Wednesday, October 1, 2014

The History of New Jersey’s Transportation (Mis)trust Fund

Did you know that New Jersey has $900 million a year going to pay off interest and principal on bonds issued years ago? The issuance of new bonds, not tax revenue, is funding the Trust Fund’s contribution to the Transportation Capital Plan.
Every year, the Transportation Trust Fund spends almost three times as much as it raises in taxes. Every time that the Trust Fund borrows $1.6 billion, it commits to paying $100 million a year for 30 years in debt payments (assuming a 5% interest rate).

Since 2005, the Trust Fund’s annual debt payments have escalated by over 56%, from $623 million to $845 million.
Did you know that starting around the middle of 2011, the entire $895 million that taxpayers contributed to the Trust Fund every year to pay for transportation projects will instead go to pay off the debt on previously issued bonds?
The Transportation Trust Fund was created by the Legislature in 1984. Its primary financing mechanism was designed to be a pay-as-you-go system. It was also supposed to prohibit the use of Trust Fund money for routine operations and maintenance.
Over the last 25 years, the focus of the Trust Fund as a funding mechanism for the DOT shifted from primarily pay-as-you-go financing to a heavy reliance at first with short-term 10-year bonds, graduating to 20-year long-term bonds, and then escalating to 30-year.
Trust Fund monies originally intended to support capital improvements have been used, instead, to fund maintenance costs once considered part of the operating budget paid for out of the state’s general fund.
In fact, the Trust Fund’s overall annual spending in Capital Program contributions and debt service payments have grown more than twice as quickly as the tax and fee revenues dedicated to the Trust Fund. The bonds issued to cover the gaps commit the Trust Fund to higher annual debt payments, further increasing the Trust Fund’s expenses.

Existing tax revenue to the Trust Fund is enough to cover only debt service payments; any new capital program costs must be met with new sources of revenue.
But if new taxes are only going to fund the refinancing and payments towards borrowed interest of the Trust Fund’s existing debt, I find that totally unacceptable.
Our legislature caused its own problems through mismanagement, the diversion of funds for unintended use and, ironically, by not following their own guidelines. Maybe the revenue generated from Red Light camera fiasco should go towards funding the Trust Fund dilemma?
Increasing the New Jersey gas tax will add about .45 per gallon of fuel. Why should New Jersey drivers compensate for the incompetence of our legislature? There is no guarantee that after leaving 1,000 miles of bad road behind us, we will only find ourselves right back on the same wrong-way highway in the not too distant future.

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