Reform Revenue Results

It costs over $3.75 billion each year to operate, maintain, renew and expand New Jersey’s transportation system – to repair the roads after accidents, paint bridges, drive the buses, buy new trains, and everything else that lets New Jersey’s neighborhoods and businesses thrive. In less than one year, $1.3 billion of the revenue that pays this bill will be gone and another $1.3 in Federal funds will be at risk if the State match is lost. There are currently no plans to rectify the situation. No solid proposals were issued during the recent gubernatorial campaign. A solution could be implemented in the lame-duck session. Otherwise, in January, Governor Corzine will have six months to devise and implement a plan.

Because the Transportation Trust Fund will need to use its revenue stream for debt service for the next 15 years, the state now has to raise a significant amount of new revenue to prevent the collapse of its transportation system. Raising new revenue can be a challenging task, and so there is often talk of cutting waste and improving efficiency to save the transportation system. In fact, it may be possible to reduce spending at least in the short term, and perhaps save some money by increasing efficiency. There is also some tax and fee revenue already collected and going to the General Fund that could rightly be claimed for transportation purposes. But it would be a mistake to trust that cutbacks and revenue redirections can avert this crisis. Over two thirds of the transportation budget – $2.5 billion – is at risk. Efficiency savings would be negligible in light of this tremendous need, and revenue redirections of this magnitude would severely impede another part of the State budget. This is the cost of the transportation system on which New Jersey’s economy, its commuters, and it’s very ability to function depend. A solution is needed, and a large part of it will have to come in the form of new money.

There are two potential sources of new revenue that have been discussed, albeit briefly: the gas tax and tolls. With the gas price spikes that occurred this fall following hurricane Katrina, it seemed politically infeasible to raise the gas tax, even though gas prices and gas taxes are not correlated – New Jersey had the 4th lowest gas taxes and the 6th highest gas prices in the U.S. in mid-September 2005. Election season coincided with a particularly disastrous hurricane season, and the gas tax was effectively taken off the agenda for now.

Tolls were the other revenue source mentioned as a possible solution to the Transportation Trust Fund crisis. There has been some discussion of ​‘securitizing’ toll revenue or ​‘privatizing’ the Turnpike or the Garden State Parkway. The former describes a process of borrowing against toll revenue that is already done by the New Jersey Turnpike Authority. It is unclear how the ​‘securitizing’ mentioned during election season would differ from that already being done, and how it would raise new revenue. The latter term describes a variety of arrangements wherein private firms pay for the right to collect tolls; this option is described more fully later in this report. However, it is important to note that privatization contracts are normally the result of one or two years of negotiations. New Jersey’s transportation system would almost certainly run out of money before a fair and reasonable contract can be signed.

The value of the transportation system to the economy, quality of life and the future prosperity of the state has been well established. With funding gaps of this magnitude and a crisis so potentially devastating, it is vital to look beyond vague financing measures and the limited savings that could result from cutting waste. Instead, leadership is obligated to take bold steps to reform the system and raise the new revenue needed to keep New Jersey moving – literally. As was noted in our July 2005 report, Putting the Trust Back in the New Jersey Transportation Trust Fund, the responsibility for New Jersey’s transportation funding crisis is bipartisan, as is the responsibility for fixing it. It will take political will on both sides of the aisle to reform the way the Trust Fund is managed, fully fund the operating budgets and stabilize financing for the capital plan. Governor Corzine in particular must now exhibit rare leadership. His response to this crisis will set the stage: he will either be credited with saving the system and create a legacy of sizable, important transportation improvements, or he will be held responsible for the demise of New Jersey’s highways, bridges, and transit system.

In the July 2005 report, this collaboration called for six key structural reforms to ensure the Transportation Trust Fund does not revisit its current crisis. Those reforms remain vital to the future of the Trust Fund and should be adopted. They will not, however, obviate the need for new revenue sources for both the operating budgets and capital programs of NJ DOT and NJ TRANSIT. This paper recommends a way to fully fund the operating budgets. It also lists a variety of new revenue options that could be used, in some combination, to restore the Trust Fund and finance the next generation of capital improvements. Both the operating and capital elements of this problem are vital. One of the major flaws of the Transportation Trust Fund Authority is that it is only charged with financing the capital side of the ledger. Now funding for both operating and capital is at risk, and any solution must restore both. The two budgets need to be planned to function together.