A BAD PLAN TO FUND OLD DEBT
NEW Jersey Gov. Jon Cor zine's plan for toll hikes sets a dismaying prece dent: Some of the take would indirectly fund past spending that has nothing to do with roads.
Corzine's goalsto invest in infrastructure and to reduce debtare worthy, but it's a bad idea to turn to toll payers to pay off non-road debt.
The plan would raise tolls on the Jersey Turnpike and the Garden State Parkway by up to 50 percent four separate times from 2010 to 2022, for a potential fivefold hike; it also would put a toll on a road that's now free. All that on top of other hikes to adjust for inflation.
The money won't go to the state or to the Turnpike Authority. Instead, Corzine wants a new "public-benefit corporation" that would collect the tolls and run the roads under a decades-long contract with the authority.
He believes this will be an improvement over having the Turnpike Authority run the roads directly, in part because the new outfit would have a professional management team and board of directors supposedly free of political patronagea fresh start, complete with detailed contractual requirements and new, independent overseers.
In exchange for the right to run the road and collect the tolls, this corporation will pay the state an enormous sum, $32.6 billion in a conservative scenario. It's to get the cash from private lenders, who, the governor says, will front the money even though the state won't guarantee payback, because they'll know that the future tolls will cover the debt.
Where will this money go? Corzine would dedicate about $8 billion to what toll revenues should go toward: improvement of the toll roads. Another $16 billion goes to refinance statewide transportation debtand $1.4 billion more would re-finance debt that was used to buy and preserve land.
The smaller problem with this part of the plan is that it refinances old debt far into the future. The bigger one is what Corzine wants to do with the remaining $7 billion to $12 billion: Use the cash to pay off some of the state's general debt obligations.
That debt has little to do with the state's transportation infrastructure; in some cases, it's operating debt, not capital debt. In other words, the state has "used credit cards to pay the rent"a classic finance no-no, and now it wants to use roads to pay off those credit cards.
Thanks to this provision, the proposal dangerously ties toll-road revenue to the state's operating budget and general capital-expenditure budget, albeit circuitously. The toll is thus no longer a fee to use a road but becomes partly a tax whose proceeds go toward past operational spending and current debt payments that have nothing to do with transportation.
And the plan has yet another risky feature: If New Jersey significantly cuts back its debt, that gives it the opportunity to raise more debt.
Corzine says he'll deal with this risk by asking the Legislature to agree to require voter approval for future borrowing "that does not have a dedicated source of revenue."
But New Jersey should impose this limit firstand then see how it does in sticking to it during one or two bad budget seasons, making sure there are no loopholes. Only once it passes that test should bond-rating agencies have the chance to say that New Jersey has plenty of room to raise new debt. (After all, Jersey already has a limit on debtbut has found countless ways to get around it.)
These risks are sufficient for Corzine to take apart his plan and deal with each piece separately:
* If the state is in dire need of transportation improvements that can't be funded through existing tolls, he should propose to raise tolls reasonably to fund such improvements.
* If the Turnpike Authority is so riddled with patronage that it can't responsibly manage the toll roads, then see if the new "public-benefit corporation," under a carefully written agreement with the state and run by a "professional management team" experienced in infrastructure, can do better.
(Of course, the Turnpike Authority was itself once supposed to be a professional company insulated from state government. And if it's so incompetent that it can't manage the roads, how will it be competent enough to design and manage the long-term contract for the new corporation?)
* If Corzine believes that the state's existing debt obligations are prohibitively onerous, he should make that case separately. If legislators and voters agree that the situation is that serious and has no other solution, perhaps he should propose a special tax levy dedicated by law to paying down that debt, borne by all taxpayers rather than toll payers.
Voters may prefer that the state try to cut spending rather than impose such a taxand they should have the right to make that argument, rather than think they're simply paying to use a road when they're paying a tax, too.
Original Source: http://www.nypost.com/seven/01142008/postopinion/opedcolumnists/jerseys_toll_tax_136062.htm