This bill, entitled the “Financial Restructuring, Debt Reduction, and Transportation Infrastructure Financing Act of 2008,” implements the Governor’s proposal for achieving State financial restructuring, reducing State debt, and providing long-term funding for the State’s integrated transportation system. As detailed in the Governor’s 2008 State of the State address, the administration strongly believes that the transactions authorized and defined in this bill represent the best available solution to combat the State's crippling debt, while also providing funding for transportation projects for a generation.Inorder to facilitate the Governor’sprogram of fiscal restructuring, debt reduction, and long-term transportation infrastructure financing, this billwill reorganize the State’s toll road authorities, provide for the establishment of two nonprofit corporations, authorize a concession agreement, establish a new tolling regime, and provide for the retirement of certain debt and the making of payments to fund transportation projects.
1. Reorganization of the State’s toll road authorities. The bill renames and continues the New Jersey Turnpike Authority (Turnpike Authority) as the New Jersey Capital Solutions Corporation (CSC) in but not of the Department of Transportation. The Atlantic City Expressway is to be transferred from the South Jersey Transportation Authority to the CSC as part of this reorganization.
The CSC is to consist of five members: The Commissioner of Transportation, the State Treasurer, another member of the Executive Branch to be appointed by the Governor, as ex officio members; and two public members, to be appointed by the Governor, upon recommendation of the President of the Senate and the Speaker of the General Assembly, respectively. The Commissioner of Transportation would be the chairperson of the CSC. The current power of the Governor to veto the minutes of the Turnpike Authority would not apply to minutes of the CSC. Likewise, the current power of the Governor to approve the issuance of Turnpike Authority bonds or to approve changes or increases in tolls would not apply to, respectively, bonds issued or roads owned by the CSC.
2. The Nonprofit Corporations. The bill authorizes the CSC to provide for the incorporation of two domestic nonprofit corporations, the Public Benefit Corporation (PBC) and the Citizens’ Oversight Board or Citizens’ Board.
The PBC will be a separate and independent legal entity from both the State of New Jersey and the CSC. The initial directors of the PBC will be named in the certificate of incorporation. The initial directors would be replaced (or reconfirmed) by individuals recommended by the Governor and elected by the Citizens’ Board.
The bill authorizes the CSC to enter into (a) a long term concession agreement with the PBC under which the PBC would operate, maintain, and collect tolls on the State’s toll roads and a segment of New Jersey Route 440, and (b) other assets rights agreements with respect to certain rights and interests associated with the assets of the CSC. The CSC retains the power to issue bonds.
During the period in which the PBC is granted a concession to operate and manage the State’s toll roads, the Citizens’ Board is to serve as the sole member of the PBC. Commencing with the first annual election of the board of directors of the PBC after the commencement date of the concession agreement, the directors would be elected by the Citizens’ Board upon nomination of the directors of the PBC. There would be between 10 and 15 directors of the PBC, with the precise number determined by the Citizens’ Board.Certain persons are prohibited from serving on the board of directors, such as certain senior officials in State Government or in entities controlled by State Government or in local government, as well as the Governor, the Lieutenant Governor, a member of the Legislature or an employee of the Legislative Branch. Also prohibited from being a member of PBC are officers, directors, or employees of the Citizens’ Board, except that one director may serve on the board of both the PBC and Citizens’ Board, but may not be an official or employee of the State of New Jersey. A majority of the PBC must meet specified independence criteria established by the PBC based on standards of independence for public companies, prevailing corporate governance practices or other similar criteria. The PBC would be required to hold one annual open public forum, and the PBC board would be authorized to hold periodic special meetings with the Citizens’ Board that would be open to the public.
The Citizens’ Board will be a separate and independent legal entity from both the State of New Jersey and the CSC. The initial directors of the Citizens’ Board will be named in the certificate of incorporation. The initial directors would be replaced (or reconfirmed) by individuals appointed by the Governor.
During the PBC concession period, the Citizens’ Board by-laws would provide that the Citizens’ Board would be governed by 15 directors, appointed by the Governor. Seven of the directors would be senior State Government officials (other than certain officials in the Departments of Treasury and Transportation), the Lieutenant Governor, or gubernatorial appointments.
Eight directors would be appointed by the Governor from the private sector, each of whom shall have expertise relevant to or an interest in toll roads or transportation matters. As noted above, the Citizens’ Board would have the important function of electing the board of directors of the PBC upon nomination of the PBC directors.
3. The Concession Agreement. The bill authorizes the CSC to enter into a concession agreement with the PBC on a sole source basis, giving it the exclusive right to operate, maintain, manage, expand and improve any or all the assets of the CSC specified in the agreement during the PBC concession period and to impose, adjust and collect tolls and charges thereon during the concession period. The concession period would be no longer than 75 years, although an additional term or terms may be added, but for no more than 24 years. The CSC assets include but are not limited to the New Jersey Turnpike, the Garden State Parkway, and the Atlantic City Expressway and a segment of Route 440.
The CSC shall not enter into the PBC concession agreement unless the agreement provides for certain conditions, such as employees of the CSC and the South Jersey Transportation Authority designated by the CSC becoming employees of the PBC, consistent with the terms of collective bargaining agreements. The State would seek the necessary federal approval so these employees would be permitted to remain in the Public Employees’ Retirement System. Also included are provisions relating to PBC contracts that require competitive procurement procedures, and the requirement that operation and maintenance standards shall be implemented by the PBC, which standards shall equal or exceed the operation and maintenance standards of the CSC. The PBC also will be required to contract with the State Police to provide law enforcement services on the toll roads at a level that is necessary to ensure the safety and well being of the public and that shall equal or exceed the current level of those services. The PBC shall also periodically provideto the CSC reports containing a significant and wide-ranging volume of informationto enable the CSC to monitor the performance of the PBC. Because the CSC would continue to be a public agency, the contents of the reports received by the CSC from the PBC would be subject to the Open Public Records Act.The PBC shall also comply with certain corporate governance principles taking into account the Sarbanes-Oxley Act of 2002 or similar corporate governance practices for public companies. Provision is also made for monetary penalties to be imposed on the PBC if the PBC fails to comply with certain provisions of the concession agreement.
The CSC is also authorized to enter into assets rights agreements with respect to the development, use, management, operation, leasing, licensing, concession and disposition of any CSC assets not subject to the PBC concession agreement or any rights or interests reserved by the CSC under the PBC concession agreement with respect to CSC assets. Any assets rights agreements that the CSC makes could be with private parties.
4. Tolling Provisions. Under the bill the CSC is to ensure that the PBC concession agreement contains a schedule of maximum toll rates that may be imposed by the PBC. Prior to January 1, 2010 the maximum toll rates on the New Jersey Turnpike, the Garden State Parkway and the Atlantic City Expressway will be the tolls in effect on the commencement date of the concession agreement. The Route 440 segment would have no tolls during that period. On the Garden State Parkway, the New Jersey Turnpike and the Atlantic City Expressway the maximum toll rates permitted would increase by 50% on January 1, 2010, and by 50% on January 1, 2014, January 1, 2018, and January 1, 2022 respectively. On the Route 440 segment, the maximum toll rates from January 1, 2010 through January 1, 2014 would be no greater than the highest toll rates on adjacent or connecting segments of the New Jersey Turnpike. Thereafter, the maximum toll rates would increase by 50% on January 1, 2014, January 1, 2018 and January 1, 2022 respectively. In addition to these increases, the maximum toll rates would be adjusted for inflation on January 1, 2010 and on each succeeding four-year anniversary to account for inflation during the preceding four-year period. The PBC could adopt toll rates at any level that does not exceed these maximums. The CSC would select a nationally recognized and accepted inflation index to be used in calculating the inflation rate. Maximum and minimum levels are established for the annual inflation rate to be applied.
5. Fiscal Provisions. Under the concession agreement between the CSC and the PBC, the PBC is given the right to collect such tolls and charges on the assets which it will operate and manage, subject to the maximum toll limitations and the terms of the PBC concession agreement, to produce sufficient revenue to pay debt service on the bonds which it is authorized to issue, to meet the expenses of maintenance and operation of its assets and to make payments to the CSC under the PBC concession agreement. Those payments will consist of a large initial payment (to be funded through borrowing by the PBC) and then subsequent smaller annual payments as specified in the agreement. It is projected that the initial borrowing may be between $32.6 and $37.6 billion.
From the borrowing by the PBC approximately $8 billion will be retained by the PBC, with one-half of this total held for financing reserves and the remainder for toll road capital expenditures. Under the concession agreement the remainder of the borrowed proceeds will be paid to the CSC to be used for three purposes. First, the outstanding bonds of the New Jersey Turnpike Authority and the South Jersey Transportation Authority (amounting to approximately $5.7 billion) would be retired. Then, approximately $10.6 billion would be used by the CSC to provide for repayment or defeasance of bonds issued by the Transportation Trust Fund Authority (TTFA) and provide for funding of TTFA capital projects. Of this amount about $9.2 billion would be used to retire debt, with about $1.5 billion to be used for pay-as-you-go capital projects. The payments to the TTFA will retire most of the authority’s debt and make the currently dedicated revenue stream for the TTFA available to support pay-as-you-go projects and new borrowing. The future receipt of periodic payments shall be applied by the CSC to make or finance, or both, payment to the Transportation Trust Fund Authority. It is intended that the combination of the initial payment to the TTFA and the availability of the periodic payments will provide a secure long-term funding for the State’s transportation infrastructure.
Lastly, the remainder of the funds paid to the CSC (estimated to be about $8-13 billion) would be paid to bond trustee(s) for the purposes of paying off debt of the State or of its instrumentalities, the latter debt service of which is payable by State appropriation (e.g., State authorities, such as the New Jersey Economic Development Authority). The retirement of this debt is anticipated to reduce the General Fund appropriations for debt service by $600 million to $1 billion a year for a decade, with smaller savings in later years.