Gov. Phil Murphy’s administration is moving ahead with a plan to help New Jersey Transit buy new trains and buses, using $500 million from an upcoming bond sale that sidesteps the need for a voter referendum.
The proposed debt issue won unanimous approval from the state Economic Development Authority’s board Tuesday during a vote held in Trenton, marking the first formal step in a process that will culminate with a planned public sale of tax-exempt bonds sometime next month.
A separate vote on the bond issue and an associated lease arrangement between the EDA and NJ Transit is on the agenda for Wednesday’s meeting of the mass-transit agency in Newark. In all, an estimated 600 buses and 17 train locomotives will be purchased using the bond proceeds, officials said.
The current framework of the bond sale does not call for it to go before New Jersey voters, a maneuver that hearkens back to an EDA bond sale during former Gov. Chris Christie’s tenure that raised $300 million for an ongoing renovation of the State House in Trenton.
While speaking to reporters after Tuesday’s EDA board meeting, Tim Sullivan, the agency’s chief executive officer, said it “is excited to help NJ Transit make progress.”
Concerns about environmental, fiscal impacts
But not everyone was happy. Jeff Tittel of the state Sierra Club suggested NJ Transit’s plan to buy “outdated” buses and locomotives would not help advance the state’s broader environmental goals.
And the proposed bond sale was also questioned by some on fiscal grounds, including Leonard Lance. The former state lawmaker and congressman a decade ago sponsored a state constitutional amendment that sought to rein in state borrowing that occurs without voter approval.
“If the EDA is expanding its purview, as it certainly did with the State House renovation, that is inconsistent with the purpose of my (constitutional) amendment,” Lance said in an interview.
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’s NJ Transit operating subsidy two years in row. His administration has also started to wean the transit agency off other resources — like funds from the New Jersey Turnpike Authority. They have been used in recent years to the ease pressure on rider fares, which were increased on two separate occasions during the tenure of Christie, a two-term Republican.
But NJ Transit has continued to face funding concerns, and lawmakers in the Senate have launched a select-committee investigation this year to learn more about NJ Transit’s fiscal and operational challenges. The group next meets Thursday.
Funds may also be used for certain capital projects
Several months ago, the administration foreshadowed the planned bond sale for NJ Transit equipment purchases in a formal request for proposals issued by the Department of Treasury.
Under financing terms that were reviewed by the EDA’s board in advance of Tuesday’s vote, the bonds will be paid off using lease payments provided by NJ Transit, which in turn is pledging revenue from the state Transportation Trust Fund (TTF). The repayment of the bonds can take no longer than 28 years, and the annual interest can be no higher than 6%, according to the EDA documents.
The bond proceeds will help fund the purchase of buses and locomotives that has already been authorized by NJ Transit’s board in prior votes, agency officials said. Funds from the bond sale may also be used to pay for other capital projects that “improve the customer experience,” agency officials said.
The financial plan makes sense because NJ Transit cannot issue debt on its own, and now is a good time to borrow money, officials said.
“Financing in this manner will allow NJ Transit to move forward as expeditiously as possible to address one of its most pressing needs while also enabling the state to take advantage of the currently favorable interest rates,” said NJ Transit spokeswoman Nancy Snyder.
Waiting to secure voter approval could take a full year, said Jennifer Sciortino, a spokeswoman for Treasury.
“The bonding is being pursued at this time because market conditions are very favorable and NJT is currently entering into contracts for the necessary equipment,” Sciortino said.
A familiar path
The EDA and NJ Transit entered into a similar leasing agreement last year to beef up the state’s commitment to the long-planned replacement of the Portal Bridge, a key Northeast Corridor rail span over the Hackensack River near Secaucus Junction. But those bonds, totaling some $600 million, have not been issued thanks to ongoing inaction at the federal level.
Sullivan on Tuesday pointed to other, similar financial transactions that the EDA has handled for NJ Transit, and said he is confident there will be enough funding coming from the Transportation Trust Fund — which is supported by the state gas tax — to cover the planned NJ Transit equipment purchases and the Portal Bridge replacement.
“I think it’s a sound transaction and we’re excited to help NJ Transit make progress on what they need to make progress on,” he said.
Sciortino also noted that the bonds would be issued next month in a public transaction, a key distinction compared to the State House renovation deal that occurred privately during Christie’s tenure. (Murphy, as a candidate in 2017, widely questioned that transaction, and several lawmakers sued unsuccessfully to nullify it.)
New Jersey is already one of the most indebted states in the nation, even with a slight drop in its long-term bonded debt to $45 billion, according to Treasury’s latest official accounting, released earlier this year.
New Jersey’s bonded debt is fourth highest among all states when measured as a percentage of gross domestic product and per capita, according to figures from Moody’s Investors Service. And at $45 billion, the state’s total debt also outstrips the annual budget for fiscal year 2020 of $38.7 billion.
Sidestepping voters, and legislators
By going through the EDA the Murphy administration avoids the state constitution’s general requirement that long-term debt issues totaling more than 1% of annual spending be approved by state voters. In addition, although Lance’s 2008 amendment sought to restrict such borrowing through state agencies, state courts have since determined the EDA’s bonding authority was not impacted by the amendment.
The finance plan for the NJ Transit equipment purchases will also bypass the state Legislature, which has clashed with Murphy on a number of fiscal issues throughout his tenure. The spokesmen for Assembly Speaker Craig Coughlin (D-Middlesex) and Senate President Steve Sweeney (D-Gloucester) declined to comment when asked about the bond issue Tuesday.
But Lance — a Republican known as a fiscal watchdog during his time in Trenton — raised a number of concerns Tuesday. He questioned whether any additional state appropriations could eventually be needed to backstop the bonds, and how long the equipment is expected to last.
“The years of bonded indebtedness should be no greater than the life of the rolling stock,” Lance said.
Regina Egea, president of the right-leaning think tank Garden State Initiative, also raised concerns and suggested state taxpayers will ultimately be liable if there is a default.
“The Governor has made improving NJ Transit’s performance a key goal of his Administration so it’s not surprising he has turned to the EDA for collaboration,” she said.