Massachusetts Inspector General Robert A. Cerasoli has sent a warning to Gov. William F. Weld that a planned $500 million new-money bond program by the Massachusetts Turnpike Authority should be delayed or postponed because of legal problems over another bond deal.
In a letter sent last week, Cerasoli said he was concerned about a two-year-old, $47 million bond issue.
Although not sold by the Turnpike Authority, the issue's proceeds were used by the authority to pay for repairs to tunnels. The Massachusetts Industrial Finance Agency, which lends money to a variety of entities in the state, sold the bonds in 1990 and loaned the money to the authority.
The Massachusetts inspector general's office has been reviewing the bond issue and the Turnpike Authority's newly proposed capital program.
Observers at the time of the finance agency sale said they viewed the arrangement as a way for the Turnpike Authority to keep its bonding authority, which had expired in 1989. Because the finance agency bonds were considered by many to be outstanding debt of the Turnpike Authority, they said, the authority could keep its bonding powers under state law.
But Cerasoli told the governor in his letter, "I believe that the questions which my office's analysis raises concerning the MTA's loan through MIFA must be resolved before the MTA embarks on its announced plans for a massive new bond offering."
He said key documents show the bonds are not obligations of the authority, but rather of the finance agency, and that therefore, the tunnels and their tolls should be transferred to projects financed by the Massachusetts Highway Department and not the Turnpike Authority.
Cerasoli broadsided the turnpike's arrangement with the finance agency, writing that "the Massachusetts Turnpike Authortty's efforts to evade legislative oversight, avoid public accountability, and perpetuate its existence through seemingly unauthorized debt represents a serious impediment to coherent long-range transportation planning by the commonwealth."
Weld, in a press conference on Friday, said, "The authority should avoid making matters worse by issuing new bonds until the questions raised by the inspector general have been answered."
The letter, and the governor's subsequent reaction to it, were decried as "purely political pandering" by the authority's general counsel on Friday.
"The questions the inspector general has raised have nothing to do with the project we are planning," said James A. Aloist Jr., the Turnpike Authority's general counsel. "The tunnel and turnpike are two separate entities."
Weld said, "The inspector general has raised serious allegations f illegality that have broad implications not only for the Turnpike Authority, but for the state's transportation system."
But Aloisi and Richard Skerry, general counsel for the Industrial Finance Agency, both said there was "absolutely nothing illegal" in the 1990 bond sale.
"Where is the illegal act?" Aloisi said. "The Turnpike Authority clearly stated it was not issuing the bonds in 1990, but borrowing from the Massachusetts Industrial Finance Agency."
"But he also said that questions about the tunnels have no bearing on the turnpike projects.
When the Massachusetts Turnpike Authority was created, the act said the tunnels and the turnpike would be two separate and unconnected businesses, Aloisi pointed out, "and we have followed the letter of the law on this.
"But Gov. Weld, because his administration has failed to address many of the state's underlying fiscal problems, wants to get his hands on the turnpike revenues to offset his Central Artery project, which is in very bad fiscal shape," Aloisi said.
The Central Artery is the beltway around Boston.
"What is key for us is that we have widespread support in the Democratically controlled legislature, and although the governor may choose to attack us in the press, he has no legal power over us on this issue," Aloisi added.
Lieut. Gov. A. Paul Cellucci said, "The authority's claim that the inspector general's assertions are politically motivated is ludicrous and serves as further evidence of the authority's arrogance."
Aloisi said the administration is reacting so forcefully because of frustrations about the state's fiscal situation; the loss of a number of fellow Republicans from the state legislature in last week's general election, which takes away Weld's protection from being overridden; and "having a very powerful ally tossed out of the White House."
Although there is little the governor alone can do to thwart the efforts of the Turnpike Authority to issue debt, Aloisi admitted that the governor and his "hand-picked inspector general" can sour investor opinion on planned financings.
"In effect, his continued criticism will preclude the authority from getting the best possible interest rate on the sale of our bonds," Aloisi said. "It's petty. We have the second strongest credit rating for a turnpike authority in the country, and he is challenging our ability to issue debt."
Currently, the authority is rated Al by Standard & Poor's Corp. and A-plus by Moody's Investors Service.
The finance agency and Turnpike Authority relationship was developed in 1990, when the New York-based engineering firm of Howard, Needles, Tammen, & Bergendoff Inc. reported that the Sumner and Callahan tunnels underneath Boston Harbor were unsafe and needed emergency repairs.
However, appearing on the general election ballot that year was a proposal that would lower tunnel tolls. By lowering the tolls, the authority would not have been able to garner enough revenues to float and pay for a new bond issue.
So instead of risking defeat at the polls, the Turnpike Authority decided to fund the emergency repairs through the Industrial Finance Agency.
Voters passed the proposal to lower tolls.
Because the bonds were issued in the name of the finance agency, and not the Turnpike Authority, Cerasoli said in the letter, the Turnpike Authority had no outstanding debt.
The original charter for the Turnpike Authority, written in 1958, said that when the authority has retired all outstanding debt, it could be closed and the revenues from the system's tunnels and turnpikes could bt used to offset state projects.