The New York State Thruway Authority has been busy trying to cut costs and show it's a worthy credit risk while it awaits word on whether it has qualified for a $1.5 billion federal loan to build one of the most ambitious projects in its history -- the replacement of the Tappan Zee Bridge.
The stakes are high, as the cost cutting could affect not only the federal loan but also the interest rate the agency will have to pay on bonds issued to supplement the loan and give the agency the $4 billion or so it needs to build the bridge.
If Wall Street's credit rating agencies buy the idea that the cuts make the Thruway Authority a better credit risk, the state agency's credit rating will improve, with the result that it will pay lower interest rates on the bonds. Huge savings there could, in turn, help keep tolls down on the new bridge, eliminating the political problems likely to come with a big toll increase.
In recent weeks, the Thruway Authority has laid off some 200 employees -- among them toll takers, maintenance workers and clerical workers -- in a cost-cutting campaign that has union heads accusing Thruway Authority Executive Director Tom Madison of a double cross.
Some $25 million in operational savings were achieved last year through comparable cuts; the goal for this year is the same, agency officials say.
An additional $300 million was yanked from the Thruway Authority's three-year capital program, which ends in 2015. Meanwhile, the agency boasts that it recently secured some $100 million in federal highway aid during the next three years, another factor that could help its credit rating.
Beyond that, the state has agreed to assume some $85 million in payments to State Police and other operating costs that had been covered by the Thruway Authority. The deal on the payments to State Police -- engineered with help from Gov. Andrew M. Cuomo -- already has allowed the Thruway Authority to forgo a substantial toll hike for trucks traveling the 587 miles of road run by the agency.
MILSTEIN CHARTS A NEW COURSE
Under Howard Milstein, the billionaire developer, banker and philanthropist hand-picked by Cuomo to lead the agency in 2011, the Thruway Authority staff is facing a demand for radical change. In a speech two weeks ago at the Regional Plan Association, where he received the group's Lifetime Leadership Award, Milstein outlined his approach.
"Entrepreneurial instincts -- so ingrained in the running of a private business that they're practically muscle memory -- can help guide the process in ways that complement the highly talented government experts tasked with these giant civil engineering responsibilities," Milstein said.
Cuomo had something similar in mind when he announced Milstein's appointment.
"I think he brings tremendous private-sector credentials to the Thruway Authority, and he'll bring a professionalism and a business mentality and acumen that I think is very helpful," the governor said.
In a statement to Newsday, Milstein said he'll continue to look to save costs.
"I always push Thruway [Authority] staff to carefully examine all expenses on every project," Milstein said. "On the New New York Bridge project, we will utilize a mix of Thruway staff, Department of Transportation and other state agency expertise and outside consultants to act as owner's representative, oversee the project and ensure that all contract terms are enforced and we get what we paid for."
The state's largest public union, the Civil Service Employees Association, has a less favorable view of Milstein and Thruway Authority management. The union accuses the state agency of pursuing layoffs to gain leverage in contract negotiations.
"They're doing this for political spite," said Stephen Madarasz, a spokesman for the CSEA. "It's really all about a political power play."
Madarasz doesn't give Milstein much credit for the agency's cost-cutting efforts.
"The Thruway Authority is a mismanaged agency," he said. "There is a long history there."
The backdrop for all this is the long-running effort to secure financing for the new Tappan Zee Bridge, now the most ambitious active public works project in the country.
The federal Department of Transportation is reviewing the state's application for a federal loan, to be provided from a $17 billion pool of credit President Barack Obama's administration made available last year to states and cities looking to repair aging bridges, tunnels and highways.
State and federal officials portray the loan review as a formality. But the feds will need assurances that the Thruway Authority is a good credit risk, fully capable of repaying whatever it borrows.
THE TOLL QUESTION
More significant for the Thruway Authority will be the view that the bond industry takes of its credit outlook.
The remainder of the $3.9 billion tab for the Tappan Zee will be paid by issuing Thruway Authority-backed bonds. At the current A-1 rating for Thruway Authority bonds, the interest rate will remain low, analysts said. But in reports issued last June, Moody's analysts gave the authority a negative financial outlook, warning that uncertainty over the financing plan for the Tappan Zee Bridge could force a downward revision of the A-1 rating.
A lower rating would inevitably increase interest rates on new bonds issued by the agency, for the simple reason that bond investors would see greater risk and demand a greater return to compensate. In the end, higher interest rates could lead to higher tolls -- a politically unpalatable outcome for the Cuomo administration.
Milstein has said little about tolls, specifically, and nothing about the political stakes for the governor, but he stressed the importance of the credit rating.
"The Thruway Authority has adopted a multifaceted approach to preserve its financial condition and maintain its strong credit ratings," Milstein told Newsday. "We implemented a streamlining program that has enabled us to significantly reduce Thruway and canal operating costs, eliminate hundreds of vacant positions, combine functions and restrict overtime."
Nor has the Cuomo administration had much to say about the expected increase in the Tappan Zee toll -- the toll is now at $5. Administration officials said drivers got a break when the price tag for the new bridge came in at $3.9 billion, including ancillary projects. Early estimates had pegged the cost at $5.2 billion.
Transportation advocates said the sticker price on the bridge will doubtless affect the final outcome on tolls but that the Thruway Authority's credit rating, attitudes on Wall Street and the interest rate to be paid on new bonds will weigh heavily in the balance as well.
"We said from the very beginning that we were worried about the Thruway Authority's finances," said Veronica Vanterpool, the executive director of the Tri-State Transportation Campaign.
Vanterpool conceded that the agency likely will be able to wrap up the $1.5 billion federal loan, but she questioned the bond side of the financing.
"We're still not clear on how this bridge is going to be financed," she said, adding, "There's no amount of belt tightening that will pay for the other $2.4 billion."