N.J. to borrow to fund road projects

It is relying again on the short-term solution because a higher gas tax failed to gain support.

By Jennifer Moroz
Philadelphia Inquirer Staff Writer
Posted on Fri, Feb. 06, 2004

Calling on a practice its own advisers have warned against, the cash-strapped state Department of Transportation plans to borrow $900 million to continue funding road and transit projects in the short term.

The bond proposal is an attempt to sidestep a financial crisis facing the state Transportation Trust Fund, which, fueled largely by the gasoline tax, has been the traditional source of capital for transportation projects. Officials estimate the fund will be insolvent by July 2005, with debt payments canceling out revenue.

One of the main reasons, a study panel appointed by Gov. McGreevey concluded, was the state's increasing reliance on borrowing. In short: Bonding is what caused the trouble in the first place.

Yet transportation officials said it was their only choice after an unpopular gas-tax increase urged by McGreevey's Blue Ribbon Commission on Transportation fizzled before even coming up for a vote in the Legislature. The bonding plan is just a short-term fix, buying an extra year until July 2006, they maintain.

"There was no consensus for the gas-tax increase, and we were not going to wait and jeopardize critical improvements to the infrastructure that need to happen," said Kris Kolluri, chief of staff to Transportation Commissioner Jack Lettiere. "This was a funding mechanism available to us, and we thought we should use it as we develop a long-term solution."

John Sheridan, who was transportation commissioner in the early 1980s and sat on the blue-ribbon commission, said implementing a long-term solution now would be preferable.

"But if the alternative is no funding, then I think you have to look at things like the bond proposal," he said. "Otherwise, it would have been a disastrous situation in the world of transportation projects."

According to the commission's report, without an infusion of money the state's capital program - this year totaling more than $2.5 billion for transit and roads - would come to a grinding halt next year. Lost with it would be roughly 100,000 jobs, transportation officials said.

Critics called the bonding plan yet another Band-Aid that would make the inevitable even worse.

"It's passing on the debt to a new administration to pay," said Thomas Kean, who was governor when the Transportation Trust Fund was created in 1984. "It's not right. We're going to have to pay it sooner or later, and we're going to have to pay more."

Under the plan, the state would issue what are called Garvey bonds, which Kolluri said 22 other states - Pennsylvania not among them - were using to "bridge the funding gap."

The bonds allow officials to borrow against federal transportation dollars the state anticipates receiving. Payments on the bonds would not start until 2007, and would cost the state $90 million to $105 million in annual principal and interest over the following 10 to 15 years, Kolluri said. That money would come out of the state general fund, which critics point out is already strained.

Kolluri said the state had the authority under existing legislation to issue the bonds.

Barbara Lawrence, executive director of New Jersey Future and a member of the blue-ribbon panel, was aghast when she learned of the plan yesterday.

"Oh, my God," she said. "I'm disgusted.

"This is why we don't have any money next year," she said, referring to the Transportation Trust Fund. "All the taxes we now collect are being used for interest payments."

When the fund was created, it was considered a national model for transportation financing and was supposed to be a "pay-as-you-go" account replenished largely with gasoline taxes. But over the years, the state borrowed more and more against the fund without identifying new sources of revenue to pay off the debt.

The blue-ribbon commission in November concluded that the only way to end the snowballing financial situation was to increase the gas tax, last raised in 1988, by at least 12.5 cents, and to adjust it regularly for inflation. But the unpopular proposal never gained momentum among politicians.

"From a political point of view, [the bonding plan] postpones the day of reckoning for McGreevey," said Jon Orcutt, executive director of the Tri-State Transportation Campaign, a transportation watchdog group. "The good news is you won't see as much deterioration on the roads and trains, but it doesn't solve the problems New Jersey has with not having enough money in hand to pay for transportation."

McGreevey spokesman Micah Rasmussen called the bonding proposal "a fiscally responsible plan that would keep people working and keep drivers moving."

He defended it against criticism that it called on the same practices that have milked transportation coffers nearly dry.

"If you talk about what's fiscally responsible," Rasmussen said, "it certainly would not be fiscally responsible to jeopardize New Jersey's economic recovery at this point by imposing a new tax [raising the gasoline tax] on families and small-business owners."

News of the proposal came as transportation officials have been madly cutting projects to make the money last longer.

Some projects will have to be cut even with new bond money, transportation officials said. Lettiere, the transportation commissioner, is expected to release the list of "winning" projects in the next week. To help cut costs, officials said, about 200 positions in the Transportation Department and NJ Transit will be eliminated through attrition and layoffs.

But come July 2006, state officials said, the money will dry up again, requiring a permanent solution.

Contact staff writer Jennifer Moroz at 856-779-3810 or