The New Jersey Transportation Trust Fund Authority faces rising debt service costs as it moves forward with a $1.6 billion fiscal 2010 capital plan that legislators will now consider.

The NJTTFA plans to borrow $1.3 billion to $1.6 billion of current-interest bonds and capital appreciation bonds in fiscal 2010, which begins July 1, to support infrastructure improvements for the state Department of Transportation and the New Jersey Transit Authority. Those bonds will have maturities of up to 31 years, according to the capital plan.

The trust receives dedicated revenues of roughly $895 million per year through gas and motor fuel taxes and other tax revenue. Debt service is taking up more of those funds, with the NJTTFA to spend $40 million more on principal and interest payments in fiscal 2009 than previously budgeted. Those costs will increase to $874 million in fiscal 2010, $60 million more than expected, according to the minutes of a Feb. 10 board meeting. The NJTTFA released those minutes yesterday.

"Our problem is going to come in fiscal 2011 as debt service gets closer to the $895 million mark," said Steve Hanson, NJTTFA's executive director and the chief financial officer of the state's DOT.

The increase in debt service is due in part to the authority's $1.1 billion Series 2008A bonds, which included $872 million of fixed-rate bonds and $250 million of capital appreciation bonds. Yields on the fixed-rate bonds ranged from 5.37% with a 5.25% coupon in 2023 to 6% with a 6% coupon in 2038.

"The interest rates on the authority's November bonds were much higher than expected and the authority has not been able to issue as many capital appreciation bonds as originally planned," according to the minutes of the Feb. 10 board meeting.

The authority anticipates issuing fiscal 2010 debt in the fall and will decide then, depending on market conditions, whether it can sell the bonds in one deal or issue two separate transactions. In fiscal 2009, the NJTTFA will have two bond sales - the Series 2008A bonds and a smaller, $350 million transaction set for next month.

"It may be the case next year that we're going to have to break it up in two sales as well," Hanson said.

The authority put the breaks on an upcoming $270 million grant anticipation revenue vehicle bond sale as federal stimulus funds will help support a bridge replacement and roadway project in southeastern New Jersey.

The agency issued Garvees in 2006 for the first phase of the $400 million project and officials were planning on selling Garvees again to finish the project. Instead, federal stimulus funds from the American Recovery and Reinvestment Act of 2009 and NJTTFA funds will help finance the project's completion.

"Right now the plan that is being submitted [is that] we're not going to use Garvee bonds," Hanson said. "It's going to be a combination of federal stimulus money and Trust fund money."

The Trust has more than $9 billion of outstanding debt. Moody's Investors Service rates the authority A1 while Fitch Ratings and Standard & Poor's rate the credit A-plus and AA-minus, respectively.

The authority's board will meet again on Thursday to discuss potentially restructuring an escrow account for the Series 2004B refunding bonds and the Series 2005B refunding bonds. Changing the investments that were used to fund the escrows may generate up to $10 million of savings for the NJTTFA.

"[The Department of Public Finance] has determined we can come up with some savings," Hanson said. "I guess those were originally financed or funded through SLGS and now they're going to go into the open market for some Treasury-strip investments and they think we can net out with somewhere in between $5 million and $10 million in savings that can be used to help pay debt service."

The NJTTFA will run out of funding in fiscal 2012, as all future dedicated revenues will be used to cover debt service costs. Administration officials and legislators have yet to announce a financing plan to help support the authority beyond fiscal 2011.

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