By John R. Ellement
Boston Globe Staff

1/29/08 - State Auditor Joseph DeNucci today faulted the MBTA for a series of complex financial maneuvers designed to save the cash-strapped agency money maneuvers that he said drove up borrowing costs by $55 million.

In an audit released today, DeNucci's office said that between 2000 and 2005, the T tapped into the capital markets to buy and sell some of its debt in 12 transactions worth $1.63 billion. But some of the deals failed to meet expectations and in one instance, the T had to pay $25 million to terminate the contract. He said the T had to borrow more money to pay off the new expense.

"It appears the MBTA was willing to accept short-term cash for long-term debt, DeNucci said in a statement, and then paid millions of dollars in termination fees when the interest rates changed and became unfavorable to the authority.

MBTA deputy general manager and chief financial officer Jonathan Davis disputed DeNucci's critical conclusions. When expenses, revenue, and interest rates of investments are calculated in a different fashion, he said, the T actually boosted revenue by $2 million because it got out of a increasingly expensive investment vehicle quickly.

"We were able to issue new debt at lower cost than the old debt,'' Davis said. Even with the termination payments, we have a net savings.''

Davis said the T continues to make investments of the type faulted by DeNucci. He stressed the T did not invest in the type of securities that the board controlling the finances of the city of Springfield did recently, an investment that cost that city $13 million.

The T began investing in markets after the state stopped directly funding the agency in 1999. Now, the T raises its annual budget of some $1.4 billion from fares, advertising, 20 percent share of state sales tax revenue, and assessments on member cities and towns. It currently has $5.1 billion in debt.

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