State and Federal Transportation Trust Funds Teeter on Edge of Bankruptcy

NEW BRUNSWICK, NJ—While highway and transit funding in New Jersey has been granted a temporary reprieve, the clock is still ticking as the funds responsible for powering infrastructure construction dry up.

Both the federal and state “transportation trust funds” were designed to rely on gas taxes, but in recent years, increasing construction costs have combined with a flat tax on gas to cause a fiscal imbalance.

The federal fund is under a two-month reauthorization, the sort of temporary funding patch favored by congressional Republicans.

The state fund, meanwhile, is being aided by loan repayments by NJ Transit, the cash-strapped state transportation agency that also made headlines this year for increasing its fares yet again.

In addition, the state government has continually borrowed money to fund new highway and transit projects, essentially taking out mortgages on everything from the New Jersey Turnpike to the NJTransit River Line.

Now, interest alone is consuming all of the gas taxes collected, leaving the thirty-year-old state trust fund in “terminal debt.”  When this happens, a debtor cannot afford to pay interest, and, if revenue or income are not increased, the debtor must default or go bankrupt.

The state fund is not completely powered by gas taxes. Sales taxes and highway tolls also contribute.

The tax revenue earmarked for the state Transportation Trust Fund amounts to $1.2 billion, but debt service and interest are now consuming all of that revenue.

NJ Transit is making that $1.261 billion loan repayment with money from bonds, along with revenues and funding for the Port Authority of New York and New Jersey.  Nearly half of the repayment, $627 million, is bond money.

Currently, the state and federal governments have been feeding money into the trust funds by raiding other funds.

The Federal government has poached at least $65 million from other funds since 2008, while Governor Chris Christie snagged $1.8 billion from a railroad tunnel that he cancelled. 

New Jersey has long had a habit of raiding funds to shore up other funds.  The Transportation Trust Fund has itself been a victim of this practice numerous times over the past several years, and it was only recently that it appears to have been a beneficiary of that custom.

Meanwhile, New Jersey Transit faces a $60 million shortfall in the new fiscal year, which began July 1. It is considering a 9% fare hike to cover the gap, although the agency says it has already saved $40 million from efficiency improvements.

This gap was apparently not addressed in the recently-passed $33.8 billion state budget, leaving NJTransit with little choice but to move forward with the unpopular hike.  The agency’s board is expeted to approve the hike on July 15.

There’s a growing consensus among people knowledgable about infrastructure that “something needs to be done” about New Jersey’s infrastructure.

More than one out of every three bridges in the state are either “structurally deficient” or “functionally obsolete,” according to the Federal Highway Administration, as of the end of last year.

A structurally deficient bridge is one that has deteriorated and/or is not able to carry as heavy a load as it used to. A functionally obsolete bridge is one which was designed for less traffic than it now carries, or is not built to present-day bridge standards. (One fine example might be the Pulaski Skyway, which has no shoulders along much of its length.)

New Jersey has 6,609 road bridges, of which 621 are considered “deficient” and 1,722 are “obsolete”.

Some 9.4% of New Jersey’s bridges have structural deficiencies, while 26.1% of the bridges are outdated. This puts New Jersey in the middle of the states, as far as deficient bridges go, but fifth among US states for obsolete bridges. 

Assemblyman John Wisniewski, chairman of the Assembly Transportation, Public Works, and Independent Authorities Committee in Trenton, has called for an increase in the gas tax.

“If we’re going to solve the problem [of transportation trust fund bankruptcy], we’re going to have to raise the [gas] tax, because we can’t do it any other way,” Wisniewski said.  He recently introduced a bill to raise the NJ state gas tax 25 cents. This tax is currently 14.5 cents,  the second-lowest in the nation.

Only Alaska’s gas tax is lower.

The tax increase would make the state $1.25 billion annually, and cost the average driver in New Jersey a little under $300 a year.

Meanwhile, there has been some pressure in Congress to raise the federal gas tax.

Earl Blumenauer, a Congressman from Oregon, introduced a bill in 2014, and again in February of this year, that would increase the federal tax by 15 cents a gallon.

Blumenauer said that this would bring the tax to the level that it would have attained had it been indexed to inflation when it was last boosted, in the 1990’s. The bill went nowhere.

If both increases were to take effect, New Jerseyans would see gas taxes, overall, jump from 32.9 cents to 72.9 cents. To many, that seems a bitter pill to swallow for New Jersey’s infrastructural illnesses.

Daryn Iwicki, the director of Americans for Prosperity, an anti-tax group, argues against any increase in the gas tax.

“A 25-cent gas tax hike would be just devastating. How much more unaffordable does Assemblyman Wisniewski want to make it for people to live in New Jersey?”

Two polls from the Rutgers-Eagleton Institute backed up Iwicki’s opinion last year, in which 66% of NJ respondents said they opposed hiking gas taxes in April and 58% were against the idea at the beginning of October.

The percentage of New Jerseyans supporting a gas tax increase has been on the rise, however.

In 2010, only 35% of state voters backed the hikes, according to a Quinnipiac poll.

Tom Bracken, the chairman of a lobbying group called “Forward New Jersey” and the CEO of the NJ Chamber of Commerce, has supported a gas tax increase, calling it “way overdue.”

Forward New Jersey consists of motorists, unions, and business groups, and was formed to address the economic crisis affecting the state’s transportation infrastructure.

However, neither President Barck Obama nor Governor Chris Christie apparently want a gas tax increase.

Obama has waffled in recent months, while Christie, who has publicly vowed to hold the line against gas tax increases, initially ducked the Transportation Trust Fund issue in a budget proposal for 2016, leaving himself open to rumors that there might be a backroom deal to raise the gas tax or produce other funding sources.

Obama favors a tax on the foreign earnings of US companies to make ends meet, while two Congressmen, New Jersey’s Tom MacArthur and Maryland’s James Delaney, have put forth a bill allowing firms to bring back money from abroad tax-free if the companies bought state and local infrastructure bonds.

Delaney reckoned that this policy would bring $750 billion into state and local funds.

This year, the Quinnipiac poll found that 50% of voters supported a tax hike.  New Jersey voters, in the same poll, supported maintaining and expanding the Hudson River rail tunnels – 89% considered it important to repair the existing tunnels, and 68% felt the same about expanding the tunnels.

There is also general agreement that the state budget is in trouble, with 92% of voters considering the budget situation “serious” or “very serious.”

While tax increases have become more acceptable among voters, the populace would still rather cut services than increase taxes, 53% to 34%, in order to balance the budget.

The gas tax increase, according to the October 2014 poll, was more likely to be opposed by low-income people than by wealthier ones, and more likely to be rejected by Republicans than by Democrats. Both political parties’ adherents were against a tax increase, including 52% of Democrats and 67% of Republicans. 

According to the April 2015 Quinnipiac poll, 56% of Republicans still opposed a gas tax increase, as did 51% of independent voters, but 63% of Democrats now favored a hike.

Quinnipiac noted a correlation between people’s age and their opinions of a gas tax increase: a little over half of voters under 55 years old (around 51%) opposed increasing gas taxes, while 56% of those above 55 supported a tax hike.