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Transportation Debt Burdens N.J.

New Jersey Gov.-elect Chris Christie will take office next month, and along with confronting high property taxes, a heavy debt burden, and the issue of encouraging shared services at the local level, the new administration will face a transportation funding spigot set to dry up by mid-2011.

The New Jersey Transportation Trust Fund Authority has new-money bonding capacity this fiscal year and next, but by July 2011, the start of fiscal 2012, its entire $895 million annual appropriation will be needed to cover principal and interest payments on the TTFA's nearly $11 billion of existing debt.

That will leave officials looking for new ways to support road, bridge, and mass-transit construction throughout the state.

"We have borrowed to the point where there really isn't anything left to borrow," said Assemblyman John Wisniewski, D-Middlesex. "And even if there was some fancy financing that could be done, you have a skittish debt market that is not looking for novel and intricate ways of leveraging. They want plain-vanilla financing."

Wisniewski chairs the General Assembly's Transportation, Public Works, and Independent Authorities Committee.

The fund's debt service costs total $840.6 million for fiscal 2010 and increase to $842.6 million and $842.8 million in fiscal 2011 and fiscal 2012, according to the official statement of the TTFA's Series 2009C bonds, dated Dec. 9.

In addition, the fund will have principal and interest costs for additional debt that it will sell in fiscal 2010 and 2011. The TTFA board earlier this month approved $1.2 billion of new-money borrowing for this fiscal year to finance capital projects.

Along with balancing current and future operating budgets, the incoming administration is reviewing the TTFA's funding deadline.

"That's one of the large, future issues we're looking at," a Christie transition team official said in a phone interview last week.

More immediate issues for the transition team include sluggish fiscal 2010 revenue collections and an estimated gap of $8 billion or more in fiscal 2011.

Gov. Jon Corzine last week announced nearly $840 million of spending cuts and additional funds from the federal stimulus act and state lottery revenue to close the current budget shortfall.

Christie will deliver his fiscal 2011 budget address on March 16. Corzine will give his final state of the state speech on Jan. 12, his last major address as governor.

Throughout his campaign, Christie, a Republican, stressed that he would scale back on spending and borrowing to rein in the budget and offset $33.87 billion of outstanding bonded debt, which includes $29.04 billion of state appropriation debt.

The governor-elect also has spoken out against tax increases, including boosting the state's 10.5-cent per gallon gas tax to help support transportation needs, as many New Jersey homeowners already face the highest property taxes in the nation.

"The people of New Jersey are suffering," Christie said during a gubernatorial debate on Oct. 1. "They are suffocating under these taxes. We can't do it. We should go as pay as you go on the Transportation Trust Fund from current budget funds."

Christie's transition team, which includes former Democratic state Treasurer John McCormac, declined to give details on what ideas the incoming administration is evaluating to address the TTFA's funding beyond fiscal 2011 or how the state could find sufficient funds to support transportation infrastructure from its annual operating budget in light of recent and projected shortfalls.

Within the Christie transition team, Pfizer Inc. executive and former state legislator Richard Bagger and Robert Grady — who previously worked in the Office of Management and Budget in George H. W. Bush's administration — will focus on the state's fiscal challenges.

Wisniewski supports a gas-tax hike, along with pay-as-you go financing, to help support roads, bridges, and public transportation projects once the TTFA runs out of funds for infrastructure improvements. The Garden State's last gas-tax hike was in 1988.

According to the assemblyman, the average driver in the state pays a-half penny per mile to drive on non-tolled roads, which the gas tax funds. Drivers on the New Jersey Turnpike and the Garden State Parkway, meanwhile, pay seven cents per mile and four cents per mile, respectively.

"If you look at all of the alternatives out there, the most practical and the least burdensome is in increase in the motor fuels tax," Wisniewski said.

The debate whether to fund the TTFA solely from the general fund or use a combination of pay-as-you-go funding with a new or surplus tax revenue will become an issue between the incoming Republican governor and New Jersey's Democratically controlled Legislature. Currently, the fund is supported by dedicated tax receipts subject to appropriation, including the gas tax and petroleum-product tax receipts and automobile sales and use taxes.

Raising the gas tax, tolls, and increasing or implementing other fees tends to be politically difficult. However, seven of 15 investment banks selected for New Jersey's senior managing and senior co-managing pool recommended such actions to help generate funding for transportation in responses to the state's request for qualifications for underwriting services earlier this year that were reviewed by The Bond Buyer.

New Jersey's Treasury Department on Aug. 5 selected 15 investment firms to serve as senior managers and senior co-managers out of 25 candidates that responded to the May 1 RFQ. The contracts extend for one year and the state has two optional one-year extensions.

JPMorgan estimated that a one-cent motor fuels tax would generate $50 million of additional revenue per year, supporting approximately $750 million of new capital funding, according to its application, dated May 27.

"A future increase in the motor fuels tax may be the most straightforward, short-term source of additional transportation capital funding," JPMorgan's proposal said.

In addition to the proposed gas-tax hike, the investment bank suggested a "vehicle-miles traveled" pilot program, similar to an Oregon pilot program as "motor fuels taxes are not expected to be a reliable revenue source over the longer term."

RBC Capital Markets recommended a higher gas-tax increase in New Jersey, a boost of 9.1-cents per gallon, as lawmakers have not changed the rate in more than 20 years and the 10.5-cent per gallon tax is one of the lower gas tax rates in the country.

"A 9.1-cent per gallon gas tax increase to the average state gas tax would generate $455 million each year to the state's coffers," RBC's May 27 proposal said.

Other revenue generators proposed by investment banks include toll increases or implementing tolls on New Jersey's section of Interstate 80 and Interstate 78 — although they would require federal approval as well as state legislative consent — and implementing high-occupancy toll lanes.

Car rental fees, vehicle registration, and car inspection surcharges would also create more revenue that could be leveraged for transportation needs, according to several investment banks.

The New Jersey Transit Authority over the past four years has received more than $600 million per year from the Transportation Trust Fund Authority, including $692 million in fiscal 2010. Bank of America Merrill Lynch and Morgan Stanley, recommended separating the NJTA's financing from the TTFA and enabling the mass-transit authority to sell bonds and notes secured by a new or surplus revenue stream.

"It is rather unique to combine the funding needs of surface transportation and public transportation under a single funding source," Morgan Stanley's May 27 proposal said. "It may be beneficial for the state to consider developing a single funding source for public transit with a mandate to determine service levels, expansions, and level of subsidy based on a single funding source."

Another option is the federal Transportation Infrastructure Finance and Innovation Act program, which offers low-interest loans and credit support. Of the 15 firms selected for New Jersey's underwriting pool, nine suggested using TIFIA to help finance future infrastructure needs.

At the The Bond Buyer's 10th Annual Transportation Finance and Public-Private Partnerships Conference in Dallas in early November, federal officials said the popular TIFIA program would most likely continue, although future funding for it has yet to be mapped out.

Other suggestions from investment banks include creating a state infrastructure bank similar to the New Jersey Environmental Infrastructure Trust, which leverages municipal investment with federal dollars; implementing a pooled infrastructure financing structure, or starting a state revolving transportation fund, or RTF. A revolving fund could offer "credit enhances" for otherwise difficult-to-finance projects, according to JPMorgan.

"New Jersey could consider capitalizing its RTF from proceeds of general obligations bonds (subject to voter referendum), a portion of its American Recovery and Reinvestment Act stimulus monies, or proceeds of a securitization of the 23.7% of its remaining tobacco settlement revenues," JPMorgan's proposal said.

The TTFA is the state's funding mechanism for 13,469 lane miles of roads and 2,300 state-owned bridges, along with NJTransit, the third-largest commuter rail and bus system in the U.S., according to Moody's Investors Service. The fund also allocates aid each year to cities and towns for local transportation needs.


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