DOT to seek federal bond issue for new bridge

AUGUSTA – State transportation officials will recommend issuing a federally supported bond to cover most of the cost of building a new bridge across the Penobscot River between Prospect and Verona.

Maine Department of Transportation staff are developing information for the governor to submit enabling legislation during this session that would authorize the Maine Municipal Bond Bank to issue up to $50 million in a federal Grant Anticipation Revenue Vehicle, or GARVEE, bond for bridge construction.

Commissioner David Cole was scheduled to meet today with members of the legislative Transportation Committee to discuss the proposed legislation.

The GARVEE bond seems to be the best funding mechanism to pay for the accelerated bridge project, estimated to cost between $65 million and $75 million, Cole said Wednesday.

The DOT decided to replace the existing Waldo-Hancock bridge after discovering the main cables had deteriorated to an unacceptable level. The department hopes to have the new bridge completed by July 2005.

“This seemed to be the right tool for this situation,” Cole said. “We can secure federal funding for the bridge without affecting the rest of our construction program. That was the big question: How to deal with this accelerated project without affecting other projects statewide.”

The state has never before issued a GARVEE bond, but with current low interest rates and Maine’s strong credit rating, Cole said, this seemed like the right time to use the method.

The funding mechanism was created by Congress in 1995 and allows the state to rely on future federal highway funds to pay the debt service on large infrastructure projects.

The Federal Highway Administration, which will oversee the bridge project, considers the GARVEE bond a “good fit” for the state.

Following normal channels, the state would have to have all the funding in hand during the course of the two-year construction project, Michael Vigue, financial manager at the FWHA office in Augusta, said Wednesday.

“They’d have to come up with $50 million within the two-year construction period,” Vigue said. “That’s a pretty substantial chunk of money that would have an impact on other projects. The bond would allow them to proceed with the bridge without significant impact on the overall federal aid program.”

The state currently receives about $160 million in federal highway funds annually, a figure that historically has increased by about 5 percent each year, Cole said. By issuing a GARVEE bond, the state could draw on those annual highway funds to pay off the debt.

Although the department has not yet set a specific figure or timeframe for the bond, Cole estimated that the debt on a $50 million bond over 15 years would be $5.8 million a year. He calculated that would result in a federal debt-to-revenue ratio of about 3.5 percent, which would decrease as federal revenue increases.

The Federal Highway Administration considers a rate of up to 20 percent to be conservative, he said.

“This would be very prudent financing tool for this situation,” Cole said.

The arrangement would not affect the state’s informal 5 percent cap on debt to revenue ratio since the debt would not be a state tax supported debt.

Although the bond issue will require approval by the Legislature, it does not require voter approval as do most state bond issues.

According to Cole, the Legislature could decide to send the question to voters if it chooses.