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Starts & Stops

MassDOT loses chance to save nearly $70m

Aram Boghosian for The Boston Globe

For months, the Massachusetts Department of Transportation had been working to take advantage of rock-bottom interest rates to save nearly $70 million over the next two decades by refinancing hundreds of millions in bonds.

But last week, just before the Federal Reserve raised its benchmark interest rate and bond markets continued to fluctuate, the agency was forced to halt its plans. The department still paid out about $770,000 during the failed process.

“It’s unfortunate that things didn’t line up perfectly,” said David Pottier, the chief financial officer of MassDOT.

“But nobody could really foretell that interest rates were going to spike like they did after the election.”


This summer, both the MBTA and MassDOT launched plans to refinance their bonds to save money on interest rates.

While the MBTA was able to quickly execute a deal to put its bond sales out to bid, MassDOT officials said they had to slow down the process because of the introduction of all-electronic tolling in October.

Because a large chunk of the department’s revenue comes from tolls, officials said they needed to gauge the impact of the new tolling process before they approached bond rating agencies, a key part of the process.

But while they waited, the window for favorable interest rates began to close. The Federal Reserve had been hemming and hawing about raising interest rates over the past year, and in August it signaled that increases could come sometime in the fall. In addition, Donald Trump’s election had thrown the markets that would affect the bonds into turmoil.

Meanwhile, the amount of potential savings kept falling, even after the department had gone through a competitive process to select several underwriters to help with the deal.

When transportation officials came before their oversight board in October, they said they believed they could save $70 million over the life of the bonds. By November, that number had dropped to $31.8 million, and officials warned that figure could fall further.


Last week, they informed the board they had scrapped the deal, forgoing tens of millions in savings over the next two decades.

They had already paid for a number of services related to the deal: $350,000 to the bond rating agencies to analyze the bonds, $120,000 to Jacobs Engineering for a revenue study, and about $300,000 to lawyers and a financial adviser.

Rising interest rates make the deal less likely to be as profitable soon, but Pottier said they’ll still be watching the market to see if they’ll have another chance.

“We continue to monitor the situation,” he said.

“If and when — and hopefully it’s a ‘when’ — the market gets back to us, we’re ready to get back into the market.”

Nicole Dungca can be reached at Follow her on Twitter @ndungca.