Moving to refinance bonds after the presidential election rather than before it has cost the Massachusetts Department of Transportation roughly $28 million in projected savings.
Out of concern for a further worsening market for bonds and an increase in interest rates, MassDOT moved Monday to refinance old Massachusetts Turnpike bonds with the hopes of closing a deal Dec. 20.
While the stock market reached new heights, Donald Trump’s victory spurred a dip in the market for bonds, according to financial analysts – pushing prices down and pushing up the rates paid to the debt buyers.
Under the bond refinancing, officials expect to save $2.1 million annually, based on data from last week.
“Unfortunately the net-present-value savings has decreased somewhat. I believe when we were last before you we were talking in the $60 million range. Currently looking at $31.8 million in savings,” MassDOT CFO David Pottier said. He said, “Once rates tend to move away from us, depending on the monetary and spending policies of the new administration, we may not be able to achieve the rates that we have now or in the foreseeable future.”
Pottier said MassDOT plans to refinance a total of $642 million in bonds.
At a Finance and Audit Committee meeting Monday, Betsy Taylor, a MassDOT board member, suggested there would be a future conversation about toll increases.
“There will come a point … particularly if we manage to toll more roads, when we all will want to talk about toll increases to support larger construction,” Taylor said. Asked after the meeting what the timeframe for that would be, Taylor said, “Very long, eight to 10 years, and that is a personal preference. These are 30-year bonds. The idea that tolls should be untouched for 30 years – nothing else stays the same for 30 years, but there is no discussion of such rates now.”
Taylor said the refinancing properly assumes that the tolls will remain the same.
MassDOT’s move to refinance is occurring as the agency transitions from the old revenue collection system of toll plazas to a new all-electronic tolling where drivers with transponders are automatically charged and those without EZPass will be sent bills based on the license plates of their vehicles. MassDOT turned on electronic tolling and began tearing down toll booths Oct. 28, aiming to keep its toll revenue stable through the transition.
“The toll revenues really matter to anyone buying these bonds and the effectiveness of the toll collections depends in many ways on percentage of pay-by-plate as opposed to what I would call pay-by-transponder,” Taylor said.
Over the last three weeks, nearly one in five transactions are being made through the pay-by-plate system. The state does not yet know how many of those drivers are paying their tolls.
“We’re just sending the first invoices out by pay-by-plate,” Transportation Secretary Stephanie Pollack said after Monday’s meeting.
After a full meeting of the MassDOT Board Monday, Transportation Secretary Stephanie Pollack said the state won’t have data on collections from pay-by-plate drivers until early next year.
“The concern of the bond-rating agencies was that these bonds are backed by toll revenues and when you switch your collection system there is uncertainty about the total revenue,” Pollack said.
According to MassDOT, rating agencies were expected to issue reports on the refunding request on Monday, the same day as the meeting. A MassDOT spokesman told the News Service Monday that not all the ratings are available to be released.
Asked after the committee meeting whether MassDOT took too long to refinance, Taylor, who was the director of finance and treasury at Massachusetts Port Authority, said, “I am delighted they came to this conclusion before these wonderfully low rates are gone.”
