Does New Jersey Need A $38 Billion Asset Monetization Plan To Solve an $800 Million Transportation Funding Problem?

Why is Governor Jon Corzine proposing a $38 billion asset monetization plan that will require large toll increases on the NJ Turnpike, the Garden State Parkway and the Atlantic City Expressway?

The Governor says he needs the money to pay down the state’s debt to a more manageable level and to provide additional funding for the state’s Transportation Trust Fund Authority (TTFA).

In our last post, we showed that New Jersey is not having a problem paying its bond debt. The required annual debt payment was about $2.6 billion for the past two fiscal years and will remain at that level in the coming years, provided the state does not take on new debt. TTFA bond debt payments are included in the state’s $2.6 billion debt payment schedule.

Today, we’ll show why the state doesn’t need to borrow $38 billion to properly fund New Jersey’s Transportation Trust Fund Authority (TTFA). But first, a bit of background on the Authority, how it operates and its future needs.

The TTFA is responsible for funding the capital requirements of the New Jersey Department of Transportation and NJ Transit. It is an independent agency of state government that is responsible for financing the cost of planning, acquisition, engineering, construction, reconstruction, repair, resurfacing, and rehabilitation of the state’s transportation system.

The Authority receives its funding from revenue that is dedicated by the state’s Constitution, by statute and by issuing "state contract" bonds.

Constitutionally dedicated revenues include New Jersey’s motor fuels tax, the petroleum products gross receipts tax, and a portion of the general sales tax. Statutorily dedicated revenues include "good driver" vehicle registration surcharge fees, heavy truck registration fees, and contractual contributions by NJ Turnpike Authority and South Jersey Transportation Authority. These funding sources are collectively called appropriation revenues.

The TTFA issues "state contract” bonds for capital funding requirements which exceed the Authority’s annual appropriation revenues less debt payments. For FY 2008, TTFA received $895 in appropriation revenues and will have debt payments of $736 million. This leaves $159 million for new capital projects or debt payment on new bond issues.

The Authority’s project plans require a capital program of $1.6 billion annually though 2011. These transportation projects will be financed with bonds issued in a manner that will keep overall TTFA/NJT debt service below $895 million each year. In 2011, the state’s transportation trust fund will be depleted and additional appropriation revenues will be needed to pay for new projects.

Realistically, New Jersey will need to come up with $800 million in additional dedicated appropriation revenues each year to support the state’s transportation infrastructure needs. These additional revenues would provide roughly equal shares of "pay-as-you-go" and debt financing for future transportation projects. It would also ensure the state receives the full benefit of federal matching funds.

So, do we really need Governor Corzine’s $38 billion asset monetization plan to raise $800 million? The answer is no.

We could begin by ensuring all funds that are supposed to be dedicated to the TTFA actually go to the Authority and not diverted to other purposes as in previous years.

We could dedicate a larger share of the state’s sales tax revenue to the TTFA. In 2006, the Governor raised the sales tax and extended it to previously untaxed goods and services. This increased sales tax revenue by nearly 25 percent in just the first year. In 2006, sales tax revenue was $6.7 billion and this year it will bring in $8.8 billion, a 31 percent increase since 2006. Surely some of that additional $2 billion could be used for something as essential as the state’s transportation system.

We could eliminate “Christmas Tree” grants which this year amounted to $100 million. We could eliminate wasteful spending and dedicate those savings annually to the TTFA. And, if we absolutely had to, we could raise the gas tax.

Those are some of the actions lawmakers could take if the TTFA was the only funding problem we had to solve. It’s not. The real problem is glossed over in Governor Corzine’s talk about state debt payments and transportation funding needs.

The real problem Governor Corzine is trying to solve is truly staggering and quite frankly, requires leveraging state assets as he has proposed. So while we solve our huge financial problem, we might as well make it a package deal and pay down some of the debt to fund our transportation needs.

The bulk of that $38 billion in toll hikes will be used to fund the real culprit of the state’s financial crisis, which we will explain in our next post. Until then, we’ll give you a hint. It’s Governor Jon Corzine’s favorite cause.