A new poll shows New Jersey's taxpayers aren't happy with Gov. Jon Corzine and his toll road plan is getting some of the blame. I've talked with quite a few reporters over the last several weeks, discussing Gov. Corzine's plan to "monetize" the state's toll roads, refinancing them based on huge increases in toll rates in order to bail the state out of its current fiscal hole. In order to get around existing bond covenants, under which all toll revenues must be used to operate, maintain, rebuild, and expand the toll roads, Corzine would create a new "public benefit corporation" which would take over the toll roads. By paying off their existing bonds, the new entity would be free to use toll revenues for whatever its charter called for. Under Corzine's proposal, that would include paying off $16 billion of general state debt.
My problem with this plan is twofold. First, it's grossly unfair to motorists and truckers who use the New Jersey toll roads, 51% of whom (on the NJ Turnpike) are from out of state. They are not responsible for decades of fiscal mismanagement. If anyone should be bailing out the state, it should be the voters and taxpayers of New Jersey, who were asleep at the switch while their public officials spent the state into ruination.
And this gets to my second, related, objection. The extremely high new toll rates–for a truck they would go from $5 in 2008 to $52 in 2033–combine a toll and a tax. The portion that ends up actually spent on maintaining, expanding, and modernizing the toll roads is a toll. But the portion that goes for general state purposes is a tax, plain and simple. Blurring that distinction could greatly harm America's highway system. Converting a toll (a pure user fee) into a tax at the same time as the rates are greatly increased is virtually guaranteed to stimulate opposition to tolls as a method of highway financing.
And that could not happen at a worse time. During the last few years, the global capital markets have discovered the U.S. highway sector as a new investment category. This has occurred just as we're starting to realize the enormity of the investment needs facing us in this sector–for urban congestion relief and for long-haul truck routes, in addition to reconstructing much of our 30- to 50-year-old freeway and Interstate system. The last thing we need is a large-scale backlash against tolling by the motorists and truckers who should be looking to toll finance as a key part of the answer to our highway capital shortfall.
Gov. Corzine decided on the public benefit corporation approach after getting negative feedback to a trial balloon proposal for leasing the toll roads, as Indiana did. Yet it may be that leasing the toll roads to a toll road company with a global track record could raise what the Governor claims to need–without such sky-high toll rates. A source at one such company shared with me some internal number-crunching they have done recently. Remember that the Governor says his plan is expected to generate $37 billion for the state, thanks to the aggressive schedule of toll increases. My source said that when they ran their valuation model using the Governor's toll increase schedule, the value totaled $50 billion. To get the same $37 billion value, their model showed tolls increasing only 3.3 times over the next 15 years, compared with 5 times under the Gov's plan. Alternatively, starting with an even more modest toll rate schedule (today's rates adjusted annually for CPI increases), the model yields a valuation of $18 billion.
So what's with the Governor's numbers? My source could only speculate, citing their own assumptions about "substantial operational savings" and life-cycle cost savings in the modernization program. In other words, the proposition here is that the Gov's plan requires significantly higher tolls because it assumes business-as-usual in how the toll roads operate. It would be very interesting to see what kinds of bids the private sector might submit, if outrage over the Gov's proposed toll increases leads to a search for alternatives.