The Massachusetts Turnpike Authority yesterday entered into an agreement with the commonwealth in which the agency will receive $100 million from Massachusetts' coffers to help cover debt service costs during the next 30 years in return for the agency not implementing a toll hike on the Metropolitan Highway System in fiscal 2010.
The authority approved the contract as net debt service costs will increase by $42.4 million in fiscal 2010, which begins tomorrow. Along with the agreement with the state, MassPike's board unanimously approved a fiscal 2010 operating budget.
In looking at the $100 million contract, MassPike will receive that amount each year for the life of its $2.1 billion of MHS bonds, which have a final maturity in 2039. MassPike will cease to exist by Oct. 31, according to board member Mary Connaughton, with its successor agency, the new Massachusetts Department of Transportation, or MassTrans, acquiring all of MassPike's assets, liabilities, and contractual agreements.
Gov. Deval Patrick yesterday signed into law the state's $27 billion fiscal 2010 budget, with that plan including a 1.25 percentage-point increase in Massachusetts' sales tax. That additional revenue will finance the $100 million yearly allocations to MassPike and another $160 million to the Massachusetts Bay Transportation Authority to help shore up its fiscal 2010 deficit.
In return, MassPike will not increase tolls in fiscal 2010 on the MHS, which runs throughout the greater Boston area, although tolls could go up in subsequent years. The agency also manages the Western Turnpike, which connects Boston to the New York border.
"The agreement will go forward until all the MHS bonds are paid," Connaughton said. "And in return, the Turnpike cannot have a toll hike on the MHS in fiscal 2010, but there's no restrictions beyond fiscal 2010."
Today is the final day that five MassPike swaps for $800 million with UBS Securities LLC as counterparty have Massachusetts' general obligation backing, as the GO pledge will expire today. Without the commonwealth's double-A credit, MassPike will face a $268 million termination payment to UBS as the derivatives would then rely on triple-B credit ratings from MassPike and the swaps' insurer, Ambac Assurance Corp.
Connaughton said board-activity discussions regarding UBS and the five floating-to-fixed-rate swaps were held in executive session. In a prepared statement, the bank said that it is in talks with state officials and Ambac in relation to the swaps. Cyndi Roy, spokeswoman for the state's Executive Office of Administration and Finance, did not respond to e-mails or phone messages regarding an update on the derivative issue.
The $800 million of UBS swaps are one reason why MassPike will pay $42.4 million more in debt service costs in fiscal 2010 over fiscal 2009, with net debt service to reach $168.4 million, according to a MassPike executive summary of the fiscal 2010 budget.
In the swap contracts, MassPike pays UBS fixed rates of 4.75%, 4.875%, and 5%, and receives in return 68% of one-month Libor from the bank. The drop in Libor rates generates lower floating-rate payments to the agency while it must continue to pay a steady fixed rate.
"That basically means that the Turnpike, on $800 million of debt, is paying over 9% in interest," Connaughton said.
Officials estimate swap-related debt service to increase by $18.5 million in fiscal 2010 to $36 million, according to the executive summary. In addition, the agency will not receive a swaption exercise premium or funds from its hedge-fund reserve in fiscal 2010, a combined decrease of $17.4 million over fiscal 2009, and earnings on debt-service funds is expected to drop by $8.3 million.
Officials anticipate fiscal 2010 debt-service ratios to be 1.29 times on MHS debt, up slightly from 1.28 times in fiscal 2009 and 1.61 times on Western Turnpike bonds, down from 1.72 times coverage.
Toll revenue on the two systems is expected to decrease by a combined $2.5 million to $282.6 million of total toll revenue in fiscal 2010. Non-toll revenue will total $47.3 million, a decrease of $15.2 million from fiscal 2009. Conversely, operating expenses, absent debt service costs, will total $204.7 million, an increase of $894,155 from the prior year. The spending plan includes $55.8 million for capital reinvestment.
Last week, Patrick signed into law a bill to terminate MassPike and fold most roadway and mass transit systems within the new MassTrans. Under the new law, MassTrans will also acquire the Tobin Bridge from the Massachusetts Port Authority, which oversees Logan International Airport. Standard & Poor's yesterday revised its outlook on $1.3 billion of MassPort airport revenue bonds to negative from stable due to the loss of Tobin Bridge toll revenue for the authority. The bonds carry a AA-minus rating from Standard & Poor's.
"The outlook revision is as a result of the increased financial pressure on the authority due to new legislation that requires the authority to transfer the Tobin Memorial Bridge by year-end," according to a Standard & Poor's report. "The authority will receive no compensation for this transfer. Historically the bridge contributed about $30 million in additional revenues to the authority and about $18 million in net revenues in fiscal 2008."