Corzine Indebts NJ for Three Decades

26 February 2006 @ 15:09 | Posted in » New Jersey

The Transportation Trust Fund (TTF) has a budget of about $800 million. This money is raised through the gasoline tax and tolls. The federal government also contributes a sizable amount of money. This fund then is used to build and fix roads and bridges throughout the state. Because of the large amount of cash in the fund, state government has used it over the years for other projects. This is done by borrowing from the fund. Having a billion dollars on hand can leverage borrowing more than a billion dollars. Those other dollars were not spent on roads and bridges, but placed in the general fund to pay salaries, benefits, and other expenses of the state.

This borrowing has gone on for 15 years or more. As with any borrowing, there is always interest to be paid. Each year the borrowing has added to the interest due. It has grown so much that next year’s $800 million budget for the fund is large enough to only pay the interest on the debt the fund owes. That means that without an influx of money, no roads or bridge will be worked on as there will be no money. Obviously, this is a huge issue. Add to it that the federal government will not provide money to New Jersey if it does not earmark enough money to actual roads and bridges and this becomes a critical issue.

One of the “easiest” ways to address this is by raising the gasoline tax. New Jersey has one of the lowest taxes on gasoline in the country at $.105 per gallon. By raising the tax, more money would be available for the fund and roads and bridges could be addressed. To raise enough money so as not to lose federal funds, New Jersey drivers would need to pony up a lot more at the pump. This is neither desireable nor is it efficient.

The TTF is in the hole because government has not been fiscally sound. I find it unreasonable to “fix” this issue by taxing the citizens. Governor Corzine has decided not to raise the gasoline tax at this time. That is the good news. Unfortunately for New Jersey, the governor has not remedied the funding issue; he has extended the issue.

Governor Corzine has proposed to borrow more money to fund the TTF for the next five years. He wants to do it by refinancing the $1.18 billion debt that the TTF currently has. Refinancing will provide $105 million more in cash available for the TTF each year. He will not allow some of the money that is siphoned off into the general fund. Those dollars can then be leverage for $6.4 billion of new debt that will finance the TTF for five years. The debt of this will extend for three decades. That means that in 2035, we will be paying for the potholes fixed this year.

This credit card mentality is not sound financial policy. Notice, this remedy is only good for five years and the taxpayers will be paying for it for 30 years. In five years, the governor will need to address this issue again. And there will be more debt to refinance.

When people speak of gimmicks, it is this kind of governoring that they are speaking of. This is not a fix. This is a short-term solution with long-term consequences. It is politically expedient as it gets the job done for his administration, but it causes headaches for either term two (who really thinks Corzine will be governor in 2011?) or the next governor. New Jersey taxpayers are going to pay billions more because of this borrowing. Rather, as I proposed six months ago, tightening the belt this year would have resolved this now. Yes, finding a billion dollars in other agencies is tough. But it could have been done. And think of the lesson all would learn: we are not going to pay debt decades from now for the mismanagement of government a decade ago.

This is a state problem and the state would have paid for it by cutting services across the board. If all of government were held responsible for the mismanagement of any component of government, I suspect we would eradicate this kind of issue from ever occurring again. A leader would have remedied this out of government surplus, not taxpayers’ wallets. And to think, this is but the first issue the new governor has addressed. The future ones will most likely raise taxes since the governor spared us a gasoline tax this time.