Murphy’s Plan for NJ Transit: Where the Money’s Going to Come From

John Reitmeyer | March 2, 2020 | Budget, Transportation
Governor’s plan for boosting the agency’s funding relies on continued diversions from Turnpike Authority and Clean Energy Fund
Credit: Edwin J. Torres/ Governor's Office
Gov. Phil Murphy laid out his approach to boosting NJ Transit funding in his budget proposal, delivered on Feb. 25, 2020.

Amid New Jersey Transit’s continuing struggles with delays and major service disruptions, Gov. Phil Murphy’s latest state budget proposal calls for increasing direct support to it by more than $130 million.

The additional funds — a roughly 20% year-over-year increase of total state-budget support — would help the struggling mass transit agency enhance both bus and rail operations, including by hiring and training more rail engineers, according to Murphy administration officials.

If approved by lawmakers, the planned state funding boost in fiscal year 2021 would also help ease pressure on rider fares, which already cover a significant share of the agency’s more than $2 billion annual operating budget, the officials said.

However, Murphy’s plan for NJ Transit funding continues to rely on diversions from the New Jersey Turnpike Authority, meaning the take from the state’s main toll roads would continue to be used to subsidize mass transit even as a toll hike could be in the offing. Dollars would also continue to be diverted to NJ Transit from the state’s Clean Energy Fund, which is supported by a tax levied statewide on utility bills, even as state government is trying to ramp up efforts to combat climate change.

In addition, Murphy’s overall $40.85 billion state budget proposal rests on nearly $1 billion in new or increased taxes to help fund a series of spending increases, including the boost for NJ Transit. Although many lawmakers generally agree with key priority areas that have been identified by the governor, including NJ Transit and K-12 education, it remains to be seen whether they will agree with him that taxes should be raised to support such new investment.

Impact of economic downturn

Moreover, none of the sources of revenue that Murphy has earmarked to fund NJ Transit operations are currently dedicated for that purpose, meaning any potential economic downturn that threatens the health of the state’s General Fund could also have a big impact on the availability of funding for NJ Transit. Despite the fact that latest state revenue projections point to continued economic growth through the end of FY2021, a recent plunge in the stock market has only underscored that vulnerability.

The total state budget support for NJ Transit would increase by $132 million to $800.6 million in FY2021, according to the new spending proposal Murphy unveiled last week. The increase shows up in budget documents in the line item for an operating subsidy for NJ Transit that has traditionally been funded out of the state General Fund. That line item would increase from $457.5 million to $589.5 million under Murphy’s plan for FY2021.

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“This is an investment in NJ Transit, but it is, even more, an investment in our commuters and our communities,” Murphy said during last week’s budget address in Trenton. “It is an investment in giving New Jerseyans the freedom to leave their cars at home and to take our trains and buses.”

But to get up to $800 million in support for NJ Transit, Murphy’s budget plan also calls for using $129 million in funding from the Turnpike Authority, and $82.1 million from the state’s Clean Energy Fund. The use of such diversions would continue a practice that began when former Republican Gov. Chris Christie was in office that Murphy, a Democrat, has loudly criticized.

Continued diversions of funding

In addition, the continued diversion of funds from the Turnpike Authority — which operates both the Garden State Parkway and the New Jersey Turnpike — would push the funding that has gone to NJ Transit from that agency over the last decade up to $2 billion by the end of FY2021, according to the Department of Treasury. While much of those fund transfers occurred during Christie’s tenure — a total of $1.7 billion was used between FY2012 and FY2018 — another $283 million has been diverted during Murphy’s first two years in office.

Officials at the Turnpike Authority met last week to discuss, among other issues, the expiration of a $7 billion capital plan, raising concerns that a toll hike on both of its highways could be looming to fund future capital investments. Agency documents indicate just $400 million remains available “to tackle important capital projects that enhance roadway safety, relieve roadway congestion and improve access onto and off the Turnpike and Parkway.”

Potentially adding insult to injury for motorists is the possibility that there could be another increase in the gas tax looming later this year. While Treasury officials say it’s too soon to know at this point, current projections for fuel consumption that play a key role in determining the state’s gas-tax rate suggest the current pace of consumption would likely have to pick up by the summer to head off the need for an increase. New Jersey’s gas tax raises revenue on an annual basis for the state Transportation Trust Fund (TTF), an account that operates separately from the general state budget that is used to pay for road, bridge and rail-network capital investment throughout the state. Any increase in the state’s per-gallon gas-tax rate — which currently is set at 41.4 cents — would go into effect in October.

Meanwhile, a major economic downturn or recession could also have a significant impact on the state’s broader revenue stream and threaten the NJ Transit subsidy, which is something that Christie had to deal with after taking office in early 2010 in the wake of the Great Recession. And potentially making matters worse for Murphy are tax cuts Christie enacted in 2016 that are now taking a significant slice of revenue from the General Fund. Those cuts included a reduction of the general sales-tax rate and the outright elimination of the estate tax. (Christie also canceled the construction of a new rail tunnel under the Hudson River during his first term in office, a decision that has faced wide criticism since the existing, more than 100-year-old tunnel is now the source of regular service disruptions for commuters.)

Higher taxes on cigarettes, other items

To help prop up the revenue side of the state budget ledger, Murphy’s plan for FY2021 calls for several health-related tax hikes that would bring new funds into the General Fund. They include an increase of the per-pack tax levied on cigarettes and the establishment of a “corporate-responsibility fee” that would hit businesses that rely on Medicaid to help cover a large share of their employee health insurance. A new tax on opioid manufacturers would also be levied in New Jersey if Murphy’s plan wins support from lawmakers.

If approved by lawmakers, roughly $420 million in new annual revenue could be raised by enacting the proposed health-related tax-policy changes, according to the Murphy administration.

The governor is also seeking to raise another nearly $500 million by hiking the state’s top-end income-tax rate on earnings over $1 million and up to $5 million. But state income-tax revenue — including all dollars from the proposed millionaires tax — is constitutionally dedicated to providing property tax relief, meaning it cannot go to other purposes, like funding mass transit.

Under a plan floated in recent weeks by Senate President Steve Sweeney (D-Gloucester), NJ Transit would be provided with a total of $500 million in dedicated annual revenue to support its operating budget.

To help get up to $500 million, Sweeney’s plan relies on the continuance of diversions from the Turnpike Authority and the Clean Energy Fund, and he would also leave in place a corporate-business tax surcharge on high-earning companies that is supposed to be phased out in a few years.

Murphy, Sweeney differ in approach

But Sweeney is also calling for the end of the state’s long-running practice of allowing NJ Transit to divert some TTF funds that are supposed to pay for capital investments to instead help fund the NJ Transit operating budget. By contrast, Murphy’s FY2021 budget proposal would continue a $460 million capital-to-operating diversion that is occurring in the current fiscal year. And that will come even as the agency recently borrowed $500 million with interest to fund the purchase of locomotives and buses.

In response to Murphy’s budget address, Senate Majority Leader Loretta Weinberg, a longtime mass-transit watchdog, reiterated the call for establishing dedicated revenues for NJ Transit. She also noted Sweeney’s proposal would bring that stability to the agency by asking voters to approve the constitutional dedication of the three identified funding sources.

Weinberg (D-Bergen) said she plans to push for “immediate reductions in capital-to-operating transfers” as part of this year’s budget-review process by lawmakers.

Also weighing in on the issue of NJ Transit funding was Nat Bottigheimer, New Jersey director for the Regional Plan Association. He called on Murphy and lawmakers to work cooperatively to set the agency on a better course, including by establishing dedicated and predictable funding sources.

“Without it, NJ Transit will remain underfunded and unreliable,” Bottigheimer said.