Digging a Deeper Hole: Failure to Fund Infrastructure Exacerbates Long-Term Fiscal Crisis

Pension gap, unfunded retiree health benefits, high debt and rising Medicaid bills make it hard for state to even begin to meet $70 billion infrastructure need

How bad is New Jersey’s fiscal prognosis?

Gov. Chris Christie just pushed off $396 million in property tax rebates.

The Legislature’s budget expert says revenues might come up $637 million short.

The pension gap is growing, even with Christie scrounging to add $600 million extra for pension payments.

The treasurer had to resort to a $250 million bond premium one-shot to pay for transportation.

No money is set aside to cover $59 billion in future retiree health benefits; the state put in $1.445 billion this year when it should have put in $4.917 billion to prevent the future cost from ramping up exponentially.

Furthermore, it’s an election year with Christie and all 120 members of the Democratic-controlled Legislature up for reelection. And Christie has Democrats on the fiscal ropes with his call for passage of a an income tax cut modeled on a plan originally proposed by Senate President Stephen Sweeney (D-Gloucester) that will cost $1.4 billion by 2016 and that most budget experts agree the state cannot afford.

So when Facing Our Future’s blue-ribbon task force of former Cabinet officers and budget experts issued a report yesterday saying that New Jersey needed to spend an additional $70 billion on transportation, electricity, and water infrastructure over the next 15 to 20 years, the response from Christie and state legislative leaders was a stony silence.

It’s not that the Christie administration and legislative leaders don’t know that their predecessors are right about the long-term consequences of infrastructure neglect: They know it.

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It’s just that the political costs of leveling with voters already worried about job security, flattened wages, and high taxes about how much more money they will need to shell out for infrastructure is a higher price than politicians are willing to pay:

  • The $1.5 billion shortfall in annual funding for highway, bridge and mass transit infrastructure identified by Facing Our Future is over and above the $1.6 billion a year the state is currently paying into the Transportation Trust Fund, and would undoubtedly require the state to double or triple the state’s 14.5-cent-a-gallon gas tax. New Jersey’s gas tax is the third-lowest in the country, but Christie has absolutely ruled out any tax increase for as long as he is governor.
  • The $15.7 billion needed to upgrade electricity transmission systems and pay for more solar energy, offshore wind, and new natural gas plants would have to come almost entirely out of the pockets of utility ratepayers already furious in particular at FirstEnergy Corp., the Akron-Ohio-based owner of Jersey Central Power & Light, for long delays in restoring power in the wake of superstorm Sandy.
  • Making the needed $36 billion to $40 billion in needed repairs to a water distribution system that loses 20 percent of its water supply to leaky pipes would force large increases in utility bills for both private and public water company customers. It could also force municipalities to raise taxes to fund any water utility improvements that municipal utilities cannot pass along to their customers.
  • Finally, the state budget is so financially strapped because of the need to add $600 million extra each year for pension payments through Fiscal Year 2018 that there has been no money available for pay-as-you-go infrastructure work. If Christie is reelected, the Transportation Trust Fund undoubtedly will be renewed again in 2016 by relying mostly on additional borrowing, even though New Jersey already ranks fourth in the nation in per capita government debt.
  • As former Cabinet officials and state budget experts familiar with the politics of the state budget process, the members of the Facing Our Future task force understand the reluctance of the Christie administration and legislative leaders to publicly discuss the fiscal implications of their latest report.

    But an ostrich-like approach to the state’s long-range fiscal problems won’t alter the reality, task force members warned. The state cannot afford to neglect its infrastructure any longer because the long-term costs will be even higher, they said.

    “There is no doubt that we will all pay more,” Sam Crane, a former state treasurer and Senate Democratic budget aide, said yesterday during a conference call press briefing. “We will pay more no matter what. We’re either going to pay a whole lot down the road because of what we deferred or we can pay a little bit more as we go.”

    Deferring needed infrastructure spending, however, carries a steep economic cost because businesses and individuals will leave New Jersey if the state’s infrastructure continues to crumble, Crane said – a warning underscored by the report’s title, “Infrastructure Investment Is Necessary For Economic Success.”

    Crane noted that New Jersey is a corridor state, that transportation of goods is a major state industry, and that commuters rely on mass transit, bridges, tunnels, and highways to commute to jobs in New York City, Philadelphia, and within New Jersey.

    Crane, Ingrid Reed, the former director of the New Jersey Project at Rutgers University’s Eagleton Institute of Politics, and Marc Pfeiffer, former deputy director of the state Department of Community Affairs’ Division of Local Government Services, all emphasized the need for New Jersey state government to do a better job in its long-term planning for infrastructure projects:

  • The state’s last transportation capital master plan was completed 10 years ago and desperately needs to be updated, particularly in the wake of the cancellation of the Access to the Region’s Core (ARC) passenger rail tunnel project under the Hudson River by Christie in 2011, Crane noted.
  • The Board of Public Utilities needs to engage with the major utilities in long-range planning to address the state’s power needs, rather than merely responding on an ad hoc basis to utility rate requests, Pfeiffer asserted.
  • And the BPU has not undertaken the complex study that is needed of the state’s water distribution system, which will be a particularly difficult assessment because the system is a patchwork of larger private utilities and a wide range of municipal utilities ranging from Newark’s water company to a slew of “mom and pop” operations in smaller municipalities, Reed noted.

    With hundreds of millions of federal dollars coming into New Jersey in the wake of Superstorm Sandy, the state’s failure to do adequate long-range planning for its transportation, electricity, and water infrastructure represents a lost opportunity, Reed said.

    “If there had been a table of needs or priorities for capital projects that needed to be addressed, we would be in better position to spend Sandy money to address needs that we already knew we faced,” Reed said. “We would be more efficient if we had a plan in place” because Sandy money could then be steered to priority projects.

    “As terrible as as that storm was and as much as it hurt, it provides us an opportunity to engage the public” on the state’s infrastructure needs, Crane said. “A lot of the public was standing in their driveways — no water, no power, no trains, and closed roads.” For the first time, the public understood what it means when infrastructure totally breaks down. “Sandy was a teaching moment,” Crane said, and the Facing Our Future group plans to take full advantage of it to make its case.

    Crane noted that other states are fundamentally rethinking how they fund infrastructure projects. He singled out Virginia’s Republican governor, Robert McDonnell, for replacing his state’s motor fuels tax with a sales tax that will grow over time as gas prices rise.

    “Here’s a guy noted nationally as a conservative who’s taken a forward-looking view at how we should fund transportation,” Crane said of McDonnell.

    McDonnell’s 2011 transportation package enabled Virginia to jumpstart 900 transportation projects and to put more new funding into highway, bridge, and mass transit projects than any year since 1986 — which was, ironically, the year that New Jersey Gov. Thomas Kean launched the New Jersey Transportation Trust Fund to provide a dedicated source of funding for transportation capital projects.

    New Jersey has not fundamentally changed its transportation governance structure since the creation of New Jersey Transit out of bankrupt and faltering rail and bus lines in 1979 and the development of the Transportation Trust Fund Authority seven years later. The time has come, Crane said, to rethink that basic structure.

    The Facing Our Future task force recommended that the state Department of Transportation, NJ Transit, the Transportation Trust Fund Authority, the New Jersey Turnpike Authority (which runs the New Jersey Turnpike and Garden State Parkway), the South Jersey Transportation Authority (which runs the Atlantic City Expressway), and other transportation agencies be merged into a new “Public Benefits Corporation.”

    “Unlike electricity and water, transportation is not seen as a service by the citizens and businesses that use it,” Crane said. “What we’re talking about is creating a different model” under which transportation programs, costs, and fees would have to be justified through a very public process, similar to the way that hearings are held on electricity and water rates.

    Like utilities regulated by the BPU, transportation should be regulated by a public board, rather than by the governor and Legislature through the budget process, thereby insulating transportation capital funding from raids by governors or legislative leaders who need to find revenue to make up for budget shortfalls, the Facing Our Future task force said.

    Editor’s note: The original version of this story incorrectly identified the parent company of JCP&L. That error has been corrected.