Baker’s role in Big Dig financing process was anything but ‘small’
Records undercut his campaign claim
And in March,
Baker told a Globe columnist that when it came to figuring out how to
pay for the massive project at one critical juncture in the 1990s, he
was only “one of about 50 people’’ involved.
But
those statements are sharply at odds with a picture of Baker’s
financial leadership of the project that emerges from hundreds of pages
of memorandums, letters, and other documents culled from his four-year
tenure as secretary of the Executive Office of Administration and
Finance, from 1994 to 1998. The documents show that Baker was the chief
architect of a financing plan to sustain the project during its peak
construction years, just as federal support was diminishing
substantially.
The $3
billion plan depended almost exclusively on heavy borrowing and modest
toll increases, deferring the toughest decisions on tolling and taxes to
future leaders. It wasn’t designed to deal with the massive cost
overruns that would eventually plague the project, despite multiple
warnings at the time that the price tag would likely grow.
Baker,
in a recent interview, acknowledged that he played a major role in
assembling the financing plan, but said many others participated in the
effort. He also said the plan was responsible,
effective, and based on good-faith assurances by other government
officials that the Big Dig would be built on time and on budget.
“There
were a lot of other people involved in it, all the way through,’’ he
said. “And I was looking to build consensus with all those other people
who ultimately had to sign off on whatever we were doing, including the
Legislature and the governor and the Turnpike Authority and Massport and
all these other folks.’’
A valued officer
By
the time Weld named Baker as the state’s top fiscal officer in November
1994, Baker had already served as his secretary of health and human
services and was considered a rising star. So valued was Baker’s counsel
that Weld referred to him as “the man behind the curtain’’ and “the
soul’’ of his administration.
By
1997, when the state was enjoying huge budget surpluses, the Big Dig,
then expected to cost $10.8 billion, was the most daunting fiscal
challenge on Baker’s desk.
At
the time, the federal government was preparing to cut funding for the
project by about $300 million per year. Project managers were desperate
to find billions of dollars to fund the most expensive years, when
contractors would be tunneling through downtown Boston.
While former state
transportation secretary James J. Kerasiotes was the public face of the
project, supervising the depression of the elevated Central Artery and
construction of a new cross-harbor tunnel to Logan Airport, Baker was
working out of the limelight, to find a way to pay for it, records show.
Among
the Big Dig records reviewed by the Globe — obtained under a public
records request — that bear Baker’s name are official agreements among
the state agencies involved in financing the project; letters to key
legislators; a $600 million securities prospectus for potential lenders;
and dozens of internal memorandums, including several between Baker and
his staff outlining the borrowing plans.
As
he struggled to find a way to overcome the drop in federal dollars,
Baker, in crafting a financing plan, also had to contend with politics.
His Republican bosses, Weld and Cellucci, were dead-set against new
taxes and fees.
In 1996,
Weld knocked down three turnpike tollbooths during his unsuccessful
Senate campaign against John F. Kerry, eliminating a potential source of
Big Dig revenue. Weld also oversaw the elimination of some motor
vehicle registration fees, another potential source of direct funding.
At
the time, Baker could have relied on the money overflowing from state
coffers. In June of 1998, Baker was presiding over a $1 billion budget
surplus, with state income tax collections rising.
But
with acting governor Paul Cellucci campaigning on a pledge to cut more
than $1 billion from the state’s revenue stream by slashing the state
income tax rate, there was little enthusiasm in the administration for
diverting surplus funds to the Big Dig.
“People,
generally speaking, thought that the tax policy that was being pursued
by state government at that point in time was a positive development
with respect to the economic growth of the state,’’ Baker said.
Baker’s borrowing plan
With
federal dollars dwindling and little political appetite for raising
tolls or taxes, Baker engineered a two-track financing plan.
The first part relied on selling short-term bonds to investors that
would be repaid by the Massachusetts Turnpike Authority and the
Massachusetts Port Authority. The Turnpike Authority would kick in $1
billion, while Massport would contribute $300 million.
That
money, under agreements Baker signed in 1997 and 1998, would be
provided in large part through tolls collected on the Mass. Pike and the
Tobin Bridge.
As a result,
in 1997, tolls in the tunnels were raised from $1 to $2, and on the
Tobin from $.50 to $1, inciting the ire of commuters and concern among
elected officials about the political consequences. But it could have
been steeper: Further increases, including higher tolls at turnpike
booths in Greater Boston, were put off until 2002, after Baker and his
bosses were gone. From there, turnpike and tunnel tolls in Greater
Boston were scheduled to go up every six years.
The second part of
Baker’s borrowing plan was more complex and, at the time, more
innovative. It called for selling up to $1.5 billion in Grant
Anticipation Notes, known as GANs, which allowed the government to
borrow money and pay back the principal using future federal highway
grants to the state. The interest — an estimated $550 million over 18
years, which has since ballooned to an estimated $840 million — would be
picked up by taxpayers.
Although
the sale of GANs is common today, they had been used only occasionally
at the time, and never on the scale that Baker proposed, according to
state and federal records. The GANs eventually raised $1.5 billion, and will not be paid off until 2015, a decade after the project was virtually finished.
Kerasiotes, recalling the funding crisis confronting Big Dig officials, praised Baker’s work.
“We were caught in a confluence of events,’’ Kerasiotes said. “Charlie had a job to do, and he did his job and he did it well.’’
State
legislators, eager to find a way to keep the Big Dig going while
avoiding unpopular toll increases, largely embraced the overall plan.
Joseph
Sullivan, the House transportation committee chairman at the time, said
there was general cooperation among political leaders, as well as state
and federal transportation officials, on the need to find a new source
of funding for the project. Sullivan said Baker was a key player,
especially in bringing all the parties together.
“When you are the secretary of administration and finance, your voice matters,’’ Sullivan said.
Underfunded needs
While
the Legislature approved the plan with little objection, others raised
red flags. That was because borrowing against future federal
transportation aid was nearly certain to delay other highway and bridge
projects.
Baker
maintained that using the money for the Big Dig would not compromise
road and bridge work elsewhere in the state, arguing that at least $400
million would be available every year for other projects.
“I
don’t see how anybody could argue that the artery will be pulling money
away from non-artery projects,’’ he said during a 1998 legislative
hearing.
But others
disagreed. “The administration kept denying the obvious,’’ Michael
Widmer, president of the Massachusetts Taxpayers Foundation, a
business-backed watchdog group, said in a recent interview. “If you keep
spending more on the Central Artery, you’re going to have less to spend
on state highways. I learned that in second grade. If you’ve got a
dollar, you can only spend it once.’’
In
the interview, Baker said overall spending on other state road and
bridge projects actually grew — with the help of additional state funds —
after the financing plan was approved.
Nevertheless,
the need for road and bridge repairs has long exceeded the state’s
ability to pay for the work, and Baker’s financing plan for the Big Dig
exacerbated the problem, by committing federal aid to the project until
2015. A blue-ribbon panel in 2007 concluded that the state was
underfunding its transportation needs by nearly $1 billion a year.
Moreover, in a 1999
report, the Taxpayers Foundation pointed out that issuing the GANs would
require taxpayers to pay substantial interest on the loans, “adding to
the mounting spending pressures on the budget.’’
Today, Baker stands by his plan, insisting it was the right tool for the right job at the right time.
“I
think the GANs worked,’’ he said. “They served their purpose as
intended. They made it possible to finish the project on an
uninterrupted basis. They dealt with the cash flow problem that we would
have otherwise faced.’’
Governor
Deval Patrick, faced with limited revenue to rebuild deteriorating
roads and bridges, has used a similar approach in borrowing $1.1 billion
against future federal highways grants. Like Baker’s plan, this has
drawn criticism from Widmer, who says it “puts a burden on future
taxpayers because of a refusal to pay for our obligations now.’’
The
decision, during Baker’s tenure, to delay major toll increases also had
ripple effects. As the Big Dig’s needs grew, successive governors,
transportation officials, and state lawmakers also balked at raising
tolls and entered into ever-more complex financing schemes, leaving the
Turnpike Authority at the brink of insolvency before the Legislature and
Patrick agreed to dissolve it last year. Patrick and state lawmakers
also increased the state sales tax rate in 2009, in part to pump $100
million a year into turnpike debt and avoid a politically unpopular toll
increase.
Warnings on cost overruns
The financing plan structured by Baker left no cushion for future cost overruns in the project, even though, at the time, fiscal watchdogs said overruns were probable.
In
1994, a project manager with Bechtel Parsons/Brinckerhoff, the private
engineering consortium overseeing the project, told Weld and other
administration officials that costs were likely to rise dramatically,
but the administration kept the information private.
The
Taxpayers Foundation in 1997 said publicly that it would take a
“Herculean’’ effort to avoid cost overruns. The federal Government
Accounting Office warned in 1997 and again in 1998 that Baker’s
borrowing plan could fall hundreds of millions of dollars short because
it failed to account for $450 million in cost increases announced in
March 1997, and as much as $500 million more in potential construction
overruns.
“If current trends
continue, further cost increases of some magnitude seem likely,’’ the
1997 audit cautioned, advising the state to update its cost estimate.
In
his interview, Baker said that he believed his plan was flexible, and
that he was more concerned at the time with the ups and downs of federal
funding than changes in the official price tag.
“I
know there was a lot of other chatter going on at the time,’’ he said.
“But the people who were closest to it, who had direct oversight of it,
were basically saying that that was a reasonable estimate at that point
in time and all the way through.’’
Baker
said he was not at the 1994 meeting where the Bechtel official briefed
Weld on cost overruns, and does not recall being informed about it.
By
2005, seven years after Baker left the State House, and five years
after Big Dig managers conceded that the project would cost more than $1
billion more than the public had been told, the final bill came to
nearly $15 billion, with taxpayers facing another $7 billion in interest
that will not be paid off until 2038.
Today,
as Baker runs for governor, one of the central tenets of his campaign
is that state government should live within its means.
“In
my administration,’’ he pledged, as he was accepting the Republican
convention endorsement in April, “we’re going to stop spending money we
don’t have, starting on day one.’’
In his interview with the Globe, Baker said he has no regrets about the course he pursued. But he did take away a larger lesson.
“The
biggest issue on all of this stuff,’’ Baker said, “is we should be very
careful about entering into these things going forward unless we really
know what they’re going to cost.’’
Noah Bierman can be reached at nbierman@globe.com., Michael Rezendes can be reached at rezendes@globe.com.
© Copyright 2010 Globe Newspaper Company.
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