Andrew Sidamon-Eristoff raises some tough questions that the public should hope its lawmakers are prepared to answer before they vote on the Transportation Trust Fund measure.
*MEMORANDUM* TO: Honorable Members of the New Jersey State Legislature FROM: John Q. Public DATE: October 7, 2016 RE: Transportation Trust Fund-Related Legislation
You will vote today on legislation that reflects the September 30 agreement reached by Governor Christie and the legislative leaders related to the Transportation Trust Fund (TTF) and related tax policy changes. Appreciating that you have limited time to review this complex legislation, here are a few questions you might consider prior to casting your vote:
The legislation will ultimately raise $1.23 billion in annual revenue dedicated to transportation projects while at the same time enacting approximately $1.4 billion in annual tax cuts when fully phased in. Beyond the anticipated redirection of $346 million in annual sales tax revenue from the TTF to the General Fund, what additional non-dedicated revenues or spending cuts have you identified to balance the state budget in the future?
The legislation doubles the amount of local aid grants to $400 million annually. Have you had the chance to review a study or data that justifies this increase? Are you satisfied that local governments have the capacity to spend this amount efficiently and effectively? Does it really make sense for the State, with its high debt load and relatively high cost of borrowing, to finance the improvement of assets it does not own on behalf of local governments that often have a lower relative debt load and lower cost of borrowing? What assurances have you received that any increased State support will in fact offset local property taxes?
The legislation establishes a four-member Annual Transportation Capital Program Approval Committee, consisting of the Commissioner of Transportation and three public members appointed at the recommendation of the Speaker and the Senate President. The Legislature would be prohibited from appropriating money for any project that does not receive the committee’s unanimous support in the form of an Annual Capital Program Approval Certification. Will this new process replace the current process whereby the Legislature reviews and incorporates a project list submitted to the Commissioner of Transportation on March 1 into the annual Appropriations Act? Are you satisfied that the committee will always use objective, impartial, and transparent criteria for prioritizing projects?
The legislation incorporates bond premium into the calculation of the TTF’s bonding cap. How will this impact the marketing and sale of the TTF’s bonds? Are you satisfied that this provision will not result in higher borrowing costs for the State?
The legislation contains an elaborate “poison pill” provision that would, by operation of law, kill the tax increases now before you if any legislative action is taken to halt, delay, or reverse the legislation’s tax cuts. Are you satisfied that this provision is both legal and sound policy? What happens if future legislation to delay one of the tax cuts simply repeals this section?
Current law imposes a Petroleum Products Gross Receipts Tax (PPGRT) base rate of 2.75% of gross receipts on gasoline and diesel fuel, converted by law to $0.04 per gallon. The legislation increases this base rate to 12.85%, to be converted to a cents-per-gallon rate, and also imposes an “additional” $0.04 per gallon tax on gasoline (and $0.08 on diesel, ultimately). If all PPGRT rates are to be converted to cents-per-gallon, why does the legislation maintain two separate tax rates on highway fuels? Why not consolidate these into a single rate?
The legislation includes a mechanism for adjusting the conversion of the base PPGRT rate (12.85% of gross receipts) into a cents-per-gallon rate on a quarterly basis to reflect price changes. It also contains an extremely complex base-rate adjustment mechanism to “cap” the amount of additional PPGRT revenue raised from highway fuels on an annual basis going forward. Are these two adjustment provisions completely consistent with each other?
The “cap” mechanism noted above includes a “true-up” provision that would have the State both decrease the base PPGRT rate in a subsequent year if collections in a given year exceed the cap amount and increase the rate in a subsequent year if collections do not reach the cap amount, presumably reflecting a decrease in highway fuels consumption. Given that fuels consumption may trend down due to slowing population growth, increasing fuel efficiency, and the ongoing move toward alternative fuel vehicles, is this “cap” really an effort to preserve revenue stability? Do you support increasing the base rate if fuels consumption declines?
The legislation authorizes a total of $12 billion in additional borrowing over eight years. However, unlike the expired TTF authorization, the legislation does not specify amounts to be issued in any one year, nor does it mandate an overall amount of annual spending on TTF projects inclusive of using borrowed funds. Does this mean that the State could, in theory, borrow and spend the full $12 billion in the first year of the reauthorization?
The legislation appears to make the $12 billion in additional borrowing contingent on the voters approving a constitutional amendment this November that would dedicate the motor fuels tax and the PPGRT to transportation project funding. What happens if the voters do not approve?
The legislation phases-in its PPGRT base increases on the diesel motor fuels and ultimately imposes a higher additional tax ($0.08 versus $0.04 per gallon) on diesel. In fact, combined with a higher conversion of the higher base rate to cents-per-gallon as of July 1, 2016, this means the effective per-gallon increase for diesel will be $0.29 per gallon, not the widely reported $0.23 per gallon. Is there a policy rationale for the different treatment of diesel versus gasoline?
The legislation requires an annual pay-as-you-go (PAYGO) appropriation of $500 million per year for transportation capital projects. Couldn’t this requirement be overridden in the annual Appropriations Act? If so, how firm a commitment is this, really?
The legislation anticipates $2 billion in transportation spending per year, inclusive of $500 million in PAYGO appropriations. Assuming the State issues a level amount of bonds each year, debt service for each year’s anticipated borrowing of $1.5 billion is projected to be $86 million. Thus, if the tax increases indeed generate $1.23 billion in annual dedicated revenue, the TTF will likely build up a large “surplus” of dedicated funds in the early years of the reauthorization. The legislation creates a reserve account to receive these funds. What specific plans have you made for the use of these funds?
Increasing the PPGRT will logically result in lower sales of highway fuels to bargain-seeking out-of-staters from Pennsylvania and elsewhere. Have you had a chance to review credible estimates or hear testimony as to the impact on New Jersey businesses that sell highway fuels?
The legislation requires that all contracts funded by state money comply with the federal Disadvantaged Business Enterprise (DBE) program as well as new mandatory equal employment opportunity and affirmative action provisions. Are you satisfied that these new provisions are entirely consistent with the State’s existing requirements?