How Will Cash-Strapped NJ Pay Its Share of Gateway Rail-Tunnel Project?

December 1, 2015

Sobering report on state’s finances by credit-rating agency nevertheless suggests possible financing scenario down the road

By John Reitmeyer, NJ Spotlight

Federal and state officials gave the plan to build a new rail tunnel under the Hudson River a major boost earlier this month when they announced a commitment to evenly share costs that could be as high as $20 billion.Website Insert Perfect Answer copy

But now comes the hard part: Determining exactly how to come up with the money.

A report issued last week by Moody’s Investors Service drove home that challenge, offering up some sobering facts about New Jersey’s ability to help fund the tunnel project, dubbed Gateway, including a tight state budget, significant debt and a fund for new transportation projects that’s on course to run out of money by the middle of next year.

But the report also offered a glimpse at how New Jersey could eventually afford its $5 billion share by the time a new tunnel is ready to open in about a decade. It cited the likely availability of low-interest loans, the potential to defer initial debt payments and the expected participation of the Port Authority, which maintains its own robust capital-planning budget.

“There will be many options to divide costs and leverage a variety of grant and loan opportunities,” the report said.

Dark cloud’s silver lining?

For New Jersey officials, those options provide plenty of reason at this point for optimism, even if many initially viewed the report from Moody’s, a major Wall Street credit-rating agency, as a warning sign.

“I think it’s just too early to engage in this pessimistic discussion, assuming New Jersey just won’t be able to pay its share,” said state Sen. Robert Gordon (D-Bergen), who’s been leading a series of legislative hearings in recent weeks on the Port Authority and capital projects including Gateway as chairman of the New Jersey Senate Legislative Oversight Committee.

Under the funding agreement announced on Nov. 12, New York and New Jersey would each be responsible for covering up to half of an estimated $10 billion state share of the Gateway project.

But New Jersey will have some time to clean up its messy finances if, as Moody’s suggests, the first debt payments for Gateway can be deferred until the new tunnel opens, which could be a decade away.

That extra time would also help ease New Jersey’s most pressing transportation-funding challenge right now, which is the pending expiration on June 30, 2016, of the state’s current five-year, $8 billion Transportation Trust Fund finance plan.

Lawmakers have yet to say how they plan to reauthorize the trust fund, but an increase of the state’s 14.5-cent gas tax along with a constitutional dedication of the new revenue for transportation is now widely expected to be proposed as part of the next five-year plan.

If debt payments for Gateway aren’t due until the new tunnel opens, the first bills would likely be covered not in the five-year TTF plan that lawmakers are working on now, but in the following plan when revenue would likely be more stable. And low-interest loans from the federal Railroad Rehabilitation and Improvement Financing program that have been discussed for Gateway could make New Jersey’s payments as little as $150 million to $200 million annually spread out over 30 years.

Like Gordon, Chris Santarelli, a spokesman for the state Department of Treasury, downplayed the funding concerns raised in Moody’s report. And he expressed confidence that a new TTF plan would be in place when the state’s next fiscal year begins on July 1.

“The Moody’s report is not saying the state will be unable to pay its share,” Santarelli said.

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