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Christie Scales Back Road Bonding Cuts After Revenue Miss

New Jersey Governor Chris Christie
Chris Christie, governor of New Jersey. Photographer: Scott Eells/Bloomberg

New Jersey Governor Chris Christie, a first-term Republican who ran on a campaign to “tear up the state’s credit card,” now plans to close his revenue shortfall in part by borrowing more.

Christie, who gained a national profile with his push for smaller government, will take $260 million of cash funding for transportation out of his proposed fiscal 2013 budget to make up for $362 million less revenue than he projected in February, Treasurer Andrew Sidamon-Eristoff said on May 23. The state will issue more bonds to meet its goal of $1.6 billion in road work for the fiscal year that begins July 1, he said.

“This is a one-year initiative, and we do not make this recommendation casually,” Sidamon-Eristoff told lawmakers.

The move was an about-face for Christie, 49, who last year announced an $8 billion, five-year transportation-funding plan that would rely on less debt and more cash. Issuing more bonds means Christie may not have to abandon his plan to cut income taxes by 10 percent for every state resident over three years.

New Jersey’s revenue may trail Christie’s projections by as much as $1.3 billion through June 2013, David Rosen, the Legislature’s chief budget analyst, said May 23. Sidamon-Eristoff says that shortfall is $676 million.

Closing the Gap

In addition to reducing cash spending on transportation, Christie plans to divert $279 million over two years from a fund that invests in renewable energy and efficiency programs.

Democrats, who control both houses of the Legislature, opposed Christie’s plans to cover his shortfall. Assembly Budget Committee Vice Chairman Gary Schaer said the governor’s tax-cut plan favors the wealthy and he should reconsider it.

“How do we explain to the public that we’re borrowing money to provide income-tax relief that mostly benefits the rich?” said Schaer, a Passaic Democrat. “It’s the equivalent of going to your bank and borrowing money to deposit into your checking account that you later repay with interest.”

New Jersey, the most densely populated U.S. state, pays for road and bridge work from a 10.5 cents-per-gallon gasoline tax and other transportation fees collected in its Transportation Trust Fund. All of that revenue is consumed by debt service on more than $13 billion of authority bonds outstanding, leaving no money for new projects.

Gas Tax

Christie, the first Republican elected New Jersey governor since 1997, has pledged not to raise the gas tax to replenish the transportation fund. Sidamon-Eristoff said in March that the administration would seek legislative approval to borrow $1.1 billion in fiscal 2013 for the fund.

Legislation is being drafted that would raise the fund’s debt ceiling by $260 million, the treasurer said yesterday.

Christie told reporters yesterday in Atlantic City that borrowing for road work isn’t the same as borrowing for the tax cut. The state needs to compensate for an unexpected dip in energy-tax revenue after the warmest 12-month period on record, and is still committed to stepping up cash payments for roadwork, he said.

“We’re making a change in one year in order to make sure we keep our promises to the people of this state that it’s time for them to have their taxes cut,” Christie said. “I’m not going to allow a one-time occurrence like a warm winter prevent our ability to cut taxes”

Debt Ratio

New Jersey’s debt rose 3.1 percent to $38.1 billion in the year ended June 30, the slowest growth in four years, as Christie’s administration reduced the pace of borrowing. Debt had more than doubled over a decade, from $14.5 billion in 2001.

The state has the third-highest net tax-supported debt per person and the fourth-highest net tax-supported debt as a percentage of 2011 personal income, according to Moody’s Investors Service. New Jersey is the second-wealthiest state, with per-capita personal income of $51,358 in 2008, according to the U.S. Census Bureau.

Moody’s, in a May 22 report, cited New Jersey as an example of U.S. states that are moving to reduce new borrowing and increase “pay-as-you-go” funding amid “fiscal stress and anti-debt sentiment.”

At a hearing yesterday on Christie’s spending plan, Senate Budget Committee Chairman Paul Sarlo, a Wood-Ridge Democrat, said the governor cannot borrow to balance the budget. The state Supreme Court banned the practice of selling bonds to finance operating expenses in 2004.

Apples, Oranges

The treasurer said the administration’s plan is not to increase borrowing to balance the budget, but to “scale back a planned program” of cash funding over the five-year program to 33 percent from 38 percent. That’s triple the amount under the previous five-year plan, he said.

Sidamon-Eristoff said borrowing for the transportation fund and the state budget are “apples and oranges.” Senator Loretta Weinberg, a Democrat from Teaneck, told the treasurer “we’re borrowing from the apples and we’re calling them oranges.”

“It’s simply not true to try to say that we’re bonding out operating expenses to save New Jersey,” Sidamon-Eristoff said. “That’s not what’s happening.”

Assembly Budget Committee Chairman Vincent Prieto said the plan is a reversal of Christie’s position to reduce reliance on debt to finance road work. It’s “troubling” Christie would boost borrowing “just to plug a gap,” he said.

“Everything needs to be on the table” to balance the budget, Prieto, a Democrat from Secaucus, told reporters in Trenton on May 23.

Transport Bonds

New Jersey’s Transportation Trust Fund Authority sold $1.3 billion of debt in November. The bonds were rated A1 by Moody’s and A+ by Standard & Poor’s, one step below New Jersey’s general-obligation debt. Those bonds have outperformed top-grade municipal debt, signaling Christie may find ready demand for the securities.

June 2042 trust fund bonds traded May 17 for an average yield of 3.74 percent, down from 5.05 percent at the time of the November sale, according to data compiled by Bloomberg. Buyers demanded about 0.6 percentage point of extra yield above 30-year general-obligations rated AAA, compared with a gap of 1.22 points at issue, according to Bloomberg BVAL data.

Christie, speaking to a business group in Trenton on May 23, urged the audience to press lawmakers for approval of a bond measure to finance transportation work, saying the state would “grind to a halt” without it.

“This is our investment in New Jersey’s infrastructure, in New Jersey’s businesses,” Christie said.

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