Surprise! State House Renovation Could Hit $500M By Time Bonds Paid Off
True, the repairs are estimated at $300M, but the complex scheme being used to raise the money could drive project total to almost twice that
Billed for months as a $300 million project, state lawmakers learned yesterday that the final price tag for Gov. Chris Christie’s controversial plan to renovate the State House could end up doubling once the long-term bonds that will fund the repair work are paid off decades from now.
The new information about the potential borrowing costs came out for the first time yesterday during an appearance by state Treasurer Ford Scudder before the Assembly Budget Committee in Trenton, and it is likely to add to the criticism that’s already been heaped on Christie’s proposal from some lawmakers in recent months.
The spending to repair the State House — which dates to the 1700s — has also been a prime target for candidates from both parties on the gubernatorial campaign trail as state spending in general is being put under an election-year microscope.
Sidestepping the voters
Last week, an obscure state commissionboth the renovations and a complicated lease arrangement with the state Economic Development Authority that will help finance the $300 million in repairs. The finance plan will not require a vote of approval from the Legislature, Scudder said yesterday, and by going through the EDA, it will also skirt a 2008 constitutional amendment that sought to restrain the state from issuing debt without voter approval.
But after the hearing ended, the chairman of the budget committee said the Christie administration’s finance plan is “escaping oversight” and that using the EDA, which has a lower bond rating than the state itself, could ultimately saddle taxpayers with higher borrowing costs. Reached by phone after the hearing ended, a former state lawmaker who authored the 2008 constitutional amendment also said he opposes the State House renovation finance plan, primarily because the Christie administration is not seeking voter approval for the new borrowing.
“It certainly violates the intent of my amendment,” said Leonard Lance, a Republican who is a now a member of Congress representing New Jersey’s 7th District.
New Jersey is already one of the nation’s most indebted states, but lawmakers don’t typically take issue with long-term costs like the interest on bonds for capital investments, even during budget committee hearings. And state bond issues are routinely refinanced when interest rates are more favorable, so initial cost estimates tend to be unreliable over the long term.
But this year, every element of the proposed State House renovation proposal is getting extra attention, in part because candidates from both parties are currently jockeying to replace Christie, a second-term Republican who will be leaving office early next year under New Jersey’s constitutional term limits. All 120 legislative seats will also be on the ballot this fall, which is adding to the politically charged atmosphere in Trenton this spring.
During yesterday’s hearing, lawmakers pressed Scudder to explain how much the annual debt payments associated with the renovation effort will be, and he said those payments could be as high as $25 million, and that the bond issue could stretch out over a term of 20 years to 30 years.
The $500 million ‘gotcha’
That led to an immediate response from committee chairman Gary Schaer (D-Passaic), as he did the math in his head. Schaer questioned whether the total cost of the renovations would be at least $500 million once the principal and interest for the project are factored in.
“What’s 25 times 20?” Schaer asked. “$500 million, is that correct?”
“Sure,” responded Scudder. “As any capital financing, which is appropriate for long-term capital projects, you’re going to have a principal payment and an interest payment.”
After the hearing, Will Rijksen, a spokesman for the Department of Treasury, stressed that the actual price tag for the renovation work is $287 million, adding the discussion of the long-term borrowing costs centered on “back of the envelope estimates” and that “precise costs won’t be determined until financing is finalized.”
Christie spokesman Brian Murray also weighed in yesterday evening, labeling all news reports that included the potential borrowing costs that were discussed during the legislative hearing as “sensational.”
“The cost to repair, renovate and make safe New Jersey’s aging and decaying State House is estimated to be about $300 million dollars. Period,” Murray said.
A complicated scheme
Assemblyman John Burzichelli (D-Gloucester) also pressed Scudder on the issue of the finance plan itself, which will see the EDA issue bonds to fund the repair work, and then effectively become the landlord of the State House while the bonds are being paid off using rent money provided through the annual state budget.
“Why this vehicle of leasing our State House to a state agency, and not simply borrow the money and make the case that this is a very worthy cause?” asked Burzichelli.
“We look at whatever our options are whenever we go to the market, with our underwriters (and) bond counsel, and we found this to be the most appropriate and least expensive way to go this time,” Scudder said in response.
Rijksen said later that the EDA has a “statutory authority to issue bonds” that was authorized before the 2008 constitutional amendment known as the “Lance amendment” took effect. He also cast the project as part of a broader redevelopment effort involving state buildings that’s currently underway in Trenton.
“EDA is integrally involved in Trenton’s redevelopment and they have the legal authority and the real estate and public finance expertise on staff to carry this project forward,” Rijksen said.
Unveiling the renovation project
Christiethe State House renovation project in late November, saying it would be the first in decades for a section of the building that houses the signature gold-leaf dome, its rotunda, and several executive-branch offices, including the governor’s office. This original part of the State House, located near the Delaware River on West State Street in Trenton, was built in 1792.
During anotherheld earlier this year, Scudder went over the building’s numerous hazardous conditions and code violations, pointing to posters that depicted poor smoke detection and fire escapes, inefficient heating and cooling systems, and old-fashioned windows held up only by a set of clips.
After yesterday’s hearing ended, Schaer said he understands “there is a cost to borrow money.”
“I don’t think anyone disputes that the (State House) needs to be addressed, there are some health hazards, there are some very real concerns,” Schaer said.
Questioning the process
But like Burzichelli, Schaer also questioned the process that’s being used to approve the funding of the renovations. Instead of getting the approval of lawmakers, the project was put through the eight-member State Capitol Joint Management Commission, a panel made up of representatives of the legislative- and executive-branch officials. Last week, the panel approved a resolution capping spending on the renovations at $300 million, but the resolution apparently does not cover any of the costs associated with borrowing.
Schaer suggested yesterday that the project should have more direct legislative oversight.
“I think legislative oversight is fundamental, required and necessary to ensure that governance and things like borrowing are done at the level they should be,” Schaer said. “We’re taking a microscope, and we’re taking it away from the situation. I think that’s bad.”
Lance, meanwhile, also took issue with the proposed lease arrangement involving the EDA as the governor and Legislature will effectively become the tenants of the EDA for decades.
“That, in and of itself, proves why doing this through this device is inappropriate,” Lance said in an interview with NJ Spotlight.
“That gimmick is inappropriate,” he said. “The State House is owned by the people of New Jersey.”