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Small Rise in Budget Funding for Big NJ Transit Fiscal Problems

Governor continues to allow agency to raid capital funds to help pay for daily operations, a practice he repeatedly criticized former Gov. Chris Christie for authorizing

Phil Murphy
Credit: Edwin J. Torres/Governor's Office.
Gov. Phil Murphy at NJ Transit's Emergency Operations Center, Maplewood on March 19

It wasn’t long ago that a major outside audit labeled New Jersey Transit’s funding “inadequate” and “unsustainable.” In his latest state budget proposal, Gov. Phil Murphy is giving the agency a funding boost that would result in a net increase of $25 million. But that modest cash infusion is doing little to ease the concerns of mass-transit advocates and meet Murphy’s long-term goal of “fixing” the agency.

What’s more, NJ Transit, which maintains its own operating and capital budgets, has revealed plans to carry on the questionable practice of raiding capital funds to help pay for daily operations. And it plans to do so in the same exact way that former Gov. Chris Christie did during his last year in office, even though Murphy had repeatedly criticized the practice, along with Christie’s overall stewardship of the state’s mass-transit agency.

The continuance of the capital transfers now two years into Murphy’s tenure demonstrates the major challenges the governor has faced in trying to address a complicated mix of temporary financial Band-Aids that were used for eight years by the Christie administration. But it has also opened Murphy up to questions about whether he is showing enough urgency regarding long-term fixes for NJ Transit, especially after the major audit he commissioned last year criticized NJ Transit’s capital-to-operating transfers and questioned the sustainability of the agency’s current revenue stream.

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State lawmakers have already said they want to see more money going to NJ Transit in the budget for fiscal year 2020, which begins on July 1, than the net $25 million that Murphy is proposing. But it would take a much bigger subsidy from the state to get rid of NJ Transit’s capital transfers, which are expected to total $460 million in FY2020. No one has identified where that much funding could come from this year given the state’s other deep fiscal challenges.

During a recent budget hearing in Trenton, Janna Chernetz, an expert on NJ Transit finances who is deputy director of the Tri-State Transportation Campaign, gave lawmakers an ominous warning about what it would mean to simply maintain the status quo. She said a $138 million budget hole is already looming for NJ Transit in FY2021.

Titanic challenges

“We are simply rearranging the deck chairs on the Titanic,” Chernetz said.

It was Murphy himself who set a high bar for fixing NJ Transit’s finances when he declared as a gubernatorial candidate in 2017 that there should be a new and dedicated source of revenue to put the agency back on firm footing. Those comments came at a time when NJ Transit was transferring the same amount of capital funding under Christie — $460 million — that it is proposing to use again to sustain operations in FY2020 after finding out the transit subsidy in the new governor’s state budget plan would total a net $25 million.

Janna Chernetz
Janna Chernetz of the Tri-State Transportation Campaign testifying in Trenton last week

While generally considered to be bad fiscal policy because capital investment is needed to maintain major assets and fund planned expansions, the practice of using capital resources to cover daily operations is allowed to an extent under state and federal law. The catch is the capital funds can only be used to cover “capital-eligible maintenance expenses,” according to NJ Transit spokeswoman Nancy Snyder. Falling under that designation is the “overhaul of locomotive engines, and other work that extends the life of long-term assets,” Snyder said.

Despite allowing a continuance of the capital transfers at NJ Transit, Murphy has been getting credit from Chernetz and other transportation advocates for some of the more subtle structural changes that are included in his own FY2020 budget proposal. In all, Murphy’s budget would boost the state subsidy for NJ Transit operations by $100 million, bringing it to $407.5 million. (The same line item totaled only $141 million in FY2018, which coincided with Christie’s last year in office.)

“In a state with an unmatched location and a regional economy built on moving people and goods, there is no higher priority than fixing NJ Transit,” Murphy said during his March 5 budget address.

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But the net increase for the transit agency gets whittled away as Murphy deals with previous funding gimmicks, including scaling back by $25 million a significant fund diversion from the New Jersey Turnpike Authority that was begun during Christie’s tenure. Another $50 million fund transfer that lawmakers snuck into the FY2019 budget for NJ Transit operations from the state Transportation Trust Fund’s capital reserves would also be reversed under Murphy’s FY2020 budget plan.

That leaves a $25 million bump in funding for NJ Transit operations out of a proposed $38.6 billion state budget, a dollar amount that has landed with a thud in the eyes of many transit advocates, especially since the agency itself has an annual operating budget that now totals more than $2.3 billion. Senate President Steve Sweeney (D-Gloucester) and Senate Majority Leader Loretta Weinberg (D-Bergen) are among the lawmakers who’ve already suggested NJ Transit should get more funding from the state, with Sweeney saying that he’d like to add another $100 million, and not just this year.

Finding the money

“I think, every year, honestly, they’ve got to add $100 million to it, with new money, to get transit to where it’s a world-class operation again because we rely so much on it,” Sweeney said.

How to come up with any new funding is where things get messy for Murphy and lawmakers, especially given the state’s other significant fiscal challenges, including massive debt and a grossly underfunded public-employee pension system. And beyond the fiscal constraints, the state’s top Democratic leaders have tough political issues to work through.

For example, as part of last year’s budget proposal, Murphy attempted to raise new revenue by asking lawmakers to restore a 7 percent sales-tax rate. That rate was in place in New Jersey up until 2016, when Christie convinced Democrats to cut the sales tax as part of a broader deal that renewed the TTF for eight years. Lawmakers, wary of the state’s reputation for already high taxes, rejected Murphy’s proposal even though it would have raised an estimated $600 million in new revenue, some of which could have gone to NJ Transit.

While Murphy has dropped his call for a sales-tax hike this year, he is pushing again for a tax increase that he tried to enact last year, a true millionaire’s tax, something Sweeney and other top Democratic lawmakers are already resisting. While the millionaire’s tax would generate an estimated $447 million in new revenue, it wouldn’t directly help NJ Transit because all revenue generated by the income tax in New Jersey is constitutionally dedicated to funding property-tax relief.

Ray Greaves
Credit: njtransit.com
Ray Greaves of the New Jersey Amalgamated Transit Union

Ray Greaves, chairman of the New Jersey Amalgamated Transit Union and a member of NJ Transit’s board, said during an interview that he “fully supports” what Murphy is trying to do in his FY2020 budget proposal. He also gives the governor high marks for his efforts to prop up NJ Transit following what Greaves called a transit “crisis” that developed during Christie’s tenure.

“The governor has been moving the needle in the right direction,” Greaves said.

Another look at raising the sales tax?

Although it isn’t in the governor’s budget calculations, the sales-tax initiative Murphy floated last year could be revisited, the union leader suggested. Other tax cuts enacted during Christie’s tenure should also be re-evaluated, such as one that went to those purchasing expensive yachts, Greaves said.

With nearly $1 billion from passenger fares already being used to support NJ Transit spending, no one is talking this year about hiking fares, something Christie allowed to happen twice. Greaves said fare increases should not become part of any new funding solution for NJ Transit. Nor, he said, should cuts to public-worker benefits be used to free up money in the budget, which is something Sweeney has been advocating for as he promotes recommendations made last year by a nonpartisan of fiscal-policy experts.

“It’s a nonstarter for us,” Greaves said.

For his part, Murphy signaled last week that he’s open to getting NJ Transit more funding in the FY2020 budget, but only if lawmakers propose what he called “sensible” ideas to increase the subsidy. While some have already suggested Murphy should put on hold new fiscal initiatives, like his plan to boost the state’s rainy-day surplus, the governor said that account should be considered off limits.

“Quite simply, we have no other safety net (and) we all need to recognize that simple fact,” Murphy said during an event held at an NJ Transit facility in Maplewood on March 19.

Many assumed then-candidate Murphy’s 2017 call for a dedicated source of funding for NJ Transit was yet another tax-hike proposal, but the state already dedicates revenue from existing sources like the sales tax to pay for transportation projects, and from the corporate-business tax to fund things like open-space preservation. So, an effort to dedicate funds for the transit agency in a similar way remains an option even though Murphy seems to have shelved it for now.

Other funding sources eyed

Chernetz, in materials she submitted to lawmakers last week, identified a host of other potential new funding sources that could be used to prop up NJ Transit operations. They include launching more aggressive advertising and naming rights efforts and generating new funds from developers who build in communities that are served by the agency’s bus and rail lines.

For now, the agency will continue to transfer capital funds to keep its operating budget balanced. Last year, after lawmakers added a diversion of $50 million from the TTF’s capital reserves to the state budget’s transit subsidy, the total for the capital transfers used to balance NJ Transit’s operating budget rose to a record high of $510 million.

In her comments to NJ Spotlight, Snyder, the NJ Transit spokeswoman, highlighted the overall reduction of capital transfers that would occur in FY2020, and the other structural improvements included in Murphy’s budget plan.

“The Governor has stated his intent to reduce the reliance on one-shots and diversions and the Governor’s FY2020 budget proposal makes good on his pledge,” Snyder said.

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