By NEIL HARTNELL
Tribune Business Editor
The Paradise Island Bridge Authority yesterday expressed optimism it will wipe out the $6.676m deficit in its bond repayment fund by the 2019 year-end target without having to raise toll fees.
C. Anthony Smith, the Authority’s general manager, told Tribune Business that the bond “sinking fund” was “now in a much healthier state” and “ahead of target” to repay investors some $7m in principal that becomes due in March 2019.
He spoke out after the Bridge Authority’s 2017 financial statements, tabled in the House of Assembly yesterday, revealed that it will have to contribute $3.495m in “emergency funding” each year for the next five years to ensure it can meet all future maturity dates for its collective $29m bond debt.
“The sinking fund was voluntarily established by the [Bridge] Authority to reserve funds periodically to assist in retiring the bonds as they mature,” the financials, audited by the UHY Bain & Associates accounting firm, said.
“On December 31, 2017, the Authority had $29m in bonds payable and $9.913m (2016: $7.65m) in the sinking fund. However, according to management’s calculations the estimated amount that should have accumulated in the sinking fund at the balance sheet date was $16.589m.
“As a result, management recognises there is a deficiency of $6.676m. Management is addressing the deficiency by allocating over $3m per year to the fund that their calculations show will result in eliminating the deficiency by the end of 2019.”
Mr Smith yesterday told Tribune Business that the Bridge Authority was “confident that we will achieve this target” of bond fund deficit elimination, adding that it “remains firm” on the annual $3m-plus injections over each of the next five years.
Pointing out that “the pressure on the sinking fund has been relieved”, the Bridge Authority said the deficit had resulted from toll rates being set “too conservatively” at the outset and then failing to increase them in response to rising costs.
“The deficit that occurred in the sinking fund was due to a confluence of circumstances,” Mr Smith told Tribune Business. “However, the root of the issue was that from the beginning, toll rates were too conservatively set and remained static for a protracted period while the operational costs of the corporation were dynamic and evolving.
“For example, at the time that the second bridge was opened in 1998, most of the staff were contract workers, but this arrangement morphed into a full-time employer-employee relationship from the mid-2000s onward.
“Also, the corporation has been conservative in its approach on funding essential initiatives like bridge inspections and the construction of the new toll administration building. These were all funded from operating cash flow,” he continued.
‘“Therefore, these and other similar events resulted in pressure being placed on the maintenance of the sinking fund. With the increase in toll rates May 2016, the pressure on the sinking fund has been relieved, and the fund is now in a much healthier state. At present we are ahead of our target to meet the bond repayment obligation in March 2019.”
Mr Smith then reiterated: “There are no plans, nor need, to raise toll fees and should conditions remain as they are there wouldn’t be a need for taxpayer subsidies.” His comments will likely be greeted with relief by both Paradise Island residents and workers, as well as the taxpayer.
The Bridge Authority was able to narrow the sinking fund deficit by 18 percent during 2017, cutting it from $9.4m at the end of 2016. The staggered nature of the bond repayment schedule, with investor principal set to be returned in four payments spread over a 15-year period between 2019 and 2034, has also given the Government and Bridge Authority time to craft their financial strategy.
The Paradise Island bridge overseer also saw profitability improve from $2.723m in 2016 to $4.268m, aided by the increase in toll charges which took that income stream from $7.662m to $9.364m year-over-year.