He was a controversial guy, that James Fenimore Cooper.
The author of “Last of the Mohicans” turned off
a great many of his 19th century readers by
attacking them in his writings. But because he
was a noted historical figure born in New Jersey,
his memory is indelibly preserved and honored
for future generations at the service area that bears
his name between exits four and five northbound
on the New Jersey Turnpike.
However, Cooper’s prolific career and influential
books don’t seem to resonate with most
21st century Americans informally polled at his
namesake rest area on a recent Sunday night.
“Who?”stuttered one middle-aged man as he
shoved a french fry into his mouth while waiting
for his Burger King dinner inside the cement and
tile visitors building.
Some fraction of the turnpike’s more than
200 million drivers use this rest area every year,
stopping for refuge in the course of whatever
journey brings them onto the 148-mile toll road.
Judging from responses to this unscientific survey,
many never give a minute’s thought to how the
turnpike’s rest stops are named.
But the indifferent attitude switches dramatically
when patrons are asked about New Jersey’s
possible willingness to relinquish control of the
rest areas and the toll road itself—an option
being explored as a way to rescue the state from
financial ruin.
“It’s a terrible idea,” asserts Stacey Taylor,who
was returning home to Pequannock after dropping
her son at Rowan University. “The New
Jersey Turnpike is one of the most well-run and
safest roads in the state. Why would you want to
give that up?”
But that may not matter to the state’s decision
makers. A controversial new financing mechanism
unheard of a few years ago is already being
road tested in Europe, Chicago and Indiana and
has passed legislatures in 26 states. Pennsylvania
governor Ed Rendell is advocating the idea as a
funding solution for its transportation budgetary
shortfalls, and New Jersey is on its way.
Like it or not, traversing the asphalt artery that
has helped turn New Jersey into the butt of the
nation’s jokes for decades may never be the same.
Politicians call it “asset monetization” and
reporters sometimes call it a “sale,”“lease” or “privatization.”
But the most accurate and simple
way to refer to it is a “public-private partnership”
(PPP) and it’s being considered for many of New
Jersey’s public holdings—including the Turnpike
Authority’s properties—as a way to reduce the
state’s intractable debt.
There are at least dozens of ways asset monetization
can occur, but the most traditional
formula calls for a private company to pay the
state a large amount of money up front in return
for the ability to collect the revenues the asset
generates for the length of the contract. In the
case of the Chicago Skyway and the Indiana Toll
Road, the companies also took on the burden of
managing the highways for 99 years and 75
years, respectively. Here in Jersey, while monetizing
smaller assets like the lottery, for instance,
may cause concern, it’s the New Jersey Turnpike
and the Garden State Parkway that are receiving
the most attention. Deeply imbedded in the
state’s collective identity, all Jerseyans feel they
own part of the turnpike too, and many fear the
potential for lost jobs, higher tolls, or neglected
maintenance that could ensue if a private company
gets to rule the road upon which they rely.
Not to mention, history has made them
extremely skeptical of the financing gimmicks
that have too frequently failed to deliver what
their elected representatives had promised.
“If we don’t deal with this huge debt, our
state is going to fall behind economically and our
quality of life will slowly deteriorate,” warns
Senator Raymond Lesniak, (D-20), who has
introduced a bill to allow any qualified private
company to control the Turnpike Authority’s
assets for 50 years. “The damage will be irreversible
unless we do something about it.”
But Lesniak is traveling a lonely road. He
couldn’t find a single co-sponsor for his bill; just
about every politico, consumer organization,
newspaper editorial board and relevant industry
lobbying group and labor union is strongly
opposed; and an AAA poll released in March
concluded that 56 percent of New Jersey adults oppose the idea of partnerships for their toll roads.
Gov. Jon Corzine could turn out to be one
of Lesniak’s only allies. His administration is
working on its own proposal for asset monetization,
which may or may not include highways.
As of press time, the governor was slated
to announce a plan in late April or early May.
Although monetization’s motor has just
started to rev, it seems the state’s politicians,
radio commentators and consumer advocates
are already trying to slam on the brakes.
Lesniak complains that people across the state
are so busy shouting down the very notion of
PPPs, they don’t listen to its proponents.
“They’re just criticizing to gain political
points,” Lesniak accuses his adversaries. “Any
time you try to do things the way they haven’t
been done, you’re subject to ridicule. It’s our
responsibility to have a dialogue and a debate
about it.”
The general principles that guide the state’s search for an economic bailout go something like this: It’s widely acknowledged that for decades, New Jersey’s elected officials
have neglected to muster the political will to
raise taxes, cut spending, restructure the budget
or even increase tolls sufficiently. This
leaves the state unable to fulfill many of its
present and future obligations, and means taxpayers
are on the hook for $30 billion to
investors who buy the bonds the state sells in
order to raise cash to pay for projects and programs
that current revenues can’t support.
Furthermore, every year the state has to find
$1 billion to pay down that bond principle,
plus interest. Carrying this devastating debt is
the reason some complain “NJ is borrowing
from tomorrow to pay for today.”
The state’s financial condition is rapidly
approaching critical, particularly for transportation
needs. It takes $1 billion a year to
run the Department of Transportation and NJ
Transit, and to make up for their annual budget
shortfalls, the state keeps increasing the
length and dollar amount of the bonds it issues.
The NJDOT and NJ Transit get their
money from the Transportation Trust Fund,
which is filled principally by gas taxes, federal
contributions and bond revenues. However, a
majority of the most recently issued bonds
come due in 2040 but the trust fund is projected
to dry up in 2010. That’s because legislators
are borrowing against future gas tax
revenues to pay for present transportation
needs. Where will the money needed to pay
back those bond holders come from?
On the other hand, the Turnpike
Authority—a public authority headed by
governor appointees—is economically selfsufficient.
It oversees all aspects of the turnpike
and Garden State Parkway, which it funds
primarily with the $716 million in tolls it collects
annually. But only its commissioners
have the authority to raise those tolls, which it
hasn’t approved since 1999 for the turnpike
and 1988 for the parkway. Because tolls aren’t
keeping up with inflation, it’s getting harder
for the authority to support itself, much less
kick in its annual $22 million contribution to
the Transportation Trust Fund, which, as stated
earlier, will run dry in three years.
Desperate times call for desperate measures.
That’s why Lesniak and Corzine are
eyeing the valuable turnpike hungrily for the
immediate infusion of cash its monetization
could provide.
“We have to maximize our assets that
aren’t yielding value under the current way we
use them,” Lesniak insists.
He’s structured his bill so that a selected
company will pay the state upfront (an amount
he estimates to be roughly $15 billion) in
exchange for the company’s ability to collect
toll revenue and operate the roads according to
provisions specified in the signed contract.
As written, there are some restrictions in
the bill: toll increases must be pegged to
incremental cost of living increases; current
workers must be retained for at least six years;
the company will honor current contracts
with the operators of the PNC Arts Center
(which is owned by the authority) and the
turnpike’s service areas; and the company will
be responsible for proper road maintenance
and security, for which the state will keep
oversight and enforcement rights.
Revenues would be used immediately to
replenish the Transportation Trust Fund and pay
down the state’s general debt, which, according
to Lesniak and his few supporters,would free up
other money to fund projects like education
improvements and open space purchasing.
“What you’re doing is eliminating yearly debt payments. $15 billion is going to go to reduce the debt of the state, which means every year we’re not going to have to pay $1 billion
in interest and principle,” explains Lesniak.
If passed, the bill would only enable a contract
to be pursued; passage would not guarantee
that one would ever be signed.
Meanwhile, the state’s Department of the
Treasury is studying asset monetization too, so
that it can recommend a plan of action to the
governor. In order to best evaluate several distinct
possible approaches, the department
enlisted the analytical might of UBS
Investment Bank. In a report released last
October, UBS called the idea of monetizing
the turnpike and parkway “very” or “extremely
attractive” and cites a strong market environment
for these endeavors.
But the treasury department cautions
that it is too early to predict what course it
might recommend, and stresses that if it does
propose monetizing assets, it may include
holdings beyond just roads, and may not
include roads at all.
“We knew going in that roads were an
obvious place to look. That doesn’t mean
we’re going to do anything with them,” states
spokesman Mark Perkiss. “We’ve been surprised
at some of the things that the analysts
and our financial advisor showed us that had
potential. They pointed out that there may be
interest in the lottery. That was not something
we had thought of in the beginning.”
Senator Lesniak is at least partially okay
with that. He acknowledges that privatizing
the turnpike and the parkway alone probably
won’t raise enough money to cover all of the
state’s current debt, and concedes that his bill
is just one part of the solution.
Even so, Lesniak forecasts his bill is
doomed, even if it makes it out of the Senate
Transportation Committee, where, as of press
time, it was under debate.
“I think the prospects are slim and none right now,”
he admits. “It’s so easy to avoid solving problems
because change is so difficult.”
The chairman of the General Assembly
Transportation and Public Works Committee
won’t get to vote on Lesniak’s Senate bill, of
course. Nonetheless, he’s launched a public
relations war against allowing PPPs for transportation.
He begins by attacking the economics
behind them.
“The notion that there’s a silver bullet, that
there’s a quick fix, is quite frankly the notion that
has gotten us into these problems,” chastises
Assemblyman John Wisniewski (D-19). “We’ve
dug ourselves a hole and to presume that there’s
a magical Wall Street fix to dig us out of that hole
is preposterous.”
“This is like taking out a second mortgage
on your house to take a vacation,”agrees David
Schulz, director of Northwestern University’s
Infrastructure Technology Institute. “The
vacation is done, your tan is faded and now
you’re stuck with a series of payments.”
Another common objection is Lesniak’s
desire to use the windfall to pay for non-transportation
expenses, something Schulz argues
is “alarming,” and contradictory to accepted
public financing principles.
“These poor schmucks for the next 75
years will be paying their tolls on the Jersey
Turnpike and they’ll help us pay off the debt
and there’s absolutely no relationship between
the transportation benefit that those individuals
get and the benefit to the State of New
Jersey,” gripes Schulz.
A fairer solution, argues Abigail Field,
Legislative Director for New Jersey Public
Interest Research Group,would be to reinvest
the profits back into transportation needs. But
overall, her group is skeptical of asset monetization
deals as a matter of budget policy, and is
especially troubled by the types that seize public
property from public control.
“The easiest way to retain public control
is not to do a private deal at all,” Field says.
Yet there are alternatives. “Just like a private
company, the authority or the state could
go to the capital markets with the forecasted
toll revenues to raise the kinds of large upfront
payments the governor is seeking,” she says.
Included in Lesniak’s bill is a stipulation that
works off that premise. It’s a financing mechanism
he calls a “public-public partnership,” and
it would give the Turnpike Authority the right
of first refusal to match a private offer. But public-
public partnerships have infinite numbers of
possible derivations, including one listed in a
parallel bill introduced by Assemblyman
Wilfredo Caraballo (D-29). The bill puts forth
an idea that Lesniak believes will—in some
form—ultimately triumph: the state’s pension
fund managers would invest in the turnpike in
order to collect future toll revenues while leaving
operations to the authority.
The assemblyman calls it a win-win situation
that would raise long-term dollars for the
pension fund and short-term dollars for the
state to use to pay down its debt. “We need to
pour in more money to the pension funds and
maybe this would be one way to increase the
rate of return. It would decrease the burden
on the state taxpayers with respect to the
amount we have to put into pension funds.”
While NJPIRG isn’t endorsing any of
these approaches, Field believes these deals are
less dangerous when they are purely financial
and retain public control of the major thoroughfares
that drivers must use to traverse the
state and schlep their kids to the shore.
“Management of the turnpike wouldn’t
change in any way,” she explains. “So you
don’t have any of these ‘control of the turnpike’
issues—the conflict between profit
motives and public interest motives.”
But transportation financing expert Dr.
Joseph M. Giglio, professor at the College of
Business at Northeastern University, counters
that a smart contract would require state safety
and maintenance audits every year and at
the end of the lease term. Plus, he points out,
a corporation has a stronger economic incentive
to keep the roads safe and operable than
do politicians. Neglecting maintenance, he
asserts, would surely cut into profits.
“You knowthat if you buy new car that if you don’t change the oil every six months that your repair bill is going to be a lot larger,”
Giglio says.
But the length of the lease terms troubles
him, and others, because any contract signed
now could be rendered insufficient by changing
demographics, as well as technological and
safety advances that nobody can predict.
“Let’s say they come up with a new road
surface that is more expensive to lay down in
the short term but turns out to be much
safer—New Jersey might be willing to spend
the extra bucks because it’s saving its citizens’
lives. Would a private entity make that same
decision if it’s going to cut into its profit margin?”
Field asks.
These are undoubtedly scary questions
with no concrete answers. Yet anyone who
will ever travel the New Jersey Turnpike or
the Garden State Parkway has a crucial stake
in finding those answers. It is this balance that
makes the journey to convince the public to
privatize roads so wrought with peril.
It could be that the frenzied controversy
will compel lawmakers to do what has historically
come easier to them—defaulting to a
politically expedient solution. One could call it
a compromise or one could call it cowardice.
However one regards it, there is one alternative
recommended by the UBS Bank study
that will raise less money than monetizing the
roads but will also raise less ire from voters: It’s
selling the naming rights to public assets like
airports, arenas, and yes, the James Fenimore
Cooper Service Area.
Turnpike_5_07REV1.pdf