Last week, New Jersey Governor Chris Christie cancelled the biggest infrastructure project in the nation, the Mass Transit Tunnel (also known as ARC or Access to the Regions Core), the first tunnel to be built under the Hudson River in over 100 years. The new tunnel would add two additional tracks leading to a new six-track platform underneath the old Farley Post Office in the City.
Currently, the commuter trains from New Jersey and the regional/national Amtrak trains use the same two-track tunnel for access to Penn Station in Manhattan, a necessary stop for all trains going north and south. This causes a great deal of delay as riders of the Acela Express would attest. The Acela is the most profitable Amtrak line in the nation, making a profit of $41 per passenger while the rest of the lines lose $32 per passenger on average. The Acela line is a popular alternative to all other modes of transport. No crappy airport experience. No cramped and smelly Chinatown bus. No tolls or I-95 gridlock. Smooth, roomy, comfortable and fast. Ample space for your luggage. Wheelchair friendly. Plugs for your laptop or phone charger. WiFi. Dining car. Puts you right downtown in Washington, Baltimore, Philadelphia, Providence, Boston, and in Midtown Manhattan. It is government owned and it works. We need more of it. One major problem is the chokepoint tunnel entrance in New Jersey. (Acela still needs dedicated track, exclusive right of way, and needs to lose weight, but that's another story.)
Twenty years of planning have gone into the new Mass Transit Tunnel. Federal transportation funding to the tune of $4 billion has been secured. The Port Authority kicked in another $3 billion. President Obama's Recovery Act kicked in $130 million. All New Jersey had to do was provide $1.250 billion and they could spend the next 50 years touting how easy it is to get to and from the central business district of the region. Furthermore, their share was to paid from increased tolls on New Jersey highways, which would lower traffic, congestion, and pollution. Not a tax, but a toll. Work began last year. But Governor Christie canceled the whole thing. Why?
Here is what he said in his cancellation speech:
I have made a pledge to the people of New Jersey that on my watch I will not allow taxpayers to fund projects that run over budget with no clear way of how these costs will be paid for," said the governor. "Considering the unprecedented fiscal and economic climate our State is facing, it is completely unthinkable to borrow more money and leave taxpayers responsible for billions in cost overruns.
Even though the vast majority of the costs will be born by the Federal Government and the Port Authority, and even though the New Jersey portion will be paid by tolls, not taxes, Christie thinks his taxpayers are on the hook. Why?
The Star-Ledger editorial page weighed in:
The governor’s decision to kill the Hudson River tunnel project will go down as a blunder of historic proportions. It will stunt the state’s job market, depress home values, and leave us with nightmarish traffic jams and dirtier air.
He is leaving $3 billion in federal money on the table. And he’s putting at risk another $3 billion in Port Authority money that had been set aside for this project. Those are collosal sums.
So why did he do it? Why would he kill a project that even he concedes is critical to the state’s future?
He wants you to believe he had little choice because the costs were skyrocketing.
Don’t buy it. The evidence makes it clear that he wanted to kill this tunnel project so he could grab the money New Jersey had set aside for it. That is the only way he can avoid raising the gas tax to finance transit projects within the state’s borders.
The Star-Leger is correct, but there is more to the story.
The Transportation Trust Fund, New Jersey’s main source of funding for road and transit projects, is caught in a massive spiral of debt.
It didn’t happen overnight but gradually: Over the last 25 years, we have bought ourselves major transportation improvements – road widenings, interchange redesigns, new rail lines and countless other projects – without raising the money necessary to pay for them. Instead, we’ve borrowed money. We have borrowed – and we continue to borrow – so much money that nearly every dollar we raise in taxes for transportation projects from the gas tax and other taxes, almost $900 million a year, is instead going to pay off interest and principal on bonds issued years ago.
"Spiral of Debt" a report by the Regional Plan Association
Emphasis mine. Years and years of New Jersey Governors have faced the phobia of voters over increasing taxes. Christie is no different. He wanted to borrow his way out of the problem by making plans to refinance the authority's debt and kicking the can down the road. Recently, the transportation authority announced it was issuing $1.43 Billion in new bonds in as Christie tried to follow through. But Democratic legislature halted the bond sale and demanded a real plan from Christie. They later folded after Christie immediately ordered a stoppage of all road & bridge work. So, New Jersey's fiscal conservative solved a problem by doing what Republicans always do: borrow money. But this caused an even bigger problem:
Moody's also revised the outlook for $11.1 billion of New Jersey Transportation Trust Fund Authority bonds to negative, noting that much of the debt is repaid by state appropriations, some of which now appear more risky.
"Due to the risk of nonappropriation, we rate these bonds one notch below the state's general obligation rating," Moody's said.
The transportation bonds command a "Aa3" rating from Moody's.
New Jersey is one of the biggest issuers of municipal bonds in the country and one of the biggest targets of municipal credit default swaps. As the state's credit declines, so does its ability to do do what Christie wants to do...kick the can down the road and not have to face the only obvious, inevitable solution: raising taxes. The only other option are letting roads and bridges crumble until someone gets killed, or default and financial ruin. The Transportation Authority cannot default because those bonds are backed up by gas taxes. If the gas taxes are insufficient, the state of New Jersey will have to pay by some other means.
By canceling the commitment of Turnpike Authority tolls to support the tunnel project, the Governor can divert those funds to the trust fund, shoring up the financial position of the fund and allowing road repair and bridge projects, etc., to continue. So, once again, short-term thinking on the issue of taxes has forced a government into making bad decisions.
New Jersey's gas tax is 14.5 cents per gallon. In New York, it is 44.6 cents. In Connecticut, it is 41.9 cents. In Pennsylvania, it is 32.3 cents. In tiny little Delaware, it is 23 cents. New Jersey could double its gas tax, fix its transportation fund problems, improve its bond rating, and it still would have the second lowest gas taxes in the region. And, they'd have much better, cleaner, more efficient, job-creating, economy developing train service for the trouble.
Governor Christie's ideological loyalty to the Republican mantra of never raising taxes is putting New Jersey in worse condition that it is in already. Robbing trains to maintain highways is far more expensive than laying track over the long haul. Failing to invest in mass transit improvements hurts the economy, costs jobs, worsens pollution, and worst of all does not solve the financial predicament New Jersey is in.
Hopefully, Secretary LaHood's most recent intervention can talk some sense into this man. The bottom line, however, is the same: New Jersey has to raise the gasoline tax. Or collapse.
(Full Disclosure: The diarist is a former municipal bond trader and has traded in New Jersey general-ob munis, rev munis, and muni credit default swaps.)
Update: Many of the comments note Switzerland's completion of the world longest rail tunnel after 20 years of work. It is an significant engineering accomplishment that this tiny nation, with about the same population as the City of New York, should be proud of. I'd just like to note who paid for it. From NPR:
Trumpets sounded, and workers wiped away tears as nearly 20 years of drilling came to an end. When the Gotthard Base Tunnel is fully completed in 2017, it will allow millions of tons of goods currently transported by trucks to be shifted to trains and will play a key role in the creation of a high-speed rail network connecting all corners of Europe.
The Gotthard Base tunnel will cost $12 billion, about $1,300 dollars for every Swiss taxpayer. The Swiss were willing to pay that to get thousands of polluting trucks off the roads and preserve their pristine Alpine environment.
We used to be a country that did great things like this.