WHEN FISCAL RESPONSIBILITY AND INTEGRITY MEAN REFINANCING

by David P. Rebovich During last fall’s campaign and in last month’s inaugural address, Jon Corzine spoke forcefully about his commitment to restoring fiscal reasonability and integrity to state budgeting. Now the new Governor is thinking seriously about refinancing the debt assumed by the soon to be unfunded Transportation Trust Fund to obtain money to pay for transportation projects for the next five years. This despite the fact that budget experts, economists, and Corzine himself have labeled refinancing a costly gimmick that may provide lawmakers with a short-term political gain while saddling taxpayers with a long-term financial burden and the need to find money a few years down the road. However, in today’s political and economic environment, when the alternative is hiking the state gasoline tax, fiscal responsibility and integrity may well have to mean refinancing. New Jerseyans know about the state’s budget problems. They also seem to realize that these problems cannot be solved solely by cutting inefficiency, waste and fraud in state operations and programs. That means, of course, that some sort of tax hikes will be needed to balance the budget and to pay for necessary programs, including repairing, maintaining and upgrading the state’s roadways and mass transit system. But polls show that citizens here want their lawmakers to pursue cuts before even thinking about tax hikes. That’s especially true of raising the gas tax. The story that the state needs to find more money for transportation has been around for quite a while. So has the one that state officials have used gas tax revenues to pay salaries and to borrow billions rather than pay directly for annual spending on roads, bridges and mass transit. “We squandered money and now we want more” is hardly an effective pitch to a citizenry already cynical about politicians and angry about years of irresponsible state budgeting. Then add the other obvious fact that like most Americans, New Jerseyans are already upset about higher prices at the pump, and increasing those prices with a bigger state gas tax does not seem advisable. Except that a higher gas tax is better than the alternative being bandied about. In the abstract, that is. But given the state’s overall fiscal condition and the strong anti-tax sentiment here, Corzine’s plan to refinance the Transportation Trust Fund’s debt and borrow more money may make political sense. And, it just may make it easier for the Governor to make some unpleasant but fiscally responsible decisions to balance the state budget itself. As Corzine explained on New Jersey 101.5 FM radio last Wednesday evening, he is disinclined to increase the state gas tax to provide needed revenues for the Transportation Trust Fund. Shortly all the money collected from the current 10.5 cent per gallon gas tax will have to be used to pay the interest on the $12 billion the state has borrowed to spend on transportation projects. Like Christie Whitman did a decade ago, Governor Corzine is considering refinancing the current debt at lower rates and borrowing upwards of $6 billion to pay for transportation projects for the next four years. In one version of this idea, the state would repay the existing and new debt over thirty years which would increase interest payments by $5 billion over that time period. In his Inaugural Address Corzine announced, “There was a clear message heard last fall: we must change how our government does business…To do that we will need real reform…We cannot build a financial future on the crumbling, papered-over foundation of a recurring fiscal crisis. Too often, for too long, under both parties, fiscal gimmicks have been invented, recycled, and reapplied to mask fiscal realities…The games are over. New Jersey must put its fiscal house in order. The time of one-shot budget fixes is past. It’s time to balance the books. Just as it’s time to restore the Transportation Trust Fund…” But refinancing and more borrowing don’t permanently balancing the books. They are recycled techniques used by the Whitman Administration to obtain funds for the TTF and by the McGreevey Administration to balance budgets that were in structural deficit. Rather than putting the state’s fiscal house in order, Corzine’s idea passes the buck, literally, to future generations. But on the New Jersey 101.5 radio show, the Governor explained to news director Eric Scott that “…if there is a way we can responsibly raise capital to invest in long-term capital projects like highways and bridges and mass transit, then I don’t think we are gimmicking.” Corzine also invoked the textbook argument that the cost of capital projects should be shared by future users and beneficiaries. If repairs and upgrades to the transportation and mass transit systems will last for decades, why make current drivers pay the full costs of them through an increased gas tax? Well, one reason is that future generations of New Jerseyans already have an a huge amount of debt passed on to them. Another is that the $5 billion in debt service that the state would take on in a refinancing and borrowing plan could be used for other necessary spending. Like for the currently bankrupt School Construction Corporation, whose obligations, we are told, will total some $12 billion. Does the Governor believe that this $12 billion should be borrowed? That would mean that the new Governor may well authorize $17 billion in debt in his first months in office. That does not seem like the reform, change or “tough choices” that Corzine said in his address were part of “the process of reestablishing fiscal integrity.” When confronted about the need for more recurring revenues to avoid the annual doomsday budget deficit scenarios of the last several years, Corzine has already shown himself to be capable of spinning. He insists that his Administration will do everything possible to “grow the economy” and attract good paying jobs to the Garden State. These new jobs will presumably enable New Jerseyans in the future to afford to pay off that big state debt and will provide state coffers with sufficient revenues so that future gimmickry will not be necessary. Nonetheless, in his Inaugural Address Corzine did admit that achieving fiscal integrity “…will not be painless. A hike in the gas tax would be deemed “painful” by most New Jerseyans. But financial pain is relative, and a gas tax hike of 10 to 15 cents a gallon can be managed by many drivers here and in the long run have important societal benefits. At the risk of lecturing people about what they can afford, permit me to offer some simple math. A ten cent increase in the gas tax would cost the driver who uses 25 gallons a week an extra $2.50. That’s the price of a premium burger at a fast food chain, a designer cup of coffee, a 7-ounce bag of chips, and lots of other discretionary items that we can do without. It’s also the price of one gallon of gasoline that, after all, can be conserved through intelligent driving practices. Now not everyone can make these sacrifices, as small as they are. But most New Jerseyans probably can. In the process they would do the environment a favor, save wear and tear on the roads, help cut down on accident rates, perhaps pick up a little exercise, and maybe even think about replacing a gas guzzler with a more fuel efficient vehicle. In the process they would prevent the state from borrowing billions of dollars that their kids and grand kids would have to pay back. But Governor Corzine, a self-stated “progressive” Democrat, apparently does not support such common sense and political correct arguments. Is it because he doesn’t have any confidence in his ability to convince his constituents of the need for, and the desirability of, stable funding for the Transportation Trust Fund. Maybe. After all, he’s new to the job. Is it because he lacks the guts to raise taxes? That’s doubtful. On the contrary, smart money says that Governor Corzine will opt to refinance and borrow money to pay for transportation projects instead of raising the gas tax because he believes he will have to increase a broad-based tax to
balance next year’s budget. The talk on West State Street is about a possible “wholesale tax” and an extension of the sales tax to cover professional services. And don’t forget that property tax reform will require a shift to more reliance on another revenue source, likely the state income tax. Corzine the politician may be a work in progress. But the new Governor already seems to understand that New Jerseyans may be calling for fiscal responsibility and integrity, but they can only take so much at one time. David P. Rebovich, Ph.D. is Managing Director of the Rider University Institute for New Jersey Politics (www.rider.edu/institute). He also writes a regular column, “On Politics,” for NEW JERSEY LAWYER, and writes monthly report on New Jersey for CAMPAIGNS AND ELECTIONS Magazine.

WHEN FISCAL RESPONSIBILITY AND INTEGRITY MEAN REFINANCING