Senate OKs debt bailout for Turnpike Authority.

Byline: John J. Monahan

BOSTON - The state Senate last night approved a bond bill that includes provisions to have the state bail the Massachusetts Turnpike Authority out of an extremely costly and unusual borrowing arrangement on Big Dig bonds, by putting the state's credit behind a portion of the agency's debt.

Under a bill hotly debated in the Senate yesterday, the state would put its credit behind $800 million in existing Turnpike Authority debt, allowing the authority to refinance that borrowing to get out of a derivative financing deal that is costing the agency almost $1 million a month in new finance fees.

The Senate attached the provisions to a $3 billion bond measure that would also provide funding for an array of state building projects.

The Senate earlier in the day approved an amendment to that bond bill that would provide an additional $24 million to cover cost increases at the planned new Worcester Psychiatric Hospital being built to replace Worcester State Hospital on Belmont Street in Worcester. The additional funding for the hospital project was also approved earlier in the House version of the bond bill.

The Turnpike financial arrangement provided the authority with a cash infusion in 2002 when it was completing the $14.7 billion Big Dig project. But at this point the so-called "swap option" financing deal has begun costing the Turnpike substantial new fees on that debt.

State Sen. Stephen A. Baddour, D-Methuen, chairman of the Senate Transportation Committee, said the approval of the credit proposal would "stave off potential catastrophe" for taxpayers and toll payers as payments on the swap option finance deal are expected to dramatically escalate in the coming months. That, he said, would force dramatic new toll hikes

and worsen the agency's already shaky financial situation.

Currently, he said, UBS, which holds the options on $800 million in Big Dig Turnpike debt, has exercised fee options on $335 million of that debt, at a cost of $975,000 a month. In September, Mr. Baddour said the Turnpike Authority is expecting UBS to exercise fee options under the finance agreement for another $465 million of the debt.

With state backing of a refinancing of the $800 million for the agency, which has always been self-financing in the past, Mr. Baddour said those fees would be eliminated, while the debt repayment would continue to be the responsibility of the Turnpike Authority.

The Senate plan differs from a House version of the credit bailout adopted earlier this month and backed by the governor that would have the state put its faith and credit behind all $2.5 billion of debt from the Turnpike Authority's share of the Big Dig project.

Mr. Baddour said the Senate plan would "narrow the scope" of the state's exposure to overall turnpike debt, while adding new requirements for legislative monitoring of the agency's finances.

Republicans, however, criticized the plan, calling instead for dissolution of the Turnpike Authority as part of the proposal.

Sen. Robert L. Hedlund, R-Weymouth, argued the state should not cover the refinancing of the bonds with its credit unless it implements a plan to merge the Turnpike Authority with the state Highway Department, eliminating the independent authority altogether.

"The time has come. There is a trust that has been broken time and again with toll payers and the Turnpike Authority," Mr. Hedlund said adding, "All this is going to do is enable the authority to continue on with no accountability."

The differences between the House and Senate version of the refinancing plan for the turnpike would have to be agreed upon by midnight tonight to be sent to the governor for his approval.