Little Agreement on How to Finance Transportation Trust Fund Beyond 2011

Mark J. Magyar | July 8, 2010
While Gov. Christie and most Republicans rule out tax increases, others see no alternative for funding transportation projects that keep NJ competitive

The Christie administration’s plan to refinance existing Transportation Trust Fund debt to generate $800 million for new spending will get the troubled fund through the current budget year, but Gov. Chris Christie and Democratic legislative leaders remain far apart on a long-term solution on how to fund highway, bridge and mass transit construction and repairs.

Christie is opposed to any increase in the gas tax or any other tax or fee to restore the Transportation Trust Fund (TTF), which will run out of money for new projects on July 1, 2011, and Republican legislators, who hope to gain seats in the November 2011 midterm elections, generally support his anti-tax stand.

The Access to the Region's Core (ARC) rail tunnel to New York would be the first new rail tunnel built under the Hudson River in nearly 100 years.

“The climate right now for any taxes, it will come back at you like cherry pie in the face,” said Assemblyman Joseph Malone (R-Burlington), the ranking Republican on the Assembly Budget Committee. “People are not going to stand for it.”

But Assemblyman John Wisniewski (D-Middlesex), who chairs both the Assembly Transportation Committee and the Democratic State Committee, warned: “We have to face reality. When it comes to our transportation infrastructure, there are no silver bullets.”

Administration Evaluating Long-Term Plan

Christie has said he would prefer to fund transportation capital projects on a “pay-as-you-go” basis as part of the regular budget process, which gives him an effective deadline of next February or March, when he will deliver his next budget address, to find a long-term solution. “The decision on how to pay for TTF beyond July 2011 will be part of the next budget,” said Andy Pratt, spokesman for the state Department of the Treasury.

Pratt expanded yesterday on his comments from Tuesday to explain that the Transportation Trust Fund Authority will refinance a total of $1.4 billion in existing bonds in two sales, the first in October and the second in January or February, in order to raise $800 million for new TTF spending.

“This has been done for a number of years, where we restructure the debt to get a maximum number of projects completed,” he said. “This is the plan for 2011, but not the long-term plan for dealing with the TTF.”

As part of his effort to develop a long-term plan, Christie has invited transportation experts to a series of “listening sessions” with the governor’s office on the TTF this summer, Kate Slavin, executive director of the Tri-State Transportation Campaign, said yesterday.

Christie is likely to find a skeptical audience at those listening sessions — even among Republicans — for his belief that New Jersey may not be able to afford a highway, bridge and mass transit capital program as large as the current $1.6 billion TTF and $1.6 billion federal match.

“Once we get done tackling the [property tax] cap and toolbox, we will have to seriously address this by the end of the year,” Malone acknowledged. “It is a catastrophically difficult issue. We really cannot allow the infrastructure to deteriorate. Even though they spent $1.2 billion to $1.5 billion [a year in state TTF revenue], it is deteriorating faster than we can spend our money.”

NJ Roads Already Among Nation’s Worst

Juliette Michaelson, senior planner for the Regional Plan Association and principal author of the March 2010 report “Spiral of Debt: The Unsustainable Structure of New Jersey’s Transportation Trust Fund,” noted that the quality of upkeep of New Jersey’s roads and bridges ranked near the bottom on a recent Federal Highway Administration study.

Slavin said that drivers are already paying $600 a year in unnecessary repairs because of the poor quality of New Jersey’s roads. “What we have is a transportation funding crisis, and we need bold leadership, not stopgap measures. What we want is a responsible and long-term funding strategy that provides new revenues for roads, railroads and bus systems.

“If we fail to do so,” she said, “the implications are unsafe bridges, roads that are in poor condition, higher transit fares, longer commutes, and more dangerous roads for pedestrians. New York City failed to invest in its subway system in the 1970s ad 1980s, and it had a severe effect on the city’s competitiveness and quality of life.”

Wisniewski noted that transportation experts believe the state needs to raise $1.2 billion to $1.5 billion through the TTF, which is then matched by federal funds on a dollar-for-dollar basis, “just to keep our transportation system in a state of good repair, just to keep it from falling apart, to keep the potholes from getting bigger and the bridges from falling down.”

He said “one could make an argument in tough fiscal times that we really
shouldn’t do major new projects, but we can’t put off the bridge re-decking and highway resurfacing and the maintenance of our mass transit system and the roads that are non-tolled.”

No Money for New Expenditures

The current TTF, which is funded by dedicated gas and sales taxes and motor vehicle fines and fees, is providing the full $1.6 billion match for the $1.6 billion in federal transportation capital funds, but all of that money is coming out of borrowing against future revenues. In fact, every dime of that dedicated revenue for the next 31 years is now allocated to pay for projects that will be completed by June 30, 2011. The fund is not technically “bankrupt,” but it is completely out of money for any new expenditures as of next July 1.

The past 15 years of “borrow and spend” financing have put New Jersey at the bottom of all 50 states in the percentage of road, bridge and mass transit capital programs financed through debt, the Regional Plan Association’s Michaelson noted.

With borrowing no longer available as a long-term solution, Christie and Democratic legislative leaders are down to two choices: earmark current state revenues through the budget to fund transportation capital projects and draw down federal matching funds, which is Christie’s goal; or raise a new dedicated source of revenue, most likely by hiking the gas tax, as Democratic legislative leaders and even some Republicans believe is inevitable.

Underlying the choice are key philosophical assumptions: Christie’s belief that taxes in New Jersey are too high and are driving people out of state, and the traditional Democratic belief that public investment in jobs and infrastructure pays off in better economic competitiveness and prosperity.

“What gets lost in the debate over whether government should be providing jobs for people when unemployment is high is that the public sector supports the private sector,” Wisniewski said. “They are inextricably linked. We have the third-largest waterborne port and one of the largest air cargo facilities at Newark Airport. We have a world-class transportation system we have invested in for 40 years, and when you stop investing, you lose jobs and companies.

“If you didn’t have trucks leaving the port going to Exit 8A on the Turnpike,” he continued, “you would lose not only truck drivers, but logistics firms and warehouses and then the companies that rely upon them. This is not just about creating public works jobs that are gone at the end of four years. If there is a bottleneck in getting goods shipped out of the port, those companies will go to Halifax or Newport News, and they won’t come back. And that would hurt us a lot more than any property tax cap or toolbox this governor or legislature can come up with.”

Gas Tax Increase: Inevitable or a Non-starter?

If New Jersey needs new revenue to fund transportation projects, the state’s gas tax, which is the fourth-lowest in the nation at 14.5 cents, is the most likely source, with proposals on the table ranging from an 8-cent increase that would provide a short-term solution for about five years to a 20-cent increase that could be leveraged to provide a permanent source of funding. Approving any sort of gas tax increase during the spring of 2011 with both houses of the legislature up for election in the fall will be a difficult sell, especially with Christie most likely threatening a veto to keep his “no-new-taxes” pledge.

The only way that new revenue will not be needed is if the state’s economy and revenues rebound more quickly than the 2014 to 2017 window projected by most economists. Current state revenues are down more than $4 billion from FY2006 even after the expired millionaire’s income tax surcharge is subtracted, and a rebound in projected revenues by mid-winter, when Christie has to prepare his budget address, could give him the opportunity to try to incorporate transportation capital funding within the FY2012 budget.

But with $600 million in federal stimulus funds scheduled to disappear next year and as much as $3 billion a year needed to fund the state’s depleted pension system, it would take a “New Jersey Miracle” of major proportions to enable Christie to find enough money within the budget to match the $1.6 billion in federal transportation funds drawn down by the state each of the last five years. And Democrats will not let Christie off the hook if he leaves federal dollars on the table that could fund major projects like the new rail tunnel under the Hudson River or the extension of light rail lines through Gloucester and Bergen counties.

“For every dollar you cut on the state side, you lose a dollar on the federal side, so it’s a two-for-one loss,” Wisniewski noted. “We need to go into this eyes wide open, and recognize that any cuts in the size of our TTF program will result in a loss of federal dollars.”

And as with the state of repair of its roads and bridges, New Jersey already ranks dead last in return on federal dollars.

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