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Intercounty Connector Bond Plan Too Risky, Some Say

Md. Officials Want To Borrow Against Anticipated Funds

By Katherine Shaver
Washington Post Staff Writer
Sunday, March 6, 2005; Page SM04

A state plan to build a highway through Montgomery and Prince George's counties by borrowing against future federal highway aid is drawing scrutiny from some General Assembly members, who say the approach may be too risky and fear it could leave projects elsewhere in the state strapped for funding.

Officials plan to issue $2.2 billion in bonds to pay for an intercounty connector, which is estimated to cost up to $2.4 billion. In a first for the state, $1 billion worth of those bonds would borrow against federal highway money that the state anticipates receiving over the next 15 years. Paying off those bonds would consume 20 to 24 percent of the federal highway funds the state would receive over that time, according to a recent report by the General Assembly's policy analysis arm.

Transportation Secretary Robert L. Flanagan, shown with Gov. Robert L. Ehrlich Jr., said the plan passes federal muster. (Robert A. Reeder -- The Washington Post)

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Transportation experts say it is not surprising that Maryland would rely on a large amount of debt to pay for a project as expensive as an intercounty connector.

At issue, though, is the prospect of financing almost half of a highway's cost with a relatively new kind of bond, called a Garvee bond, that would commit future federal highway money that critics consider vital in funding road projects statewide.

State officials say the bonds would enable them to speed up construction of an 18-mile toll highway linking Interstate 270 in Gaithersburg with Interstate 95 in Laurel, outside the Capital Beltway. The state would save $100 million in inflation costs for every year the project is not delayed, said state Transportation Secretary Robert L. Flanagan.

Flanagan said the state's financial plan, including the Garvee bonds, passes muster with the Federal Highway Administration, which must approve financial plans for any "mega-project" costing more than $1 billion. The federal government must sign off on the financial plan for a connector this summer to keep to the schedule for breaking ground on a highway next year and opening it to motorists in 2010, Flanagan said.

The economic benefits of a new highway connecting Montgomery's fast-growing I-270 corridor with Baltimore-Washington International Airport outweigh the costs, he said.

"The dynamics that result from an intercounty connector are a huge payoff for the state of Maryland," Flanagan told the state Senate Budget and Taxation Committee during a recent hearing.

But critics say the Garvee bonds would mortgage the state's future by pledging too large a chunk of federal highway money to one project for 15 years, potentially at the expense of other transportation needs in the state.

Last year, lawmakers restricted Maryland's debt payments on Garvee bonds to 13 percent of the state's annual federal highway funding. The Maryland Department of Transportation is asking lawmakers to raise the limit to allow for $1 billion in Garvee bonds. That would require the General Assembly to raise the cap to 20 percent, Flanagan said.

Del. Peter Franchot (D-Montgomery), chairman of the transportation subcommittee of the House Appropriations Committee, said lawmakers limited state spending on Garvee bond debt payments because they were worried about the financial risk. The state cannot guarantee how much it will receive in future federal highway money to retire that debt, Franchot said.

"We're basically passing the buck to future legislatures and transportation secretaries" to pay for an intercounty connector, Franchot said. "This is taking a big state Visa card out and saying we want to pay for a big chunk of this road with debt."

Franchot said he supports building an intercounty connector but said he and a "strong majority" of his subcommittee remain skeptical about the need to fund so much of it by pledging future federal highway money. Franchot said the state should "apply fiscal discipline" and pay for a connector by issuing traditional state bonds or using cash in hand. Franchot said his subcommittee might hold a hearing during this legislative session to allow two national experts to testify about problems other states have had with Garvee bonds.

Ronald Kirby, transportation planning director for the Metropolitan Washington Council of Governments, said Garvee bonds are gaining popularity among states trying to pay for expensive projects on tight budgets.

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