Amid a host of budget problems New Jersey faces, one of the biggest has yet to be resolved: the state of the Transportation Trust Fund.
As of next July, the fund — which is supported primarily through the state gas tax — will have only enough money to pay off existing long-term debt. That would leave nothing for expanding, fixing and maintaining the roads, bridges and tunnels that make New Jersey the artery of the Northeast — or even to match federal dollars set aside for major projects.
Gov. Chris Christie is offering at least a partial solution to this dire situation, as Christie’s office disclosed yesterday that the governor will seek to refinance New Jersey’s outstanding long-term transportation debt in October to borrow $800 million and get the fund through one more year. But this still would not be enough to fully match expected federal funds of $1.6 billion in 2012 and could thus mean a forgoing of some scheduled transportation investments.
“We will go out with a new bond sale in October,” Andy Pratt, spokesman for the New Jersey Department of the Treasury, said in an interview with NJSpotlight.com yesterday. “We will refinance some of our oldest and most expensive debt, and use it to fund the most important projects we need to do over the next budget year. Some of the refinancing could be federally subsidized Build America bonds, which are subsidized 35 percent by the federal government. How much money is available for new projects will depend on interest rates at the time.”
The Democrats in the state Legislature had been expected to propose an increase in the state gas tax to at least partially fill the hole in transportation funding and provide a more permanent source of revenues going forward. It’s not clear how they will react to the Governor’s new refinancing proposal.
Years of Borrowing and Refinancing
The crisis gripping the Transportation Trust Fund (TTF) can pretty much be summed up as follows. As of July 1, 2011, as a consequence of 15 years of borrowing and refinancing under both Democratic and Republican governors and legislatures, every penny of the hundreds of millions of dollars in gas and petroleum taxes, sales taxes and motor vehicle fees dedicated toward the fund would go simply to pay off past debt, leaving no money for new projects.
Christie’s plan would provide less than $800 million for new projects in fiscal year 2012, which would mean that the state would draw down less than $800 million in matching federal funds, rather than the $1.6 billion received this year.
But Christie has said previously that the state may not be able to afford as large a transportation capital program as it has in the past, and he has said repeatedly that New Jersey should return the fund to a “pay as you go” program funding new transportation construction projects out of the existing budget.
Democratic leaders such as Senate President Stephen Sweeney and Assembly Transportation Committee Chairman John Wisniewski (Middlesex) believe it is impossible to adequately fund the transportation capital program New Jersey needs without raising the state’s gas tax, which is the fourth-lowest in the nation. But the governor is adamantly opposed to raising the gas tax or any other tax or fee to fund transportation projects or any other program.
Christie’s evident willingness to accept a combined federal-state transportation capital program of less than $1.6 billion next year — more than 50 percent less than the $3.2 billion in federal-state spending authorized in this year’s budget – seems likely to set him on a collision course with Senate President Stephen Sweeney and other Democratic leaders who have said an increase in the gas tax is inevitable to restore the TTF.
Sweeney is the business agent for an Ironworkers Union local in South Jersey, and with unemployment in the building trades already running at 40 percent or higher, he is unlikely to swallow a sharply reduced TTF program that will further drive up that jobless rate without a fight. But Christie and Sweeney already have reached improbable agreement on plans to curtail unionized public sector employee benefits, on a budget that slashed property tax rebates and state aid to schools and municipalities, and on a modified 2 percent cap on annual property tax increases.
Democrats in a Corner
With his plan to refinance TTF debt, Christie would once again back the Democratic legislative majority into a difficult political corner. It would be hard to ask the 25-member Democratic Senate majority and 49-member Assembly delegation that is up for election in November 2011 to vote for a large gas tax increase next spring knowing that Christie would immediately veto it, and that their Republican opponents would use the hike as the centerpiece of their campaign to take control of the legislature.
Christie has criticized the TTF refinancing policies of previous administrations that built up debt by extending the repayment schedule on TTF bonds from the original 10 years to 21 years, and, most recently to 31 years,. But the short-term solution would buy another year for state revenues to rebound from their $4 billion drop, and if they did, Christie could implement his plan to use some of the increased revenue to fund transportation construction projects on a pay-as-you-go basis through the regular budget process.
While the Christie plan would provide legislators from both parties a reprieve from voting for new taxes in an election year, the debate over how to restore the fund still promises to sharply delineate the differences in philosophy between the two parties, much as the disagreement over whether to extend the income tax surcharge on millionaires did this year.
This year’s $3.2 billion federal-state transportation capital program not only pays the full freight for expanding and repairing the highways, bridges, rail lines and bus networks that are crucial to New Jersey’s economic competitiveness, but also serves as a major source of public works funding that provides tens of thousands of jobs in a state that does not expect to regain all of the jobs lost in the recession until at least 2014 and possibly as late as 2017. Strong business-labor coalitions like the New Jersey Alliance for Action and the New Jersey Society for Economic and Environmental Development reflect the shared view of most New Jersey industry and labor leaders that a robust TTF is critical.
Over the next decade, the New Jersey Department of Transportation has estimated, the state will need to spend $34 billion on transportation capital projects ranging from new rail service to new buses to bridge and highway repairs, of which $18 billion in new money needs to be raised through new TTF revenues. Included are such high-profile economic development projects as the Access to the Region’s Core (ARC) train tunnel under the Hudson River designed to double NJ Transit passenger capacity to New York; the PATCO extension from Philadelphia to the fast-growing Gloucester County suburbs; replacement of the 3.5-mile Pulaski Skyway between Newark and Jersey City and the NJ Transit/Amtrak Portal Bridge, both of which span the Hackensack River; further extension of the Hudson-Bergen light rail line throughout Bergen County, and new express bus service in Newark.
“Restoring the Transportation Trust Fund is one of the most important things we can do as a state to make ourselves competitive and bring back the jobs we’ve lost in this recession,” said Charles Wowkanech, president of the New Jersey State AFL-CIO. “New Jersey is a transportation hub, and if we don’t protect the competitiveness of our port, airport, and extensive mass transit and highway networks, we will not be able to retain and attract the high-paying jobs in pharmaceutical, chemical, high-tech and other cutting-edge industries that make this state go.”
Crunching the Gas Tax Numbers
Before the Christie administration’s disclosure of its refinancing plan, the assumption on State Street was that the battle over restoring the TTF would be waged in the Legislature over whether – and by how much – to increase the state’s gas tax, and whether Christie would break his no-new-tax pledge to reluctantly accept it.
Even Republicans such as Senator Sean Kean (Monmouth), who serves on the Senate Transportation Committee, had conceded that Christie’s insistence on restoring the TTF without some sort of increase in the gas tax would be difficult to achieve.
The problem for tax-averse lawmakers is that after years of putting off the difficult decisions, it would take more than a small gas tax increase to provide a long-term solution and return the fund to a pay-as-you-go program.
Experts like Martin Robins at Rutgers University’s Alan M. Voorhees Transportation Policy Institute point out that New Jersey’s 14.5-cent gasoline tax (made up of a 10.5-cent gas tax at the pump and a 4-cent petroleum products tax) is the fourth-lowest in the country. It is far below New York State’s 44.6 cents per gallon, which is the highest in the nation, Pennsylvania’s 34.3-cent tax and even Delaware’s 23.0-cent tax, which is below the national average.
A relatively small six-cent increase in the gas tax to bring New Jersey to 20.5 cents a gallon would raise an additional $300 million a year, and by borrowing against that money for the next 31 years, the state could raise enough bond money to fund transportation projects for the next several years. But at the end of three or four years, the state once again would be faced with a TTF running on empty and no money for new projects.
Assemblyman Wisniewski estimated it would take about $1 billion a year to provide sufficient long-term funding to put the TTF back on the pay-as-you-go basis envisioned by Gov. Thomas Kean and the Democratic legislative leaders who created it. Raising $1 billion would require a 20-cent gas tax increase that would put New Jersey’s gas tax roughly on a par with Pennsylvania’s but still below New York’s. Assemblyman Joseph Cryan, the state Democratic chairman, has introduced legislation to provide for an 8-cent increase as a shorter term option.
The Christie administration acknowledges that New Jersey’s gas tax is relatively low, but questions whether the state’s overall tax burden on motorists – including gas taxes, motor vehicle fees, tolls, insurance surcharges on drivers with tickets, and traffic tickets themselves – is indeed lower than most other states. In any case, Christie defeated Democratic incumbent Jon Corzine by running on an anti-tax, anti-government spending platform, and he has absolutely ruled out considering any increase in any tax, arguing that New Jerseyans pay among the highest taxes in the country and that no tax should be raised.
Christie, whose battle with the state’s public employee unions have made him a darling of the Republican right nationally, cannot accept a gas tax increase of any size without being attacked by conservative rival Steve Lonegan and national conservative commentators for breaking his “no new tax” pledge.
For that reason alone, Democratic leaders like Sweeney — who is most widely mentioned as the front-runner to challenge Christie in the 2013 gubernatorial race — would love to force Christie to swallow a gas tax hike. But that battle will wait until after the 2011 midterm legislative elections if Christie has his way.
Fund Created in Era of Bipartisanship
On one thing, however, Republicans and Democrats do agree: There is plenty of blame to go around for the Transportation Trust Fund’s current near-bankrupt status. “It was never supposed to come to this,” acknowledged Wisniewski, whose transportation panel will be the first battleground in any debate over new taxes to fund TTF.
The TTF was created 25 years ago in a political era that seems remarkable today for its bipartisanship. Ray Pocino, long-time New Jersey Laborers Union president, recalled how Republican Gov. Kean called in the state’s labor unions right after taking office to enlist their support in finding a permanent source of funding for transportation projects. “Kean said, ‘I know you didn’t back me, but that’s over. We have to work together for the good of the state,’” Pocino said.
Kean worked with a Democratic-controlled Senate and Assembly, and with a coalition of labor unions and business groups, to pass a gasoline tax increase in order to create a fund to pay for capital projects on a pay-as-you-go basis. But since the tax revolt that followed Democratic Governor Jim Florio’s $2.8 billion tax package in 1990, tax increases have been regarded as the deadly “third rail” of New Jersey politics, and governors and legislative leaders from both parties have chosen to borrow and refinance, rather than raise New Jersey’s gas tax or provide some other revenue source sufficient to replenish the TTF.
“Over the past 25 years, we have bought ourselves major transportation improvements – road widenings, interchange redesigns, new rail lines and countless other projects – without raising the money necessary to pay for them,” the respected Regional Plan Association concluded in a March report entitled “Spiral of Debt: The Unsustainable Structure of New Jersey’s Transportation Trust Fund.”
“Instead, we’ve borrowed money. We have borrowed – and we continue to borrow – so much money that nearly every dollar we raise in taxes for transportation projects from the gas tax and other taxes, almost $900 million a year, is instead going to pay off interest and principal on bonds issued years ago,” the RPA noted.
The last borrow-and-spend decision came in March 2006. Two months after taking office, Democrat Gov. Corzine and Democratic legislative leaders agreed on a plan to refinance TTF debt from 21 years to 31 years and to use the new borrowing to provide $1.6 billion a year in state matching funds for new transportation projects from FY 2007 through FY 2011. They knew that as of July 1, 2011, every penny previously dedicated to the fund would go simply to pay off past debt. But they were not worried because they fully expected to vote to raise the gas tax after Corzine’s reelection.
Christie’s victory killed that tacit understanding.