Treasury Quietly Tests Waters for Possible $750M Bond to Fund NJ Transit Equipment Purchases

John Reitmeyer | October 31, 2019 | Transportation, Budget
Few details available on blockbuster bond transaction, which may not require voter approval
Credit: Edwin J. Torres/ Governor's Office
The bonds would be used to fund the purchase of “various buses and/or rail rolling stock.”

Gov. Phil Murphy’s administration is exploring a potentially significant new bond sale to finance the purchase of new equipment for New Jersey Transit, the state’s beleaguered mass-transit agency.

The Department of Treasury issued a formal Request for Proposals, or RFP, earlier this month seeking responses from investment firms interested in handling a bond transaction that could be worth up to $750 million, according to the RFP.

The long-term bonds would be used to fund the purchase of “various buses and/or rail rolling stock,” according to the RFP, which lists January 2020 as the anticipated date for completing a potential transaction.

The Treasury documentation doesn’t provide a more detailed breakdown of how the bond funding could be used by NJ Transit, or say how exactly the bonds would be paid off. Nancy Snyder, a spokeswoman for NJ Transit, provided little additional information yesterday, saying the RFP is “exploratory in nature.”

“We are not committed to issuing any bonds at this time,” Snyder said.

Jennifer Sciortino, a spokeswoman for Treasury, also used the phrase “exploratory in nature” to describe her agency’s involvement in the effort to seek proposals from investment firms. “This is merely exploratory in nature right now given the fact that interest rates are very favorable at the moment and NJ Transit is a top priority for the administration,” she said.

Murphy, a first-term Democrat, has stressed the need to improve New Jersey’s mass-transit operations, and his administration has worked with lawmakers to boost the state budget’s operating subsidy for NJ Transit two years in row. The Murphy administration has also started to wean the transit agency off other resources — like funds from the New Jersey Turnpike Authority that have been used in recent years to the ease pressure on rider fares, which were increased on two separate occasions during former Republican Gov. Chris Christie’s tenure.

NJ Transit is still diverting capital funding

But NJ Transit is still relying on a significant diversion of capital dollars — which in theory should be used for long-term investments — to help fund day-to-day operations, a practice that was faulted in a major 2018 audit of the agency. NJ Transit also continues to operate without a dedicated source of revenue to sustain operations. Meanwhile, transportation advocates have also called on it to upgrade equipment, including by switching to a fleet of all-electric buses.

The bond proposal was posted earlier this month on Treasury’s Office of Public Finance website. It seeks ideas from investment firms for arranging what’s known as a “new money” bond issue that would be designed to raise cash to fund new purchases instead of refinancing existing debt.

“The goal of the Proposed Transaction is to provide approximately $750 million in bond financing for (NJ Transit) purchases of various buses and/or rail rolling stock,” according to the RFP.

Responses from interested firms were due to be returned to Treasury yesterday. And in addition to Treasury, the RFP indicates the state Economic Development Authority could also play a role in a potential bond sale. A spokeswoman for the EDA did not respond to a request for comment yesterday.

Using the EDA to help facilitate the borrowing issue could be a sign that the bonds would be sold without voters’ approval being sought. That’s because state courts have determined the EDA is not covered by a 2008 constitutional amendment that was intended to prevent such agencies from issuing bonds without voter approval given that the EDA’s authority to sell bonds was grandfathered by language in the amendment.

Bigger than recent state bond issues

A similar, three-agency financing arrangement involving Treasury, NJ Transit and the EDA was used last year to authorize a proposed $600 million bond issue that the Murphy administration put forward in a bid to jump-start the long-stalled replacement of the Portal Bridge, a key Northeast Corridor crossing located near Secaucus Junction. But that project remains sidelined due to the federal government’s reluctance to share  the cost of replacing the bridge, which is used by both NJ Transit and Amtrak.

At $750 million, the potential NJ Transit bond issue would significantly up the ante over the $500 million in new debt that voters approved last year to fund an expansion of county vocational-technical schools, as well as school security and drinking-water infrastructure improvements in schools across the state. Meanwhile, Murphy has also proposed putting another bond issue worth up to $500 million before voters next year to help fund replacement of lead-service lines across the state. He made that proposal in the wake of the summer’s drinking-water crisis in Newark, which has increased concerns about tainted drinking water throughout the state.

New Jersey remains one of the most indebted states in the nation even though its long-term bonded debt dropped slightly, to $45 billion, in Treasury’s latest official accounting, which was released earlier this year. New Jersey’s bonded debt ranks as the fourth highest among the 50 states when measured as a percentage of total gross domestic product, according to figures from Moody’s Investors Service. The state’s debt load is also the fourth highest when measured on a per-capita basis, according to Moody’s.

Follow this link to NJTV News story on new NJ Transit station planned for North Brunswick.