New Jersey officials last week approved toll increases on three toll roads, a move that will boost debt service coverage on New Jersey Turnpike Authority debt and help fund transportation infrastructure projects throughout the state.
Motorists will begin paying higher tolls beginning Dec. 1 on the New Jersey Turnpike, the Garden State Parkway, and the Atlantic City Expressway. The NJTA, which oversees the turnpike and the parkway, needed to improve its current debt service coverage of 1.2 times to 1.4 times to maintain its credit ratings.
Under bond agreements, the authority's debt service coverage cannot fall below 1.2 times, yet earlier this year, officials warned that without an increase in revenue, debt service levels would fall below 1.2 times.
In addition to raising that coverage to 1.4 times, NJTA toll increases will help support a $7 billion, 10-year capital program that will widen the turnpike in the center of the state and bring NJTA bridges to a state of good repair.
Increased toll revenues will also fund the state's $1.25 billion contribution towards a new $7.6 billion passenger rail line that will run from Newark to Manhattan's Pennsylvania Station. That new tunnel is called the Access to the Region's Core, or ARC tunnel.
Earlier, the authority proposed higher toll increases than what officials approved last week to support a larger, $9.73 billion capital plan. Yet public disapproval for the toll hikes prompted officials to revise the toll increases and decrease the turnpike's capital spending plan. The NJTA last increased tolls on the turnpike and the parkway in 2000 and 1998, respectively.
"This will still ensure that we do the capital program exactly the way we had originally intended, but we're going to obviously scale back $2.7 billion worth of projects," said state transportation commissioner, Kris Kolluri. "We're still going to pursue the critical safety and congestion projects like the bridge projects and the widening projects so consumers will see an appreciable difference in their quality of life."
Rating analysts said they will review details of the toll increases to evaluate the long-term effects, but stressed that the NJTA needed additional revenue.
The agency has roughly $4.9 billion of outstanding debt. Fitch Ratings assigns its A rating with a negative outlook to the authority. Standard & Poor's and Moody's Investors Service rate the credit A and A3, respectively, both with a stable outlook.
"It's clearly a positive," said Fitch analyst Cherian George. "We've obviously been concerned about the credit quality on the turnpike given the history of challenges over the last couple of decades. ...We don't have a lot of the details, but it appears to us that the proposal that has been made provides some stability, and more importantly, allows for reinvestment, which is really what these public authorities are all about in terms of maintaining and improving the transportation network."
Moody's analyst Maria Matesanz said the NJTA's A3 rating reflects, in part, the authority's low debt service coverage as other major turnpike systems in the U.S. tend to carry ratings two notches above at the Aa3-level.
"Generally in terms of where the rating is for the turnpike relative to the ratings for other large, established statewide turnpike systems that serve essential purposes is their rating is much lower at the A3 than it is for other large, multi-asset systems that have regular toll increases and that have a bigger margin for debt service coverage," Matesanz said.
While toll increases are never popular, Republican lawmakers have questioned using roadway toll revenues to help pay for the new ARC tunnel, which will begin construction in the spring. GOP legislators support the project, yet believe that allocating toll revenues for non-highway projects goes against NJTA's enabling legislation.
On Oct. 6, Senate Republican leader Tom Kean and Senate GOP budget officer Leonard Lance filed a concurrent resolution that attempts to prevent the NJTA from using toll revenue for the new tunnel.
Yet Kolluri maintains that authority's enabling legislation allows for toll revenue to be used for tunnels and that the new passenger-rail tunnel will take 20,000 vehicles off the turnpike once it opens in 2017 as increased commuter-rail service will entice motorists to use the New Jersey Transit Authority over driving. The agency is overseeing construction of the new ARC tunnel.
The toll increases will raise the average passenger trip on the turnpike to $1.70 from $1.20, a 50-cent increase compared to an earlier proposal to increase the toll by 60 cents. That average trip will increase again in 2012 by 90 cents. The average parkway passenger trip will increase to 50 cents from 35 cents. In 2012, that toll would increase by an additional 25 cents.
Along with the NJTA toll increases, the South Jersey Transportation Authority approved toll hikes on the Atlantic City Expressway. Those changes include a 15-cent hike on expressway ramps, a 25-cent toll increase just west of Atlantic City, and a $1 increase just north of the city. The SJTA's last toll increase was 10 years ago.
