New Jersey Turnpike Outlook Revised to Negative on Toll Transfer Concerns

The New Jersey Turnpike Authority’s credit outlook was lowered to negative from stable by Moody’s Investors Service, which noted the “siphoning” of toll money for projects outside the system.

The revision affects $8.2 billion in debt. Moody’s affirmed the authority’s A3 rating, four levels above non-investment grade. The firm released the report today in connection with the agency’s $1.5 billion sale of Build America Bonds scheduled for Dec. 6.

The authority, which oversees the New Jersey Turnpike and the Garden State Parkway, provides about $26 million a year to support general transportation expenses. It was scheduled to pay $1.25 billion toward the Hudson River commuter-rail tunnel that Governor Chris Christie canceled Oct. 27. Transfers from the toll roads are likely to increase amid state budgetary pressures, Moody’s said.

“The authority’s level of autonomy and the siphoning of enterprise revenues for non-turnpike system purposes are areas of increasing concern,” Maria Matesanz and Richard E. Donner, both Moody’s analysts, said in the report.

The Turnpike retained it’s A+ rating, fifth highest, and stable outlook from Standard & Poor’s, the company said today. S&P cited the turnpike’s low tolls and stable operations.

Tom Feeney, a spokesman for the authority, said the agency disagreed with the Moody’s revision.

“Moody’s has a generally negative perspective on the economy of New Jersey and the region, and their rating reflects that,” Feeney said by e-mail.

Hudson Tunnel

The $1.25 billion scheduled to go to the Access to the Region’s Core, or ARC, rail tunnel will be used instead for roads and other projects outside the system, the authority reported in bond documents related to the Dec. 6 deal.

The authority expects to spend at least $295 million a year on “non-turnpike system purposes” from 2012 through 2017, including the $195 million it had promised to spend annually on the tunnel, the Build America Bond documents say.

The turnpike generates about $960 million a year in tolls, according to the documents. That’s scheduled to rise to $1.5 billion after a 50 percent toll increase on Jan. 1, 2012.

Alternative Funding

Christie, a Republican who became governor in January, is looking for ways to pay for highways and mass transit without support from the Transportation Trust Fund Authority, which has reached its borrowing capacity. Critics including Democratic Assemblyman John Wisniewski, chairman of the Assembly Transportation Committee, say Christie killed the project to free money for a trust-fund replacement.

“The state’s budgetary pressures, structural deficit and transportation funding shortfalls make it likely the authority will continue to be tapped to pay for transportation projects and non-turnpike system maintenance,” the Moody’s analysts said in the report.

The turnpike’s estimate of 6 percent annual growth in toll revenue through 2020 may be “optimistic given the current sluggish economic recovery in the state,” Donner and Matesanz said. They said the turnpike could be downgraded if revenue falls short of projections and debt-service coverage declines.

The acknowledgment of plans to divert the tunnel spending to other projects off the turnpike is “very significant,” Martin Robins, founding director of the Alan M. Voorhees Transportation Center at Rutgers University, said in an interview yesterday.

Past Precedents

“Historically, only turnpike projects have been funded with turnpike tolls,” said Robins, who was the original New Jersey Transit representative on the tunnel project. The tunnel “was one of a few exceptions to the rule -- by far the largest exception.”

The turnpike authority will get the $1.25 billion meant for the tunnel from $4.4 billion of bonds to be sold in various amounts from 2012 to 2018, the official statement for next week’s Build America Bond sale says.

Most of the money will be for capital projects on the two highways the authority runs: the 122-mile (203-kilometer) turnpike and 173-mile parkway, the statement says. The tunnel money will go elsewhere.

“The state continues to deliberate and evaluate options with respect to the future funding of the state’s transportation needs,” the offering statement says. “There can be no assurance the authority will not be requested to make payments in connection with any such purposes.”

Cancellation Complications

Christie killed the $8.7 billion tunnel on Oct. 27, saying New Jersey taxpayers might be responsible for cost overruns he estimated could reach $5 billion. New Jersey gave up $3 billion in federal grants when the project was killed. It’s also been billed $271 million to reimburse the U.S. Transportation Department for federal money spent.

The Transportation Trust Fund Authority issues $1.6 billion of debt a year. After July, all the $895 million in annual gas taxes and other revenue it gets for the next 31 years will be needed for payments on $12 billion of outstanding debt, bond documents show.

Christie is awaiting a report before the end of the year from state Transportation Commissioner James Simpson on strategies for replacing the fund’s support.

The governor has always suggested the tunnel money would be used for other transportation work if the rail project was canceled, his spokesman, Michael Drewniak, said yesterday.

“It’s obviously going to be put to use someplace,” he said.

The Assembly’s Wisniewski said he’ll ask lawmakers to review whether the turnpike is authorized to use toll money for projects unrelated to the highways it manages.

“In government,” he said, “you can’t do a bait and switch.”

To contact the reporter on this story: Dunstan McNichol in Trenton, New Jersey, at dmcnichol@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net

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