The Murphy administration plans to borrow $500 million for New Jersey Transit equipment, but because of a constitutional loophole from over a decade ago, it will not need the approval of the state’s voters.
Under the agreement approved by the Economic Development Authority at its Tuesday board meeting, the state will issue 28-year bonds which, according to the agency, will finance the purchase of 600 new buses and 17 new train locomotives. The EDA will still have to figure out the dates the bonds will be sold and issued, and maturity dates, but the agency said that process will begin in early 2020.
The board unanimously approved the bond – laid out in a three-page memorandum – with less than three minutes of discussion. It is scheduled for a vote before the NJ Transit board of directors at its Wednesday morning meeting in Newark.
The EDA will own the equipment and lease it to the beleaguered mass transit agency until the bonds are fully paid off. Chiesa Shahinian and Giantomasi PC will act as the bond counsel and Barclays Capital Inc. will be the senior underwriters, under the agreement.
Gov. Phil Murphy has campaigned on boosting funding for NJ Transit, and legislative leadership has argued that the beleaguered agency needs to find new ways to bring in money beyond simply raising fares.
“The bonds will fund previously [b]oard-approved purchases of commuter buses and locomotives,” Nancy Snyder, an NJ Transit spokesperson, said in a statement to NJBIZ.
NJ Transit will allocate money from the $16 billion, eight-year Transportation Trust Fund in order to bankroll the state’s annual debt financing. Interest costs would be capped at 6 percent of the yearly payments, according to the memorandum.
“This is a continuation of NJ TRANSIT’s effort to modernize its fleet of trains and buses to improve service delivery and reliability,” Snyder added. “The bonds will also help provide near-term support for important, but unfunded, capital projects to improve the customer experience.”
Former Gov. Chris Christie used a similar financing mechanism in 2017 to borrow $300 million for facilities upgrades and a total redo of many offices at the statehouse capitol building — a decision that sparked controversy and legal challenges.
When the Christie administration started with the bond issuance process, several lawmakers sued unsuccessfully to block the borrowing, among them former Assemblyman Jon Wisneiwksi and former state Sen. Ray Lesniak, both Democrats.
In 2008, the state constitution was amended so that any borrowing beyond 1 percent of the state budget needed approval of the voters via an election ballot question. Agencies that had bond authority by that time, such as the EDA, were grandfathered in and did not need to receive such approval.
A state Superior Court upheld the Christie administration’s decisions because the bonds were already sold by that point.
Assemblyman Ron Dancer, R-12th District, introduced a measure in February 2018 that would close what was increasingly referred to as the “EDA loophole,” but the measure has gone nowhere.
The EDA controversially sold the bonds to RBC Capital Markets via a “private placement” transaction the same day they approved it, as opposed to the typical practice of putting the bonds out to market. NJ Transit maintains that this is one of the key differences between the 2017 bonds and the financing route which the agency is pursuing. Moreover, the agency argues, if it went through the process of putting the bond issue before voters, then the process could become far more dragged out for years. The state has yet to borrow any money under two other voter-approved bonds, and has been caught in the rulemaking process. They include a $125 million bond approved in 2017 for library upgrades and a $500 milllion bond for the upgrades to several K-12, vocational and county college facilities.
EDA Chief Executive Officer Tim Sullivan and Snyder both said that the financing arrangement approved Tuesday is similar to the $600 million bonds that the state will use to pay for half the costs of the Portal Bridge replacement.
“Financing in this manner will allow [NJ Transit] to move forward as expeditiously as possible to address one of its most pressing needs while also enabling the state to take advantage of the currently favorable interest rates,” Snyder said.
Sullivan told reporters following the meeting that “[t]here’s plenty of discussion on this” “and “a bunch of questions” from the EDA. But he assured that the financing, known as a “sale-leaseback structure” – where the seller leases certain property to the buyer – is “pretty typical.” “It’s revenue bonds, so it’s backed by an identified source,” he said.
Representatives from the state treasury did not return requests for comment.