State of New Jersey - csg.org · Council of State Governments 2008 Spring Conference. 1 ... The asset evaluation review began in 2006 resulting in a proposal that upon implementation

State of New Jersey

May 29, 2008

The Asset Evaluation Program: A Progress Report

Council of State Governments 2008 Spring Conference

1

The Fiscal and Transportation Funding Problems Facing New

Jersey are Not Unique…..

23 states, including New Jersey, are facing budget shortfalls in 2009

New Jersey, like many states, is facing significant liabilities in pension and health care costs

All states face rising costs and shrinking federal support for transportation investment

…..But our approach to tackling them is:

We recognized the direct correlation between New Jersey‟s fiscal constraints and our inability to invest sufficient

funds in transportation and infrastructure

The asset evaluation review began in 2006 resulting in a proposal that upon implementation was capable of

producing a positive and transformative effect on several key issues confronting the State and brought the scope

of these challenges into the public dialogue

Provided long term investment in the toll roads

Provided long term funding for investment in the statewide transportation network

Provided funds to pay off one half of the State‟s debt

22

Where we Started:

The Problem - Financial Emergency20 years of short-sighted financial decisions by both parties left us in a deep hole

Misspending

Overspending

Irresponsible Borrowing

3

New Jersey Is Not Funding all of our Long-Term

Obligations

„98 „99 „00 „01 „02 „03 „04 „05 „06

5

10

15

30

20

25

$35

Net Tax-Supported Debt Outstanding ($ in Billions)

Fiscal Year

„07

CAGR = Compound Annual Growth Rate

= debt issued since June 2007

„97„96„92 „93 „94 „95„91„90

FY 2008 Funding of Long-Term Obligations

Transportation Capital Funding

9.8

4.9

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Annually Required

Contributions FY 2008

Actual Contribution

FY 2008

($bn) Post Retirement Medical ExpenseUnfunded Pension ExpenseDebt Service

42.0

4.0

0.0

10.0

20.0

30.0

40.0

50.0

10-year Capital Plan Existing State

Funding ¹

($bn)

1 Available Transportation Trust Fund funding

44

Transportation Investment Continues to Require Focus and

MoneyNew Jersey… most densely populated corridor state

Highly dependent on our transportation network

Almost $2 billion in annual federal funding at risk after 2011

$40 billion in transportation needs over the next decade for safety and

congestion relief

– 700 deficient bridges

– 10,000 miles of highways to be resurfaced

- 2nd rail tunnel under the Hudson River

5

Governor Corzine Chose to Investigate Public-Private

Partnerships (PPPs) as a Possible Solution…

30yrs 99yrs 30yrs 99yrs

Net R

evenue

Net R

evenue

Municipal Revenue

ProjectionsMunicipal Bond

Investor Loan

Capacity

Private Sector

Projections

Incremental Value

Generated by

Private Sector Risk

Tolerance

Municipal Model PPP / Concession Model

Capitalization of Net Revenues from an Infrastructure Asset

PPPs can

Provide the public sector access to private sector discipline, expertise, efficiencies and

sources of capital

Allow the public sector to transfer financial, construction and operating risks

Significant Value can be Generated by Private Sector Financing

6

Where Did We Start?

The starting point for our work was to inventory the major State Asset Classes and

identify those that merit the State’s near-term focus

Asset Classes

Key Criteria Lottery Naming Rights

Rights-of-Way

Toll Roads

Real Estate Development/ Train Stations

Convention Centers, Stadiums

and Other 1

Newly-Tolled

Facilities Waterways and Ports Hospitals

Student Loans Transit Airports

Water/ Wastewater

Facilities Existing Prisons

Solid Waste

Facilities

Recreation Facilities (Parks) Equipment

Stand Alone Operation

+ + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + - + + -

Output/Service Delivery Driven

+ + + NA NA + + + NA + + + + + + + + + + + + + + + + + + + + + + + -

Substantial Operating

Component + + + NA NA + + + NA + + + + + + + + + + + + + + + + + + + + + + + + + + + + + NA

Alternative Use of Asset

- - - + + + + + + + + + + + - - - - - + + - - - - - - - - + - - -

Innovation in Delivery

+ + + + + + + + + + + + + + + + + + + + + - - -

Long-Term Availability

+ + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + -

Minimum Transfer of

Social Control + + + + + + + + + + + + + - - - + - + - - - - - - - + - - - + +

Manageable Security/

Safety Issues + + + + + + + + + - + - - - + + + - - - + - - - - - + + + + +

Risks Commercial in

Nature + + + + + + + + + + + + + + + + + + + + + + + - - - + + - - + +

Manageable Size

+ + + + + + + + + + + + + + + + + + + + + + + + + + + + - - - -

Overall Potential

+ + + + + + + + + + + + + + + + + + + + + + + + + + + / - - -

+++ Very Favorable ++ Favorable + Somewhat Favorable – Somewhat Unfavorable – – Unfavorable – – – Very Unfavorable NA: Not Applicable

Note:

1 Other includes racetracks, concert halls and meeting spaces

7

The State‟s Asset Review

Feasibility 3

Re

lati

ve V

alu

e 1

High

Low

Low High

Fiber Optic Network ⁴

AC International Airport

HESAA

Development Rights

at NJ Transit Stations

NJ Turnpike ⁴

NJ Lottery ⁶

NJ Turnpike

Authority Assets

NJSEA ²Naming Rights

Newly-Tolled Facilities

HOT Lanes

GS Parkway 4

AC Expressway

PNC Bank

Arts Center 4

Source: UBS report dated November 2006

Notes:

1 Relative value net of any directly associated debt

2 Reflects a group of 7 venues

3 Indicates likelihood of completion; Includes Market Acceptance, Risk

Profiles and Relative Lack of Complexity

The State began a review in the fall of 2006 to determine which assets could generate value

While several different opportunities were identified, the monetization of toll roads was identified as

being the most valuable, feasible and market ready

4 Included in NJ Turnpike Authority Assets which are not individually

available without total NJ Turnpike Authority debt defeasance

5 Bubble size indicates the level of market readiness for each Asset

6 Value is net of projected reductions to General Fund contributions

Market Readiness⁵

Low Medium High

8

Summary of the Initial Phase of Study

The initial evaluation process can be summarized as follows:

Asset Class EvaluationIndividual/Discrete Asset Evaluation

Market/Investor Interest Assessment

Pathfinder Analysis

¨ Net Value to the State

¨ Feasibility

¨ Market Readiness

¨ The study concluded that the Assets generally fall into four Tiers based on their Net Value to the State, Feasibility and Market Readiness

¨ All of the Assets in Tier 1 and Tier 2 should be considered in P

¨ Atlantic City Expressway

¨ Development Rights at New Jersey

Transit Stations

¨ Garden State Parkway

¨ New Jersey Lottery

¨ New Jersey Turnpike

¨ Atlantic City International Airport

¨ Fiber Optic Network

¨ High Occupancy Toll Lanes (“ HOT Lanes” )

¨ Naming Rights

¨ Newly-Tolled Facilities

¨ PNC Bank Arts Center

Tier 1 Tier 2



Pathfinder Analysis


¨ Feasibility

¨ Market Readiness



Pathfinder Analysis


¨ Feasibility

¨ Market Readiness

¨ The study

¨ All of the Assets in Tier 1 and Tier 2 should be considered in Phase 2. These include:



Transit Stations







¨ Naming Rights



Tier 1 Tier 2



Transit Stations







¨ Naming Rights



Tier 1Tier 1 Tier 2Tier 2

9

How Can we “Unlock” the Value of our Assets?

Public Authority Model

Public Benefit Company

“PBC”

Long-Term Concession

IPO

Transaction

Description

Authority is created / retained by the State and given ability to develop, finance, manage, and operate the asset

State assigns the right to set and collect tolls and manage the roads for a defined period of time per parameters stipulated in an agreement in exchange for monetary payment(s) by a stakeholder-controlled entity for the benefit of the road users and the transportation system in the State of New Jersey

State assigns the right to set and collect tolls and manage the roads for a defined period of time per parameters stipulated in an agreement in exchange for monetary payment(s) by a private sector concessionaire

State assigns the right to set and collect tolls and manage the roads for a defined period of time per parameters stipulated in an agreement in exchange for monetary payment(s) by a concessionaire whose shares will be publicly traded

10

Public Authority Model Public Benefit Company

“PBC” Long-Term Concession IPO

Generate Net Cash Proceeds

Pay Down Debt

Capital Investment

Limit Toll Increases

Retain Upside

Fin

an

cia

l

Limit Execution Risk

Maintain or Enhance Service Quality and Safety

– Impose penalties for noncompliance

Protect Employees

– Preserve long-term collective bargaining ability

– Pension parity

–

Shift Maintenance Cost & Capital Ex Risk

Preserve Existing Contracting Structure

Po

licy

Maintain Regulatory Oversight

Key: Meets/ Maximizes objective Partially meets objective Counter to / Does not meet objective

How are Key Considerations of the State Addressed in

these Alternative PPP Structures?

1111

Can We Capture the Value of Our Toll Roads within

the Parameters of The Corzine Principles?

New Jersey’s roadways will not be sold; and they will not be leased to a for-profit or

foreign operator

Allowable use of proceeds (reducing State debt and capital investments) will be identified

upfront and subject to a public and/or legislative approval with safeguards against diversions

for other uses

New Jersey citizens will retain ownership and the benefits from initial proceeds and

ongoing operations

Safety, maintenance and operating standards will be provided at current or improved levels

Sufficient funding to meet the long-term capital needs required to improve our roadways

and reduce congestion will be provided

Terms and conditions of employment for current employees and contractors will remain

unchanged with prevailing wage and competitive contracting procedures retained

Toll schedules will be open, predictable and available to the public

There will be a substantial, open and public discussion in advance of any transaction. I will

hold 21 town hall meetings in 21 counties

1212

The Proposed Solution: The Public Benefit Corporation

(PBC)

Public Benefit Corporation -

Non Profit Operator of the Toll Roads

State Agency -

Owner of the Toll Roads

Citizens Oversight Board, Inc. -

Representing the Public Interest

Concession

Initial payment and

future periodic

payments

Vote for PBC Board

Members

Agreement

PBC Board of

Directors

Lenders/

Bondholders

Attorney General

Oversight of non-profit

organizations

Public reporting

13

What Does the PBC Solution Accomplish?

Provides for significant capital investment in the tolled facilities

Provides a long term funding source for statewide transportation investment by retaining the excess funds from PBC operations within the State rather than providing returns to external equity investors

Significantly reduces the State‟s transportation and general fund debt

Creates an independent, non-governmentally operated or controlled non-profit corporation to operate, invest and maintain the tolled facilities more like a business

What it does

What it doesn’t do

Generate funding for long term pension or health benefit liabilities

Provide funding for non-transportation infrastructure investment

1414

How does PBC Raise Funds to Pay for the Right to Operate,

Maintain and Invest in the Toll Roads?

First increase is in 2010 and is a maximum of 50% plus inflation adjustment

Three other increases of up to a maximum of 50% plus inflation adjustment

will come in 2014, 2018, and 2022; then only inflationary increases thereafter

New Jersey Turnpike 1

Concession Year 2010 2014 2018 2022

Passenger Vehicle

Average Trip 2

$2.05 3.45 5.85 9.85

Garden State Parkway 1


Average Trip 3

0.60 0.95 1.60 2.70

Atlantic City Expressway 1


$0.50 Toll Barrier 4

0.85 1.45 2.40 4.05

Notes:

1 Assumes 3% Annual CPI Increases

2 Assumes 22.9 mile average trip

3 Assumes 15 mile average trip

4 $0.50 ramp tolls are the majority of the ACE toll points

Proposed Toll Schedule

PBC issues its own bonds secured by the revenues to be derived from the tolls

collected pursuant to the long term concession agreement

1515

NJ Tolls within the Historical Context of Inflation

Notes

1 US Bureau of Labor Statistics

2 New York Times and Associates Press

3 Average ticket price based on Goodman & Company survey of all admissions to movie theaters

4 The Garden State Parkway end-to-end toll is based on average of a full length trip northbound and full length trip southbound

Over the period 1950-2007 prices on everyday staple items have increased far more

Since they opened, tolls for traveling the full length of these roads have increased modestly and have

failed to keep pace with inflation

0

100

200

300

400

500

600

700

800

900

1,000

1,100

1,200

1,300

1,400

1,500

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2007

Ind

exed

Pri

cin

g

CPI Bread¹ US Postage Stamp

New Jersey Minimum Wage¹ Hamburger² Movie Ticket³

New Jersey Turnpike Garden State Parkway⁴ Atlantic City Expressway

16

Where is the State of New Jersey in the Process Today?

The Administration is currently focused on adopting a Fiscal 2009 Budget that is

lower than the one adopted in Fiscal 2008

The Governor has indicated that he does not believe there are sufficient votes to

pass the PBC plan as proposed

Alternative ideas that are being proposed by members of the legislature and other

interested parties are being reviewed

The Governor remains committed to finding solutions to the State‟s significant

problems, including:

Fiscal Restructuring

–Fiscal 2009 proposed budget is LOWER than the Fiscal 2008 appropriations act

–Governor Corzine is committed to limiting future expenditures to recurring revenues

Debt Reduction

–Fiscal 2009 proposed budget includes the use of $650 million of non-recurring fiscal 2008 revenues for debt defeasance, producing $130mm of recurring expenditure savings. A modest first step toward reducing the State‟s debt burden

–The Governor supports a proposed constitutional amendment to limit newly authorized borrowing only to voter approved debt

17

Transportation Investment Funding Options

Governor Corzine proposed the Public Benefit Corporation, which could have

provided over $15 billion of funding for toll road and statewide transportation

capital investment immediately, and subsequently provided billions more over time.

Alternative proposals include:

– Gas tax increase and future indexing

– Tolling of un-tolled interstates

– Increased tolls on current roads, but at lower rates than in PBC proposal and

subsequent indexing

– Sale or lease of the New Jersey Lottery

ANY OF THESE OPTIONS COULD BE PART OF A STRATEGY FOR

TRANSPORTATION INVESTMENT IN NEW JERSEY

THE LEGISLATURE AND THE ADMINISTRATION WILL HAVE TO WORK

TOGETHER TO FIND A SOLUTION THAT IS ACCEPTABLE TO ALL

18

FAILURE TO FIND A RECURRING FUNDING SOURCE FOR THE

STATE’S ESSENTIALTRANSPORTATION INFRASTRUTURE IS

UNACCEPTABLE

OUR FUTURE ECONOMIC GROWTH AND FISCAL INTEGRITY

DEPEND UPON IT

19

APPENDIX

20

New Jersey Roads

Documents

State of New Jersey - csg.org · Council of State Governments 2008 Spring Conference. 1 ... The asset evaluation review began in 2006 resulting in a proposal that upon implementation