Despite his promise to increase pay-as-you-go financing for the, 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 extrato 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, 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.
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 billionthat 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.