New Jersey is already one the nation’s most indebted states, ranking third behind only California and New York when it comes to net tax-supported debt, according to the latest version of the annual state debt report, which was released last year. And borrowing has gone up by roughly 50 percent in just the past decade.
Legislative leaders, nevertheless, say they are close to reaching final agreement on a package whose key components will include as much as $2 billion in combined annual revenue from borrowing and a likely increase in state fuel taxes to support transportation funding. New Jersey needs a new plan for funding transportation projects in place by the middle of 2016.
Still Senate President Stephen Sweeney (D-Gloucester) and Assembly Speaker Vince Prieto (D-Hudson) disagree over how much money should come from borrowing, how much from ‘pay as you go’ sources like higher taxes at the gas pump. In fact, determining exactly what share of the new funds should be generated from borrowing versus more readily available sources like taxes — what’s known as “pay-go” in public-finance circles — may well be the final sticking point.
“We have to start being mindful of that,” Assembly Speaker Vince Prieto (D-Hudson) said yesterday in an interview with NJ Spotlight. Prieto said he’s been advocating for a robust pay-go component in the next long-term transportation-spending plan to ease the heavy reliance on borrowing. (Credit AP).
“It’s got to be a good balance,” he said. “I think that’s the key.” (Credit AP).
But Senate President Stephen Sweeney (D-Gloucester) maintains that not all borrowing is bad.
That’s especially true when the project being funded is going to last for several decades, like a new bridge, he explained to observers in Trenton on Monday .
The problem with prior state transportation-spending plans is not that they used borrowing, but abused best borrowing practices, Sweeney said. For example, rather than hike the gas tax, which hasn’t been increased in more than two decades, former Gov. Jon Corzine and others simply refinanced debt for longer terms, adding more costs in the long run.
“What got screwed up here is they kept refinancing the money,” he said. (Credit AP).
Sweeney also talked about striking “a balance” between borrowing and pay-go financing, saying once he and Prieto can reach an agreement on that issue, many others, including how much state gas taxes will need to be increased to fund the new plan, should be resolved.
The outcome of their deliberations will be important for New Jersey motorists who are concerned about a gas-tax increase since every dollar that isn’t raised for new transportation projects from borrowing will likely need to be generated at the pump. Likewise, for state taxpayers concerned about the bottom line, taking on too much new borrowing could threaten New Jersey’s already weakend bond rating, thus adding to the costs the state incurs whenever it needs to generate revenue from bond sales.
Finding the right balance between pay-go and borrowing, according to transportation experts, is also an important factor for the government officials who are tasked on a daily basis with managing the projects funded by the state.
Right now, the state is relying heavily on revenue generated by taxes levied on gasoline purchases and the gross receipts of refineries and distributors to pay for transportation projects and to generate federal matching funds. Together, those two taxes total 14.5 cents for every gallon purchased. Funds from state highway tolls and the Port Authority have also been used in recent years to subsidize the trust fund.
But thanks to the heavy amount of borrowing for transportation that’s occurred in past years, all of the revenue that’s being raised by the gas taxes will have to be used to pay down the trust fund’s significant debt as of July 1, leaving no cash for new projects unless there’s an increase.
Christie authored the state’s latest long-term transportation-spending scheme, a five-year plan that will expire this year at the end of June. And when Christie rolled out that initiative back in 2011, he said it would allow for nearly $2 billion of the overall $8 billion in spending over the five-year term to be financed with pay-go revenue out of the annual state budget.
Doing so would also mean other states would be “looking at New Jersey as the model for restoring a state to fiscal health,” he said at the time.
But Christie never funded the broader pay-go goals that were included in his original transportation-spending plan, except for an initial $76 million contribution in the first year. To make it through the final year of his plan this year, when pay-go financing would have totaled more than $600 million, Christie’s administration is instead relying on draining of $281 million in cash balances, the repayment of a $241.5 million loan to New Jersey Transit, and another $627 million in new borrowing.
With Governor Christie now focusing much of his time in recent months on his bid for the White House, this time the legislative leaders have taken it upon themselves to craft the next transportation-spending plan. Nevertheless, Sweeney and Prieto know that any agreement they reach can hardly be considered a done deal. The proposal will ultimately go to Gov. Chris Christie, who has final say. Both legislative leaders say they also have to keep in mind that Christie is not likely to look favorably upon a big tax-hike proposal in the middle of a GOP presidential primary.