|FOR IMMEDIATE RELEASE||
CONTACT: Tom Vincz
|September 12, 2006||
Cigarette Revenue Pledge Issue to be Addressed
TRENTON -- State Treasurer Bradley Abelow today disclosed that the State is moving swiftly to correct a technical problem in the cigarette tax law that could otherwise affect the sufficiency of pledged cigarette tax revenues needed for a debt service payment due in December on the NJ EDA $1.4 billion Cigarette Tax Revenue Bonds issued in 2004. The problem, contained in the 2006 law raising the cigarette tax by 17.5 cents and dedicating additional revenue to charity care, prompted Standard and Poor’s to place New Jersey EDA Cigarette Tax Revenue Bonds on Credit Watch list until the situation is corrected.
“We have notified the Legislature about the technical problem in the cigarette tax bill. Legislation will be introduced next week and we are working administratively to resolve this problem,” Abelow said. “We are also advising rating agencies and the bond insurers of the steps we are taking to resolve matters quickly,” he said.
The State has issued the attached notice to investors:
CUSIPS: 645916Q59, Q67,Q75,Q83,Q91, R25, R33, R41, R58, R66, R74, R82, R90, S24, S32, S40, S57, S65, S73
Notice to Bondholders
On October 14, 2004 the New Jersey Economic Development Authority issued $1,461,030,000 of its Cigarette Tax Revenue Bonds pursuant to P.L. 2004, c. 68 (the “Bond Act”). The Bond Act, among other things, established the Dedicated Cigarette Tax Fund (the “Dedicated Fund”) into which a certain portion of cigarette tax revenues collected on or after July 1, 2006 are required to be deposited. Pursuant to a contract between the Treasurer and the Authority (the “State Contract”) entered into in connection with the issuance of the Bonds, the State Treasurer has pledged to pay to the Authority 78.598% of amounts collected and deposited into the Dedicated Fund. However, the Bond Act also provided that no deposit can be made to the Dedicated Fund until $150 million of cigarette tax collections had been deposited into the Health Care Subsidy Fund established pursuant to P.L. 1992, c. 160 (the “Health Care Subsidy Fund”).
On July 8, 2006, P.L. 2006, c. 37 was enacted into law which, among other things, increased to $365 million the amount of cigarette tax collections required to be deposited into the Health Care Subsidy Fund before amounts may be deposited into the Dedicated Fund. An inadvertent result of the Amendment is that amounts pledged for payment to the Authority under the State Contract may not be available for deposit into the Dedicated Fund in time to meet the December 15, 2006 interest payment on the Bonds. The debt service reserve fund is funded at maximum annual principal and interest and is available. The estimated cigarette tax revenues for the full fiscal year are expected to be more than sufficient to provide for all requirements.
The State is pursuing amendatory legislation to correct any timing imbalance in the cash flow. The State is also exploring various other options, including funding the debt service due on December 15, 2006 through a credit to the Dedicated Fund as an estimated receipt pending actual receipt of cigarette tax revenues as authorized by the Fiscal Year 2007 Appropriations Act subject to the approval of the Legislative Budget and Finance Officer.