Toll collections from two of New Jersey’s roadways could surge to a combined $2.44 billion in 2018, more than three times the amount of generated in 2006, according to a analysis of Gov. Jon Corzine’s debt restructuring plan.

Merrill Lynch & Co. analyst Philip Villaluz calculated the potential revenues the New Jersey Turnpike and the Garden State Parkway would generate if legislators approve Corzine’s plan to boost tolls by 50% beginning in 2010 to back debt of a new public benefit corporation.

The two roadways generated $737 million of combined toll revenue in 2006, according to an audited financial report for that year. Yet under the governor’s proposal the toll roads would generate approximately $1.45 billion in 2010 and $2.44 billion in 2018 of combined toll revenue, according to a Merrill Lynch report.

The proposed toll hikes would back a potential $32.6 billion to $37.6 billion bond transaction that would defease half of the state’s more than $30 billion of outstanding debt, pay down outstanding toll road debt, and provide additional funding for the Transportation Trust Fund Authority, which otherwise will run out of funds in 2011.

The proposed debt could enter the market this year, and could include both tax-exempt and taxable bonds. Villaluz said investors should be comfortable with the tolls providing debt service on the bonds, as the roads have a long history of heavy traffic usage and reliable toll collections, two factors that attract investor interest.

In addition, Villaluz said this year, with in a softening economy and shrinking consumer spending, could be a good year for this kind of financing as investors tend to look at infrastructure investments, or essential services such as toll roads and utilities as “a defensive play going into really an uncertain landscape for 2008.”

“I think that there would be more of a demand focusing on stable, higher-grade bonds,” he said. “I think that these toll revenue bonds are an example of those types of revenues that investors would feel comfortable with given economic uncertainty.”

The exact size of any deal will depend upon the amount of toll increases state legislators approve, market conditions once officials price the bonds, and whether the Internal Revenue Service grants the public benefit corporation, a new entity that would oversee the Turnpike and the Parkway, the authority to sell tax-exempt debt. Officials last week said if the IRS does not approve a tax-exempt status for the public benefit corporation, the PBC will sell taxable bonds.

The taxable debt would be costlier for the PBC in comparison to tax-exempt bonds , but the market should still absorb taxable debt based on the corporation’s creditworthiness and the structure of the corporation. The PBC, which would have a board independent of elected officials, is intended to separate the management of the toll roads — and future toll increases — from the political process.

“I think that’s going to cut into the demand,” Villaluz said. “Although I still think that demand would be strong given the stability of the underlying asset and the proven history of traffic levels steadily increasing via the public benefit corporation. You’re taking out the uncertainties associated with the political component in regard to rate setting or toll setting flexibility.”

In his calculations, Villaluz used the maximum toll increase of 50% in 2010, 2014, and 2018 , with that percentage compounding over time. In addition, the figures allow for an assumed inflation index of 3% per year. Corzine’s plan also called for toll hikes on the Parkway and Turnpike in 2022, increases on the Atlantic City Expressway, and implementing new tolls on Route 440, which connects Staten Island with the Turnpike and the Parkway.


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