Executive Summary

  1. The Problem
    • The State has issued a significant amount of bonded debt to invest in capital and fund operating expenses
    • We have not, however, had the courage to increase revenues sufficient to keep up with that debt
    • The consequence of our debt issuance decisions
    • The State’s operating budget is constrained by ever increasing amounts of debt service
    • We now have limited ability to borrow to meet our current and future capital needs
    • Debt has become increasingly difficult to afford
  2. The Answer
    • Raise capital that will allow the State to:
      a) pay off 50% of outstanding debt - $16 billion
      b) fund toll road and Transportation Trust Fund capital programs for a generation
      c) protect New Jersey’s citizens by requiring future State debt issuance to be approved by voters
  3. How do we do this?
    • Allow a newly established New Jersey non-profit corporation, the Public Benefit Corporation (PBC), to operate and maintain
      the roads
    • PBC raises money through its own debt issuance to pay for the right, for a period of time, to operate, maintain and invest in
      the toll roads
    • PBC pays the State for the right to operate the toll roads and collect the tolls
  4. Why is this a different approach?
    • Debt issued by PBC is NOT debt of the State
    • PBC is a non-profit company, operating the roads for the benefit of roadway users to ‘lessen the burdens of government’
    • PBC collects tolls and operates the roads consistent with current or improved safety, operational and maintenance standards
    • The State continues to own the roads and all of the related real estate
    • PBC bonds can only be repaid from the toll revenue, not from tax dollars
    • Future revenues in excess of operating and capital expenses, determined by a formula, will be reinvested in New Jersey’s
      transportation syste

Challenges to Balancing New Jersey's General Fund Budget

The structural deficit is caused by the State’s present inability to match recurring revenues to recurring expenditures.

New Jersey Has Significant Long Term Obligations Which Result in Large Annual Budget Requirements

New Jersey Faces Serious Capital Investment Challenges

New Jersey’s debt burden is one of the highest among the 50 states1, and growing rapidly

Challenges to Balancing New Jersey's General Fund Budget

  • Annual debt service obligations require $2.6 billion per year = 7% of the fiscal year 2008 (FY08) budget
  • The Governor has targeted debt service payments on outstanding bonded indebtedness as a category of expenditure that needs to be reduced

    Annual Debt Service ($ in Billions) [pdf 160k]

New Jersey Faces Serious Capital Investment Challenges

  • Transportation Trust Fund funding is only in place until FY11
    • If this funding is not in place, then potholes will not be filled, roads will not be built, bridges cannot be
      maintained safely and we cannot buy new buses, add trains or improve transit service
  • Failure to identify a consistent source of transportation funding post FY11 will jeopardize receipt of annual federal matching funds of $1.7 billion. Additionally, in order to maintain the federal matching funds for the construction of the ARC tunnel, New Jersey needs to identify $3 billion of funding for the project.
  • The State budget for FY08 is balanced at approximately $33.4 billion, including $1.1 billion of capital investment
    • 98% of the $1.1 billion is constitutionally dedicated to transportation, open space preservation and other
      environmental requirements
    • This means that all other state agencies and departments, such as Corrections and Human Services, must
      share $22 million for all of their capital investment needs this year
    • only ¼ of 1% of the next year’s needs

Governor's Core Principles on Asset Monetization Address Concerns About PPPs

“Any asset monetization proposal put forth by my administration will adhere to the following core
  1. New Jersey’s roadways will not be sold; and they will not be leased to a for-profit or foreign operator.
  2. Allowable uses of proceeds (reducing State debt and capital investments) will be identified upfront and subject to public and/or legislative approval with safeguards against diversions for other uses.
  3. New Jersey citizens will retain ownership and the benefits from both initial proceeds and ongoing operations.
  4. Safety, maintenance and operating standards will be provided at current or improved levels.
  5. Sufficient funding to meet the long-term capital needs required to improve our roadways and reduce congestion will be provided.
  6. Terms and conditions of employment for current employees and contractors will remain unchanged with prevailing wage and competitive contracting procedures retained.
  7. Toll schedules will be open, predictable and available to the public.
  8. There will be a substantial, open and public discussion in advance of any transaction. I will hold 21 town hall meetings in 21 counties.”

    Governor Jon S. Corzine
    June 28, 2007
  9. “Reduce the State’s bonded debt by at least 50 percent.
  10. Provide permanent funding for the Transportation Trust Fund.
  11. Establish new limits on State borrowing.”

    Governor Jon S. Corzine
    November 15, 2007

The State’s Asset Review

  • The State began a review in the fall of 2006 to determine which of its assets could generate value for public
  • While several different opportunities were identified, the monetization of toll roads was identified as being both
    valuable and feasible

    Feasibility - Source: UBS report dated November 2006 [pdf 180k]

The Plan of Action to Unlock the Value in the Road Assets

  • Realize the value in the New Jersey Turnpike, Garden State Parkway, Atlantic City Expressway and Route 440 and unlock this value in the State's road assets by changing the business model
  • Transfer the right to operate, maintain, expand the roads and collect tolls through the Concession Agreement with the newly created non-profit Public Benefit Corporation (PBC)
  • Retain ownership of the roads
  • Control core issues like safety, maintenance and operating standards, reinvestment in the toll roads and, within limits, toll rates, through the Concession Agreement - Strict financial penalties will be imposed on PBC for non-compliance with these standards
  • Benefit from the Concession Agreement
    • Optimize total value
    • Fund capital investments
    • Achieve private sector efficiencies over time
  • Use funds received from PBC to meet the challenges of debt reduction and investment in transportation

Structure of a PBC

New Jersey Turnpike Authority
  • Enters into Concession Agreement
  • Oversees and enforces the conditions in the Concession Agreement with PBC
  • Monitors operating, maintenance, safety and capital investment standards and imposes severe financial penalties for non-compliance
  • PBC
  • Operates, maintains, invests
  • Incurs no State debt
  • Public Interest Corporation

  • Approves PBC Board of Directors nominated by PBC
  • PIC’s Board is comprised of a majority representing stakeholder interests
  • A Public Benefit Company

    A New Jersey non-profit company - a Public Benefit Company - will be formed

    PBC will:

    • Be a New Jersey non-profit company
    • Have a professional board of directors, independent of the State (the PBC Board)
    • Hire a professional management team to report to the PBC Board
    • Run an efficient, safe transportation network equal to, or better than, what exists today
    • Provide all of the services required and exercise the rights granted by the Concession Agreement
    • Be funded solely from toll and concession revenues
    • Retain existing employees of the affected public authorities
    • Be responsible for compliance with detailed operating, safety and maintenance standards embodied in the Concession Agreement or pay significant financial penalties

    PIC will:

    • Be formed as a new non-profit corporation (the Public Interest Corporation) to serve as the sole member of the PBC representing the interests of the State, its citizens and transportation stakeholders (including, for instance, commuters, truckers and environmental interests)
    • Have limited rights to approve PBC board member recommendations
    • Balance the board of the Public Interest Corporation with Gubernatorial appointees and stakeholder representatives
    • Be empowered with a right to vote on the appointment of PBC Board members
    • Empower the New Jersey Turnpike Authority to manage and enforce the terms of the Concession Agreement

    PBC initial payment will be funded:

    • Strictly with its own debt funding; (potentially from a significant use of tax-exempt bonds)
    • Through PBC debt for which the State will have no obligation
    • With no outside equity investors

    Public Benefit Company Will Serve the People of New Jersey

    • PBC’s earnings in excess of its costs will:
      • First, go to reinvestment in the operations and maintenance of toll roads themselves and pay its debt
        service obligations
      • Second, be retained for investment in transportation projects on the toll roads
      • Third, pursuant to a predetermined formula in the Concession Agreement, periodic payments will be
        paid to the State or a State Authority to be used for transportation capital investment throughout the
        State of New Jersey
    How Does This Meet Our Goals?
    • Not State Debt
      - PBC is an independent, non-profit company separate from the State
    • Private Sector Efficiencies
      - A professional, highly qualified board and management team, independent of the State, will be hired to focus on running these roads safely and efficiently
    • Raising Capital
      - A professionally run organization, with a Concession Agreement lenders will support,
    • No Sale of Assets
      - The toll roads continue to be owned by the New Jersey Turnpike Authority
    • No Equity Investors
      - State benefits from future performance improvements through future annual payments
      - No equity returns are paid out to third parties
    • Controlled Expenditures of Proceeds
      - A state Authority (the New Jersey Turnpike Authority) will manage the expenditure of proceeds in accordance with legislation, solely for debt reduction and transportation improvements
    • Transportation Investment
      - The toll roads will be maintained, billions of dollars of improvements made on them and capital investment will be made in the state transportation network

    How is a PBC Different from Today’s Toll Road Authorities?

    PBC State Authority
  • New Jersey Non-Profit Corporation
  • Independent board of directors (no elected or appointed officials and no vendors)
  • Professional, private sector management
  • Management incentives for:
    – efficient operations
    – capital investment in the assets
    – meeting all prescribed obligations and lessening the burdens of government
  • Contractually defined operating, safety, maintenance and capital investment standards with strict financial penalties for non-compliance
  • Governmental Instrumentality
  • Politically appointed board of directors
  • Gubernatorial veto of Board minutes
  • Professional government employees
  • No incentive compensation
  • Historically operated with limited funding
  • Operations and maintenance levels are set to preserve safety, but capital investments and toll levels are subject to political considerations
  • How is a PBC Different from other PPPs?

    PBC Long Term Concession with Private Equity*
  • Non-Profit New Jersey Corporation
  • Independent board of directors
  • Upfront payment plus substantial periodic
    payments over time
  • Upside improvements in revenues, finances and operations permit larger payments to the State
  • Efficiencies of private sector incentives and operations
  • For-profit corporate entity
  • Board of directors formed to include equity investors and service providers
  • Large upfront payment, but lower payments over time , if any
  • Profits released from the corporate entity are paid to equity investors as dividends, not reinvested for public purposes
  • Efficiencies of private sector incentives and operations
  •   * Chicago Skyway and Indiana Toll Road PPP transactions used this structure
    In short, with a PBC
    • No leakage of excess revenues to equity investors, companies or operators
    • Any excess revenues reinvested in New Jersey transportation projects
    • Concession Agreement controls all operations, maintenance, capital investment and safety standards
    • May be able to issue tax exempt debt

    Myths vs. Facts

    Myth: The State will take on more debt through this proposal.
    Fact: All potential debt would be issued by the PBC. This debt would be paid through dedicated revenues earned from tolls and the State would have no liability on debt payments.

    Myth: Wall Street investors will make exorbitant equity returns from this transaction to the detriment of the State and its citizens.
    Fact: Governor Corzine’s public benefit corporation structure ensures that revenues in excess of the costs will be retained by the PBC to be used or reinvested in transportation projects in New Jersey. Previous efforts to monetize assets by other states did not allow for excess revenues to be retained and used in this manner.

    Myth: Efforts to “cut state spending” can result in the same resetting of the budget as the Governor’s financial restructuring and debt reduction proposal.
    Fact: Our budget for FY09 already requires $2.0 – 2.5 billion in cuts. In order to additionally fund transportation and debt reduction, another $2.0 – 2.5 billion of cuts could be needed. That is 15% of our budget and it does not even address toll
    road capital needs. We are open to hearing alternative solutions that will cut the state’s debt in half and provide transportation funding for a generation.

    Myth: The money generated by this transaction will go into the general fund, or be otherwise redirected.
    Fact: The money generated by this transaction will be used to cut our overwhelming state debt by half and fund transportation projects in New Jersey for a generation.

    Myth: Trenton can’t be trusted to use the toll road proceeds responsibly.
    Fact: We agree. Our plan will only allow proceeds to be used to pay down debt and fund needed investment in New Jersey’s bridges, roads and mass transportation. In fact, the Governor’s plan calls for strict limits on state spending and the state’s right
    to issue debt without voter approval.

    Myth: Whoever takes over the toll roads will lay off workers and cut corners on services to save money.
    Fact: The PBC will offer employment to all employees currently working on the toll roads. New Jersey’s citizens will see continued State Police presence, high safety standards and maintenance on our toll roads. The PBC will have these standards
    contractually required at risk of significant financial penalties.

    Maximum Permitted Toll Schedule Under the Concession Agreement

    Maximum Toll Formula
    All Roads: 50% maximum real toll increases in 2010, 2014, 2018, and 2022 plus annual increases, based on CPI, levied to capture the prior 4 years, starting in 2010 and every 4th year thereafter

    The Funds From Monetization Will Be Invested in Transportation and Debt Relief

    Projected TTFA Funding, Dedicated Revenues and Annual Debt Service

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