Haines: Turnpike Forced To Borrow To Meet Current Obligations

Haines: Turnpike Forced To Borrow To Meet Current Obligations

Senator Philip Haines, a member of the Senate Budget and Appropriations Committee, sent a letter (attached below) today to the Executive Director of the New Jersey Turnpike Authority asking why they were forced to issue short-term bonds to avoid defaulting on current debt. The letter is attached.

"I am deeply concerned that the New Jersey Turnpike Authority is issuing short-term bonds to avoid defaulting on current financial obligations. I sincerely hope that this is an aberration and not a ploy to give the Corzine Administration cover to impose a huge toll increase on New Jersey working families. Common sense would indicate that the millions in tolls already collected by the Turnpike Authority would be sufficient to cover current debt.

"New Jersey is already unaffordable for working families without having to swallow a huge toll increase. That is why I support Senator Lance's amendment to the New Jersey constitution that would require voter approval of all debt, including the governor's massive toll hike scheme."
May 20, 2008

Turnpike Executive Director Michael Lapolla

New Jersey Turnpike Authority

P.O. Box 5042

Woodbridge, NJ 07095-5042

Dear Mr. Lapolla:

An article in the Star-Ledger Sunday reported the New Jersey Turnpike Authority has borrowed money on a short-term basis to avoid defaulting on its current debt.

I was shocked to learn that the financial situation of the Turnpike Authority is so weak that short-term borrowing is necessary.

I am aware it is common for government bodies and agencies to borrow to meet short-term financial obligations, pending the collection of revenue. As you know, the State borrows $3 billion early in the year to make its payments in anticipation of revenue coming in later in the year from the income tax.

However, such borrowing is usually done by government entities that frequently experience delayed or varying and/or unpredictable revenue collections. And it's avoided whenever possible because paying interest on short-term debt costs taxpayers money.

The Turnpike Authority has a very stable, predictable and constant flow of revenue. It should never or very rarely have to borrow to meet short-term expenses, and it should have a sufficient surplus built up to maintain a 20 percent reserve to meet the terms of its bond covenants without paying banks fees and interest for short-term debt.

That's why this borrowing raises serious questions that need immediate attention. I would appreciate it if you would answer the following questions at your earliest convenience:

1) Why is short term borrowing being used by the Turnpike Authority? How much exactly will the Turnpike Authority need to borrow this year? How much has been borrowed so far?

2) How much will tolls have to be increased to bring the authority's collections up to the levels required in bond covenants?

3) Will tolls have to be increased even more later this year or next to pay for planned capital improvements? What is the total toll increase you predict will be needed over the next two years to meet the Turnpike's need for cash to meet bond covenants and capital spending needs?

4) If the Turnpike's cash flow is so low as to risk a default of the authority's bonds, why is the Turnpike continuing to make payments to the State of New Jersey for other transportation projects?

5) Why doesn't the Turnpike have a larger reserve to prepare for such budgeting emergencies?

6) Why isn't the Turnpike considering cutbacks in spending to boost reserves rather than considering toll increases?

Sincerely,

State Senator Philip Haines

District 8