New Jersey, You Should've Built That Tunnel
There are lots of reasons for bondholders to love Colorado and show no respect for New Jersey. Here's a big one: infrastructure. Colorado made a huge investment in it and is getting rewarded by investors. New Jersey didn't and is being punished.
More than 20 years ago, Colorado residents defied business leaders, airline executives and not a few politicians (led by consultant Roger Ailes, now president of Fox News). They voted to borrow a lot of money -- a total of $4.4 billion by now -- to build the Denver International Airport. At twice the size of Manhattan it's the largest airport in the U.S., and it's been pumping up the economy ever since.
Denver International makes more money for the state than any other enterprise, pumping $26.3 billion a year into the economy while supplying 225,000 jobs. It gave Denver, the 22nd-largest U.S. city, the nation's third-largest domestic flight network, with a record 53.4 million passengers last year and revenue of $322.8 million.
The Denver airport is superior in the $3.6 trillion market for state and local government debt. The bonds that financed its construction returned 4.04 percent, the fifth-best weighted return during the past 12 months among the 53 U.S. airports with outstanding debt. They outperformed U.S. investment-grade and high-yield bonds, according to data compiled by Bloomberg. It costs Denver 3.77 percent to raise long-term funds right now, less than what airports in California, Florida, Georgia, Michigan and Texas are paying on their bonds, according to Bloomberg data.
By making Denver a destination for business and leisure travelers, the airport helped Colorado punch above its weight. Since 2010, the state's economic health has improved the most after North Dakota and Michigan. That's based on the Bloomberg Economic Evaluation of States, which considers personal income, employment, mortgage delinquency, tax revenue, home prices and equity markets. The 4.2 percent unemployment rate -- well below the national average of 5.5 percent in April -- owes much to the expansion of Colorado-based corporations such as Liberty Media Corp., Arrow Electronics Inc. and IHS Inc. Colorado ranked No. 4 in employment growth with 297,000 jobs created during the past five years, No. 5 in personal income growth, No. 14 in home price appreciation and No. 7 in the decline in mortgage delinquencies, Bloomberg data show.
Now look at what happened in New Jersey, the third-richest state based on median income, after it rejected a chance to improve its transportation infrastructure. In 2010, the federal government offered New Jersey $3 billion to build a rail tunnel to double commuter capacity to New York City. It would have relieved pressure on the overburdened existing tunnel, built in 1910 and damaged in 2012 by Hurricane Sandy.
Governor Chris Christie, predicting cost overruns in a rare period of disinflation and exceptionally low borrowing costs, canceled the project. The new tunnel would have created at least 200,000 jobs, and would have generated $9 billion in business revenue and $1.5 billion in federal, state and local tax revenue during nine years of construction, according to a March 2012 report by the U.S. Government Accountability Office.
Since cancellation, New Jersey's economic performance has lagged. Adjusted for inflation, its median household income declined 12.2 percent, compared with an average drop of 3.9 percent for the U.S. New Jersey is among only 12 states with deteriorating economic health defined by jobs, mortgage delinquency, personal income, home prices, tax income and stock performance, according to data compiled by Bloomberg. The same data shows Michigan and California, where infrastructure has been a priority, as leaders in job growth. By the same measures, New Jersey is No. 6 from the bottom.
There are always many reasons for weak economic performance. In New Jersey, transportation is vital. The state sends almost half a million people out of state for jobs, the most in the nation. The majority go to New York.
It should come as no surprise, then, that the state has lost the confidence of investors. While Colorado provided an 8.9 percent return since 2010, beating the national average of 4.95 percent, New Jersey's equivalent bonds gained 1.01 percent, the worst performance after Puerto Rico and Arkansas, according to the BofA Merrill Lynch U.S. Transportation Municipal Securities Index.
And while bonds to finance roads sold by Colorado during the period had the best performance with a 22.62 percent total return, beating the U.S. average of 9.5 percent, New Jersey's toll and turnpike bonds return 7.3 percent, according to the BofA Merrill Lynch U.S. Toll & Turnpike Municipal Index.
(With assistance from Shin Pei.)
This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.
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