state's workforce.

"Clearly, they have not thought through this scheme," he said.

In addition to questions about the merger, there have been questions raised about the need to fill the post to which Walsh was appointed, and about the salary it pays. The senator last week announced she would accept a lower salary of $120,000 down from the original $175,000 offer.

"If the position's been vacant for 12 years, what's the urgency of filling it at this particular moment when we're in this global economic meltdown?" said Michael Widmer, president of the Massachusetts Taxpayers Foundation.

In response to public outcry regarding Walsh's salary offer, Patrick last week ordered a review of salaries and benefits of all senior management officials of quasi-public agencies. The report is due within 90 days.

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