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New Jersey Treasurer Ready to Deal in a Tough Market

APR 14, 2011 5:07pm ET
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As New Jersey gears up for a $600 million Transportation Trust Fund Authority bond issue set to price in early May, it faces a municipal market looking to draw investors back into the fold.

This is the state’s final new-money borrowing under the TTFA’s current financing structure. Lawmakers are now working on how to finance the state’s road, bridge, and mass-transit infrastructure needs going forward.

While demand has fallen in the market due to investors exiting muni funds and questions surrounding the credit quality of states and local governments, New Jersey Treasurer Andrew Sidamon-Eristoff said his team has a track record of getting bond deals done in a less-than-favorable market environment.

The state Treasury Department in January cut a nearly $2 billion New Jersey Economic Development Authority school construction bond refinancing into two separate transactions after downsizing the total borrowing to complete the sale at interest rates the state could afford.

“There’s been a net withdrawal from the municipal markets, but I think our experience with the EDA transactions should stand as an example of how we can step up and manage our way through these challenges,” Sidamon-Eristoff said in an interview Thursday after speaking to muni market professionals at The Bond Buyer’s New York/Tri-State Public Finance conference in Manhattan. “We restructured that deal and succeeded in concluding it and met all of our business objectives.”

JPMorgan will price the fixed-rate Transportation Trust Fund Authority bonds, which will mature out to 30 years.

Republican Gov. Chris Christie is looking to reduce the authority’s bonding during the next five years by increasing the percentage of pay-as-you-go funding in his proposed $8 billion plan to replenish the TTFA. The fund will run out of bonding capacity by June 30.

That $8 billion plan includes $4.4 billion of borrowing from fiscal 2012 through fiscal 2016. The administration believes a conservative approach to bonding and borrowing instruments is the best approach for the state.

“We will continue to rely on bonds as a key source of public financing for our infrastructure projects, but we’re going to be doing so with a plain-vanilla approach,” Sidamon-Eristoff said during his presentation. “We’re not going to be using things like” capital appreciation bonds.

Other agendas for the administration include reining in spending to keep expenditures in line with recurring revenues. In addition, Christie is eager to lower taxes on corporations and individuals to make the state more competitive for business creation and growth.

New York’s income tax rate on its wealthiest citizens will return to 6.85% in 2012, which is below New Jersey’s 8.97% rate. Pennsylvania’s income-tax rate is even lower at slightly above 3%, the treasurer noted.

“From where I sit and stand as the state treasurer of New Jersey, I just see a very competitive environment that just got even more competitive,” Sidamon-Eristoff told the conference participants. “My ideology or philosophy about taxes doesn’t matter because it’s a function of how we stack up next to our neighbors.”

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A recent phenomenon is the emergence of bonds with shorter call protection as funding alternatives for municipalities. However, the shorter call protection also dampens the potential upside for investors, which in turn reduces the price they are willing to pay.

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