Obscure Provision Helps NJ Keep Federal Matching Funds for Transportation

Mark J. Magyar | July 13, 2010
With toll road authority capital expenditures found to count as part of state match, debate over gas-tax increase could change

As New Jersey policymakers consider a gas tax increase many say is essential to pay for the maintenance of the state’s highways, bridges and mass transit system, a little-known provision in federal transportation matching-funds legislation could lessen the urgency of the debate.

While transportation policy advocates would continue to push for a substantial hike in the gas tax, such as the 20-cent increase Assembly Transportation Committee Chairman John Wisniewski (D-Middlesex) has discussed, the provision would give Gov. Chris Christie and a legislature whose 120 members are up for election in 2011 the option of enacting a more modest interim Transportation Trust Fund (TTF) program without jeopardizing federal funds.

“That would change the whole equation,” Juliette Michaelson, senior planner with 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,” said when told about the provision.

No Need to Leave $1.6 Billion on the Table

The federal transportation financing law allows capital expenditures by toll road authorities to count as part of the state match, Nancy Singer, spokeswoman for the U.S. Highway Administration, confirmed in an interview. That means that whether or not the state fully funds the troubled TTF, it doesn’t need to leave $1.6 billion in federal matching funds on the table in 2012 — money that can be used for major projects like Access to the Region’s Core (ARC) tunnel under the Hudson River intended to double rail capacity between New Jersey and New York.

The New Jersey Turnpike Authority is in the midst of a massive 10-year capital campaign that spends more than $1.3 billion on capital projects in both 2011 and in 2012, more than $1.2 billion in 2013 and $800 million in 2014 before falling off to just over $500 million in 2015 and $330 million in 2016. These expenditures large enough to qualify as the lion’s share of New Jersey’s match for about $1.6 billion in annual federal transportation funding under the “Toll Credit Provisions” of the most recent federal transportation funding legislation passed in 2005.

Martin Robins, director emeritus of Rutgers University’s Alan M. Voorhees Transportation Center, noted that the toll-credit option, or the so-called “soft match,” was created specifically to give New Jersey another option in case the TTF, which usually provides the state match for New Jersey’s share of federal transportation aid, ran out of money — and the governor and legislature ran out of political will at the same time.

“Back in the 1990s, at the behest of Senator Frank Lautenberg and other New Jersey leaders, an obscure set of provisions was inserted to make capital expenditures by toll road authorities eligible to count as part of a state’s match,” Robins said. “This provision recognized that New Jersey was one of the first states to implement toll facilities and that tolls are another way for government to exact contributions from motorists to transportation financing, separate from raising the fuel tax. That’s the theory underlying it, and it’s not bogus,” Robins said. “It could be a lifesaver for us.”

That’s because the TTF is in fact projected to run out of money for new projects on July 1, 2011. As of that date, all dedicated gas and sales tax revenue and motor vehicle fines and fees for the next 31 years will go simply to pass off the debt service on past borrowing.

Gov. Christie has ruled out a gas tax hike or a tax or fee increase of any kind, saying that he intends to include funding for transportation capital programs as a regular line item in the FY2012 budget he will introduce next spring. He has already said New Jersey may not be able to afford a state transportation capital program at the $1.6 billion level (including both capital expenditures and debt service) included in this year’s budget.

Clearer Rules on Toll Credits

Robins warned in a 2004 paper, “The Crisis is State Transportation Finance: Lessons Learned From the New Jersey Experience,” that if New Jersey failed to renew the TTF, which was then — like today — in danger of running out of money for new programs, “New Jersey could surrender another $1.3 billion in federal transportation funding for failing to meet its matching share requirements.” But the toll credit language is now clearer, and the issue has been tested in the recent past, Robins noted.

Nancy Singer, the U.S. Highway Administration spokeswoman, forwarded a February 8, 2007, memo entitled “Tolling and Pricing Program” from Dwight Home, director of the department’s Office of Program Administration, explaining how the toll credit would be applied under the 2005 U.S. Safe, Accountable, Flexible, Efficient Transportation Act: A Legacy for Users, better known by its acronym, SAFETEA-LU.

“The toll credit provisions of the federal aid program were clarified in 2005 to make it clear that debt service and toll revenue does not count, but that capital construction programs do,” Singer explained. “Not all states can take advantage of it, but New Jersey, which has a lot of toll roads, is able to use it.”

In fact, New Jersey and Illinois have the most toll-road miles in the nation, according to the newsletter Toll Road News.

State Also Meets Secondary Requirement

The 2005 SAFETEA-LU legislation also imposed a secondary requirement for determination of “maintenance of effort” for the use of toll credits: State expenditures on transportation capital programs, not including toll authority expenditures, in any given year would have to exceed the average expenditures in the preceding three years.

Ironically, New Jersey’s more than 15 years of “borrow and spend” policies to finance the TTF works to its advantage in meeting this secondary requirement because states are allowed to count debt service as part of their annual expenditure, Singer confirmed. With every dime of dedicated revenue from gas and sales taxes and motor vehicle fees and fines already allocated to pay off TTF debt beginning July 1, 2011, any amount of new transportation capital spending by the state — even a modest amount included in the FY2012 budget — will automatically make that year’s state transportation capital expenditures exceed the average for the previous three years.

While the toll credit “soft match” option is well understood by transportation financing experts, including state Transportation Commissioner Jim Simpson, who served as Federal Transit Administrator during President George W. Bush’s second term, it is not as well known among some legislators and even transportation advocates.

One reason is that toll road authority capital expenditures rarely rise to the billion-dollar levels of the current New Jersey Turnpike Authority capital program, which was funded through toll increases approved by Christie’s predecessor, Gov. Jon Corzine. As recently as 2009, qualifying toll road capital expenditures barely topped the $325 million level, which would barely have provided a one-fifth match for that year’s $1.6 billion federal transportation capital program. By 2016, toll road capital expenditures again will drop to a similar level, Robins noted.

Robins cautioned that just because the state may not be in immediate danger of losing federal matching funds, Christie and Democratic legislative leaders shouldn’t enact a robust TTF.

“It would be an absolute and total catastrophe to fail to enact a long-term financing solution for the Transportation Trust Fund,” said Robins, a longtime advocate of increasing New Jersey’s 14.5-cent motor fuel tax, which is the fourth-lowest in the nation.

“Even at the current level of funding, our roads and bridges and mass transit network are barely being kept up, and we have a long-term commitment to provide $100 million a year in state funds for the ARC project,” he said. “A first-rate transportation system is critical to New Jersey’s economic future.”

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