Copyright © 2018 Albuquerque Journal
SANTA FE – New Mexico has struck a deal to keep the Rail Runner from heading over a fiscal “cliff” in the next decade.
Market conditions – shaped partly by the Republican federal tax overhaul – allowed the state last week to break even on the refinancing of about $420 million in debt, smoothing out the annual payments New Mexico must make on construction of its commuter train system, officials said.
Without the refinancing, the state Department of Transportation’s annual payments could have climbed from roughly $30 million now to near $110 million in 2025 and 2026.
Critics described the ballooning debt obligation as a fiscal “cliff” that could devastate the department.
Now the payments are expected to top out at $40 million. The state, in turn, has added three years to the term of the debt, meaning it will be paid off in 2030 rather than 2027.
Transportation Secretary Tom Church briefed state legislators on the transaction Monday.
“The bottom line is the state got a really good deal and broke even without it costing any more,” he said in an interview.
The Rail Runner connects Belen, Albuquerque and Santa Fe. Its ridership fell 23 percent over a recent five-year period – fueling new frustration over the coming balloon payments.
Opponents have occasionally broached the idea of shutting down the train and selling it, but a 2015 study suggested that wasn’t a feasible option.
Supporters say that the Rail Runner’s ridership is sensitive to gas prices and that more commuters will opt for the train when the cost of driving climbs.
In any case, the train was launched in 2006 under then-Gov. Bill Richardson, with much of the cost shifted to large payments in fiscal 2025 and 2026. Supporters say they always expected the balloon payments to be refinanced.
Church said the state had been watching the market for years, waiting for the right time to act. The Department of Transportation and New Mexico Finance Authority seized on the refinancing opportunity this summer and closed on the deal last week, he said.
The previous interest rate on the debt fluctuated, Church said, but it was around 5.3 percent. The new rate is fixed at 2.49 percent, he said.
The federal tax overhaul contributed to the market conditions that allowed the refinancing, officials said. The tax changes had the effect of making the old financial arrangement more expensive for the state, making it more attractive to refinance.
In any case, eight firms made similar bids for New Mexico’s bond transaction – competition that helped the state get a good deal, Church said.
Rep. Jane Powdrell-Culbert, R-Corrales, said the bond deal gives the state the certainty it needs going forward. The prospect of balloon payments, she said, had been a concern for years.
“I think it’s a great idea,” she said.
Sen. John Arthur Smith, a Deming Democrat and chairman of the powerful Senate Finance Committee, said he had no problem with the refinancing of this particular bond deal.
Secretary Church, he said, “was pushed into that corner to give us some predictability.”
But Smith said the state must guard against refinancing big-ticket items too many times. The deals often involve lengthening the term of the debt, providing short-term relief but forcing the state to continue paying longer into the future.
A better financial practice, he said, is to pay off the debt within the original schedule.
Church’s presentation came during a meeting of the Legislature’s Transportation Infrastructure Revenue Subcommittee.
Legislative approval wasn’t required for the transaction.