Pike officials pushing tolls as hedge against 'swaption' costs

Brookline - Massachusetts Turnpike Authority officials are warning lawmakers that millions in Big Dig debt could explode if House efforts to limit toll increases, with a gas tax hike or by stripping the agency of toll-levying power, gain traction.

Turnpike executive director Alan LeBovidge told legislators that the agency expects complicated financial instruments – known as “swaptions” – to be exercised if the toll increase, worth nearly $100 million and set to take effect in the spring, is blocked by lawmakers. Legislators pushed back, arguing that toll increases, if necessary, should be more limited, and accompanied by a larger menu of savings and revenue measures.

“The Legislature would never take any action that would cause any problems for the credit rating of the Massachusetts Turnpike Authority or any other state agency,” said Rep. David Linsky (D-Natick), who supports raising the gas tax. “The Legislature has a responsibility to seriously debate important questions of public policy, including the tolls and the finances of the Massachusetts Turnpike, and if we didn’t do so we would be shirking our responsibility to the people that elected us.”

The Pike’s liabilities on three swaptions, which the agency signed earlier in the decade as a way to refinance debt from the massive project, has soared to $447 million, LeBovidge said. Even the toll hikes might prove insufficient to ward off the debt payments if the insurance company backing the most expensive swaption sees another write-down of its bond rating, according to officials.

“While the recent toll increase will stabilize the Turnpikes finances and limit its exposure in one of these swap deals, there is still exposure of upwards of $350 million in termination payments that could be triggered if Ambac, the troubled insurer of the UBS deal, is downgraded further," LeBovidge said in a statement.

A swaption with Lehman Brothers whose termination payment would be about $76 million in the current market, according to officials, hinges on the Turnpike’s own bond rating, which LeBovidge has said would decline if the toll plan does not take effect.

After its credit rating was downgraded last month, the agency was required to post collateral on a third swaption, a 1999 with deal with JPMorgan Chase Bank, and has already put up $10.1 million, according to state finance documents. The termination payment on that deal is currently running about $19 million, a Pike official said.

Gov. Deval Patrick has proposed shifting some of the $2.2 billion in Big Dig debt shouldered by the turnpike authority to the Massachusetts Port Authority. Restructuring of that troubled financing has proved an obstacle to past efforts to dismantle the Turnpike Authority.

Many state representatives who have been critical of the toll increases, which the board approved preliminarily earlier this month, have signed onto efforts to increase the state’s 23.5-cent-per-gallon gas tax. House Speaker Salvatore DiMasi backed the increase last week, saying the burden of the Big Dig debt and a gap in transportation infrastructure funding should be spread to drivers across the state, instead of concentrated on drivers from the northern and western suburbs.

Rep. Steven Walsh (D-Lynn), another toll-hike critic, said he doubted LeBovidge’s suggestion that “bondholders are going to downgrade because we want to come up with a longer-term plan that’s more stable and more creative than what the authority has come up with.”

Walsh has proposed suspending until 2010 the agency’s ability to raise tolls unless the state adopts a comprehensive transportation reform plan, a version of which the administration now says will be ready in January, after several months of delay.

Walsh, former House vice chair of the Committee on Bonding, Capital Expenditures and State Assets, said, “It’s a complicated area, and I’m sorry that he’s concerned. I think as legislators we have responsibilities to our constituents, and frankly $7 toll hikes in the worst economic environment we’ve seen since the Great Depression are the least creative idea the authority could have come up with.”

The Sumner and Ted Williams tunnels tolls would double to $7 for customers who pay cash under the set of hikes approved earlier this month, and jump from $5.25 to $9 for taxis. Tolls in Allston-Brighton and Weston would climb to $2 from $1.25.