Light-rail bond issue defended Transit officials cite eventual Md. savings

November 29, 1990|By Doug Birch

State transportation officials said yesterday that, despite the assertions of some legislators, a new financing plan to help pay for Baltimore's 27-mile light-rail system will not cost the state $43 million -- it will save $44 million.

The officials' claim came after several legislators, during a Senate Budget and Taxation Committee meeting Tuesday, criticized the Maryland Transportation Authority's plans to issue bonds in part to help pay for the rail project, saying an estimated net $43 million in added interest costs would come out of taxpayers' pockets.

Stephen Zentz, deputy director of the Department of Transportation, and John Agro, executive director of the Transportation Authority, said yesterday that the authority's plan to borrow $78 million by issuing 15-year bonds next month would do more than permit it to loan the DOT money needed to build the rail system.

The new bonds, they said, would also permit the authority to repay two older, higher interest bond issues quicker and would eventually save the state a net $44 million.

Not everyone was persuaded.

"Anyway you cut it, it's going to cost the taxpayers," Sen. Julian L. Lapides, D-Baltimore, said yesterday. "It's definitely going to cost $40 million-plus more to the citizens."

Senators Lapides and Frank J. Komenda, D-Prince George's, chairman of the budget panel's subcommittee that oversees the transportation budget, had said Tuesday that the estimated $43 million net interest figure was actually an increase in the cost of the light-rail system.

Based on those assertions, The Sun reported that the cost of the project had risen from $446 million to $489 million.

However, Mr. Zentz and Mr. Agro pointed out yesterday that bond interest costs are never included in a project's construction budget -- a point confirmed by a legislative fiscal analyst, another state budget expert and Transportation Secretary Richard H. Trainor.

Senator Lapides also conceded yesterday that it "may be technically correct" that there has been no increase in the $446 million estimated final cost of the project, now under construction.

Transportation officials had appeared before the Senate panel Tuesday to explain the borrowing plan, and several legislators demanded an estimate of the net interest cost.

Caught unprepared, the transportation officials did some quickfiguring and gave a figure of $43 million.

Mr. Lapides, a member of the budget committee, noted that the transportation officials never said, at Tuesday's hearing, that their plan would save the state money.

"If that were the cogent reason for having the refinancing, they would have presented that to the committee," he said.

But Mr. Agro said the atmosphere in the committee room was "not conducive" to a detailed explanation of the bond issue.

"The legislators seemed to be more in an attack mode than one of questioning," he said.

State transportation officials defended the refinancing Tuesday, with Mr. Zentz calling it "in the public interest."

But they did not rebut Sen. Laurence Levitan, D-Montgomery, chairman of the committee, when he characterized the interest cost as an increase in the cost of the light-rail system.

"We were sold a bill of goods already on one price, and every time we turn around we see the cost going up," Senator Levitan said.

At one point, after Senator Lapides pressed Mr. Agro for an estimate of the cost to the state of the borrowing plan, Mr. Agro responded: "It's more dollars. There's no question about it."

Later, in response to the request of Mr. Lapides and others, a Transportation Authority budget official came up with the $43 million figure.

Here's how transportation officials explained the net savings yesterday:

The state will issue $78 million in bonds for 15 years. With the proceeds, it will pay off a five-year, $55 million bond issued last year to help the authority meet short-term financing problems -- at a reduced interest rate.

The other $23 million will be part of the $75 million lent to DOT for the light-rail project.

The lower annual debt payments as a result of the retirement of the $55 million debt, and the Transportation Department's plans to repay the $75 million to the authority by 1995, will give the authority enough cash to repay a 30-year, 1985 bond issue in 1996 -- 20 years early.

Mr. Agro said the net effect of this reshuffling of debt will be a savings in interest costs of $44 million, in today's dollars.

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