In his January State of the State address, New Jersey Gov. Jon Corzine (D) unveiled a long-awaited plan to capture the value of the state’s toll roads.
The state would receive approximately $38 billion in cash financed by the sale of bonds backed by toll increases.
According to the plan, the cash would be used to significantly pay down New Jersey’s $32 billion bonded indebtedness and finance transportation projects. About $1 billion currently spent on debt service would be redirected to pay for other operating expenses.
Corzine surprised many observers by proposing other measures designed to prevent a recurrence of New Jersey’s current fiscal problems. The other components of his “Financial Restructuring and Debt Reduction Plan” include:
- keeping total spending in the new state budget at the same level as the current budget;
- limiting future budget growth to the anticipated growth in recurring revenues; and
- restricting the ability of lawmakers to issue debt without first obtaining voter approval.
The attention these reforms have received has been dwarfed by the response to Corzine’s unusual, if not unique, plan to finance a massive borrowing scheme through scheduled toll increases. As expected, the complex toll road plan has generated considerable controversy and public opposition. Corzine has acknowledged it could determine his political future.
Regular Toll Increases
The toll road plan anticipates $32 billion to $38 billion would be raised through the sale of bonds backed by contractually established toll increases. From 2010 to 2022, tolls would be increased four times. Each increase could be as high as 50 percent, in addition to an inflation adjustment.
After 2022, toll increases would be limited to inflation adjustments and would continue for the duration of the plan, 61 years.
In addition to increasing the tolls on New Jersey’s three toll roads, Corzine also proposed adding tolls to an existing state highway that connects New Jersey to the Borough of Staten Island in New York.
To insulate taxpayers from any obligation to the bondholders, Corzine’s plan places the toll roads under the authority and control of a legislatively created public benefit corporation (PBC). Except for the initial appointment of the PBC’s governing board, the state government would have no authority over the PBC. The maintenance and operation of the toll roads would be governed by an elaborate 75-year contract between the state and the PBC.
The cash from the bond sale would be spent to pay down half of the state’s $32 billion bonded debt, eliminate the existing debt of the state’s three toll roads, and fund transportation projects.
Opposition to Tolls
The plan’s critics have focused primarily on the size and frequency of the toll increases, the inequity of solving the state’s fiscal problems solely on the backs of toll road users, and creating new debt in order to reduce existing debt.
State Sen. Anthony Bucco (R-Morris County), a member of the Senate Budget Committee, likened the plan to “using the AmEx Card to pay off the Visa bill.”
Corzine insists his plan does not replace one type of debt with another because the PBC’s debt would not be state government debt. That claim has been greeted with skepticism.
“It’s hard to imagine that the taxpayers won’t be on the hook if the toll revenues can’t support the operation of the toll roads,” said Jerry Cantrell, president of the New Jersey Taxpayers’ Association. Cantrell also questioned how the contract with the PBC could accurately account for economic conditions that will exist 50 or 60 years from now.
All Parts Important
Bob Franks, a former Republican congressman who narrowly lost to Corzine in the 2000 U.S. Senate contest, has endorsed his former rival’s plan. But Franks is quick to point out the plan has four components, all of which must become reality if true and lasting reform is to be achieved.
“Paying down the state’s debt and dedicating a source of revenue for our aging transportation infrastructure are vital to restoring New Jersey’s fiscal health and maintaining our economic lifeline,” Franks said.
“Ultimately, however, the long-term fiscal health of the state lies with the plan’s spending reforms,” Franks continued. “Freezing current spending, tying budget expenditures to recurring revenues, and giving the voters more control over debt issuance is the medicine that New Jersey desperately needs.”
Franks added, “Right now, the governor’s proposal is the only plan on the table that accomplishes all these objectives. The challenge for the governor and those of us who support comprehensive budget reform is to convince the legislature of the need to pass the governor’s entire package.”
Gregg M. Edwards ([email protected]) is president of the Center for Policy Research of New Jersey.