Despite his promise to increase pay-as-you-go financing for the Transportation Trust Fund, Gov. Chris Christie has relied so heavily on debt for four years that the program will run out of borrowing capacity a year early, leaving the Christie administration without the funding it needs to pay for highway, bridge, and mass transit construction fifteen months from now.
Christie, who complained during his budget speech about the rising cost of debt payments, not only increased transportation debt by $1 billion more than expected during his first four budgets, but also borrowed money at above-market interest rates in order to generate an extra $250 million in up-front bond premium payments to replace New Jersey Turnpike toll money he used to balance his budget.
“The bottom line is that New Jersey’s transportation system is broken, Gov. Christie has once again failed to make good on his promise to fund transportation with more cash and less debt, and there is not enough money in the system to pay for transportation projects next year,” said Janna Chernetz, New Jersey Advocate for the Tri-State Transportation Campaign.”
“While this is certainly not good news in terms of the state’s mounting debt, it also does not come as a shock,” she said. “We never believed he would put in the pay-as-you-go money he promised. Christie’s entire five-year, $8 billion plan was financed using debt and the spoils from the canceled ARC Tunnel, which will run out in 2016. He won’t raise the gas tax, but he can’t just keep borrowing. What’s next?”
Chernetz and transportation finance experts have been predicting for a month that the Christie administration had been borrowing at such a heavy rate that it would not have enough debt capacity left to complete the $8 billion program of transportation infrastructure improvements that is considered critical to the state’s economic growth.
Right on the Money
But it was not until this week that Treasurer Andrew Sidamon-Eristoff acknowledged that they were right in response to questions at a pair of Senate and Assembly Budget Committee hearings.
The Christie administration’s transfer of $972 million in New Jersey Turnpike Authority toll money earmarked for TTF into the general fund from FY2013 to FY2015, coupled with the failure to provide $447 million in promised pay-as-you-go funding out of the state budget, forced the state to rely almost entirely on debt to finance transportation capital projects over the past four years.
The Christie administration refinanced transportation bonds at above-market interest rates to generate $250 million in upfront bond premium payments to pay for the Transportation Trust Fund in FY2014, but the only way it could come up with enough money to pay for highway, bridge, and transit construction in the FY2015 budget was to use an additional $324 million in debt capacity that was supposed to be used in FY2016.
With the Turnpike toll money expected to be used again next year to help balance the budget, no money left over in the general fund for pay-as-you-go financing, and much of its FY2016 borrowing capacity already used up, the Transportation Trust Fund will be at least $800 million short next year, transportation finance experts projected.
In effect, the five-year, $8 billion plan for the Transportation Trust Fund that Christie cobbled together in January 2011 — a plan he funded by shifting $3.3 billion in Port Authority and Turnpike toll revenue originally earmarked for the Access to the Region’s Core (ARC) rail passenger tunnel project he had cancelled three months earlier — is going to run out of money in just over four years.
“We’re in the fourth year of our five-year authorization for the Transportation Trust Fund,” Sidamon-Eristoff explained at a Senate Budget Committee hearing Tuesday. “As you know, next year we will not be able to avail ourselves of the New Jersey Turnpike money because it will be used again for New Jersey Transit. So we have $160 million of cash on hand and we had to do an accelerated draw of $324 million against our bonding authority for next year.”
While the state still has $368 million in Port Authority money for one more year, “the practical consequence is that we will probably be in a position to seek legislative cooperation in reauthorizing the Transportation Trust Fund earlier next year — probably about this time or earlier — because we will have carry-forward bonding authority,” the treasurer said.
Senate Budget Committee Chairman Paul Sarlo (D-Bergen) pointedly reminded Sidamon Eristoff that “we all supported this five-year plan relying on the promise that there would less borrowing and more pay-as-you-go. Are there any pay-as-you-go funds in this year’s budget?” When Sidamon-Eristoff hedged, Sarlo shook him off. “I know the answer,” Sarlo said.
Christie has relied more heavily on debt to fund the Transportation Trust Fund than any governor in the three decades since Republican Gov. Thomas H. Kean launched the program. Overreliance on debt creates problems not only for the Transportation Trust Fund, but also for the state’s taxpayers, who end up paying more for debt service than for actual transportation construction.
“One of the major issues with reliance on debt to fund the capital program is that it perpetuates a cycle of increasing debt service burden,” the nonpartisan Office of Legislative Services wrote in a memo to Assembly Budget Committee Chairman Gary Schaer (D-Passaic) that he read during yesterday’s budget hearing. “The debt service needs of the Transportation Trust Fund have grown from $895 million in FY 2011 to over $1.16 billion for FY 2014.
“Each year that the program is funded solely from debt, the debt-service burden for the following year is approximately $75 million higher, and as interest rates increase the burden will grow even greater. The net result is that the Transportation Trust Fund is being funded each year at a higher level, but the entire net is dedicated to debt service rather than actual project funding,” the OLS memo noted.
Sidamon-Eristoff yesterday blamed budget constraints caused by the need to fund soaring pension and retiree health-benefit costs over the past several years for the administration’s failure to provide the promised pay-as-you-go funding for the Transportation Trust Fund out of general revenues and out of Turnpike toll revenues originally earmarked for the cancelled ARC Tunnel.
“As a result of our not having the flexibility to do pay-go, we will use our carry-forward authorization, and we will be coming to the Legislature six months earlier to seek authorization for the next four- or five-year capital plan,” Sidamon Eristoff told the Assembly Budget Committee. “We have a lot to do over the summer.”
For Christie, finding a way to provide $2 billion to $3 billion in pay-as-you-go financing for the next Transportation Trust Fund will not be easy:
Whatever Christie and Sidamon-Eristoff come up with, Democratic legislative leaders are going to demand better guarantees than they received in 2011, when Christie promised to put more than $4 billion in pay-as-you-go funding into the current Transportation Trust Fund.
“This governor promised a new way of budgeting that would be more responsible than in the past,” Schaer noted. “It seems to me we have been kicking the can down the road for the past 20 years, and this can keeps getting heavier and harder to kick. We are driving 75 miles an hour and heading directly for a brick wall. The question fundamentally is ‘Where is this whole enterprise of state going?’”
Schaer was irritated that Sidamon-Eristoff could not provide him with an answer on how much money the state had borrowed for the Transportation Trust Fund.
That’s just one of the questions that NJ Spotlight has been asking the Treasury Department, the Department of Transportation, and the governor’s office repeatedly since March 2.
The fact that the Christie administration was going to run out of borrowing capacity has been clear to transportation advocates for months. The only question was whether the carry-forward money Sidamon-Eristoff was authorized to borrow in advance from the FY2016 TTF debt limit would be enough to get him through FY2015.
Chernetz, the Tristate Transportation Campaign analyst, reported on February 28 — just three days after Christie’s FY2015 budget was released — that the state was going to run out of borrowing capacity and would not be able to provide the full $8 million transportation capital program Christie had promised by the end of FY2016.
Plugging a Hole
With the planned FY15 pay-as-you-go funding allocation going “to plug part of the general fund deficit,” Chernetz noted, “it is expected that Gov. Christie will look for more bonding to pay for transportation projects but where that bonding authority will come from remains unknown, especially, according to the Transportation Trust Fund Authority, since it appears the TTF does not have enough bonding authority to take out more debt.
“Under current statutes, the TTFA ‘allows up to 30 percent of the Transportation Program Bonds that are permitted to be issued in a given year to be issued instead in a preceding fiscal year.’ This means that TTFA would only be able to bond $1.023 billion in this fiscal year leaving a $300 million gap in this year’s transportation program, while at the same time putting additional pressure on funding next year’s plan,” Chernetz concluded.
Transportation finance experts consulted by New Jersey Spotlight confirmed the validity of Chernetz’s analysis, which was based on the $3.458 billion cap on debt issuance by the Transportation Trust Fund Authority set in the enabling legislation: $1.247 billion in FY2013, $849.2 million in FY2014, $735.3 million in FY2015 and $626.8 million in FY2016.
The decreasing borrowing limits set in the TTF bill reflected the assumption that Christie would keep his promise to increase pay-as-you-go funding each year. But the governor eliminated pay-as-you-go funding as a result of budget constraints in FY2013, and three years of revenue shortfalls that forced midyear budget cuts eliminated any possibility that the TTF pay-as-you-go funding would be restored.
Christie signaled how he planned to get through FY2015 during his regular monthly radio call-in show on 101.5-FM on February 26, the night after his budget speech: He does not feel obligated to allocate the full $1.6 billion. Asked by a caller how much the Transportation Trust Fund would borrow, Christie replied, “That’s really a floating number depending upon which projects get done in the current fiscal year and which projects hit in the next fiscal year, but we’ll certainly be giving that information as we get more exact on it as we get into the spring season for doing construction.”
That same day, OLS reported to Schaer in a memo he cited during the hearing that “on a cash-accounting basis, the Transportation Trust Fund plans to utilize a large amount of its revolving cash balance, $520 million out of its $670 million, in order to cover TTF expenses without exceeding its statutory bond limit” for FY 2015. That decision, however, wiped out TTF’s cash cushion for FY2016.
NJ Spotlight submitted detailed questions to the Treasury Department and other state agencies more than a month ago asking whether the state was in danger of exceeding its debt limit for the Transportation Trust Fund in FY2015 or FY2016, and asking specifically for comment on Chernetz’s analysis.
“We fully intend to spend the funding we committed in each fiscal year of the plan,” Treasury spokesman Christopher Santarelli wrote in response. “As you may know, not all of the commitments for a particular fiscal year are spent in that fiscal year.”
Treasury press officers asked several times for additional time to get answers to detailed questions. Yesterday, Joseph Perone, the new Treasury communications director, said Santarelli’s response would be it. “You’re just asking the same questions in different ways,” Perone said.
Sidamon-Eristoff shook his head at an attempted followup question Tuesday and dismissed an attempted question at a distance of ten paces yesterday with a brusque “No comment.”