Delayed progress of the federal government's market bailout continues to restrict state and local governments' abilities to raise money, Massachusetts Treasurer Timothy Cahill said yesterday.
On the same day, Gov. Deval Patrick announced the dismantling of the Massachusetts Turnpike Authority.
Cahill said Massachusetts felt first-hand the effects of the failure to pass the bailout bill in the U.S. House on Monday when it tried unsuccessfully to sell $100 million of commercial paper.
"We scheduled $100 million of commercial paper borrowing on Monday and we got $32 million into it and everything just dried up and it's been dry since then," Cahill said at Information Management Network's sixth annual Public Finance Conference in Boston.
Also this week, the state postponed its nearly $750 million competitive note deal to Tuesday due to uncertainty in the short-term market, according to one official. Cahill said that officials are evaluating potentially pricing those notes through negotiation. Massachusetts relies on commercial paper note borrowing to help with cash flows before the Treasury Department collects federal reimbursement dollars and income tax receipts.
"It's just gotten more complicated and it's become a full-blown crisis and I've hesitated to say that until Monday when Congress didn't act. And they have to act," Cahill said to reporters after his speech. "I think they have to act or this is going to spread throughout states all over the country."
Massachusetts used proceeds from first-quarter commercial paper, sold in August in part to meet its local-aid payment obligation of $1.3 billion, yet had to take on higher interest rates of 4% to 6% on the debt, when typically it pays 1.5% to 2% for commercial paper, according to Cahill.
"We were very concerned that we weren't going to make the local aid payment and that we were going to be really tight if we made it and not have any cushion in our balance sheet," Cahill said. "So we started borrowing in August and continued borrowing through September and then all hell broke loose and it became very difficult to borrow and very expensive to borrow."
In addition to the current credit crunch, the governor announced yesterday that the state collected $223 million less in revenues than anticipated for the first quarter of fiscal 2009. Along with spending cuts, that news could affect long-term bonding plans for the commonwealth. Patrick immediately sought 7% spending reductions from executive branch agencies.
"The long-term borrowing is on the table as one of the items that we might have to slow down, and that obviously might cause a slowdown in work, but we may have to trade off," Cahill said. "I don't know the answer on the long term yet, but everything is on the table as far as what we look at."
Treasurers from Rhode Island and Maine also said they are concerned how the softening economy and anticipated lower revenues will affect their coffers, yet the recent events in Washington had not had an immediate effect on them. While Maine postponed a $50 million TransCap revenue bond deal to mid-October after market conditions on Sept. 19, the original pricing day, proved too volatile, the proceeds won't be needed until December and the state can afford to wait.
Still, Maine Treasurer David Lemoine said the postponement is reflective of the current credit crunch. TransCap is a new credit for the state, with increased motor vehicle revenues and redirected funds supporting the program. Fitch Ratings and Standard & Poor's rate the new credit AA-minus and AA, respectively. Moody's Investors Service does not rate the credit.
"When you have pledged tax revenues from a state, a sovereign state, not are able to find pricing in the market, that was a wake-up call for everybody, I think ... and it's why we are so pleased to see action happening in Washington, because it is critical that we have functioning credit markets," Lemoine said during his presentation.
While public finance professionals weighed in on the region's fiscal health, Gov. Patrick announced that his administration will begin dismantling the Turnpike Authority, which faces a $70 million to $100 million shortfall for the current fiscal year.
MassPike's executive director, Alan LeBovidge, said that the administration will begin evaluating how the state could potentially merge the authority with other transportation agencies and draft different scenarios. LeBovidge said that process could take up to two months. Once the administration crafts a plan, the initiative will require legislative approval.
One scenario would involve the Department of Highways taking over management and oversight of MassPike's entities, the Metropolitan Highway Authority, and the Western Turnpike. MassPike has $2.24 billion of outstanding MHA debt and $162 million of Western Turnpike revenue bonds.
Whether the commonwealth would add that debt to its books remains to be seen.
"That's one option," LeBovidge said in a phone interview. "I'm not sure that that's the one I would favor, but that's one option."