View Count: 75 |  Publish Date: April 16, 2013
Christie Highway Debt Exceeds Plan by 21% on Revenue Gap
By Michelle Kaske & Terrence Dopp - 2013-04-16T00:01:00Z
New Jersey Governor Chris Christie,who pledged to reduce state bonding, hasn’t been able to keep avow to curb borrowing for roads and bridges. Investors in the$3.7 trillion municipal market welcome the extra debt.
The New Jersey Transportation Trust Fund Authority, whichfinances roads, bridges and mass-transit, plans to borrow $875million today as transit-related munis with a similar creditgrade are set to outperform for the longest stretch since 2008.
In the two years through June, the fund is set to issue$2.62 billion of debt for capital projects, 21 percent more thanthe first-term Republican governor had planned. The state’srevenue collections have trailed projections, leading Christieto lower allocations to the fund and borrow instead. Still,investors will focus on the sale’s relatively higher yields,said Matt Dalton at Belle Haven Investments Inc. in WhitePlains, New York.
“This deal feeds right into demand” for securities ratedA, said Dalton, who helps manage $1.5 billion of munis.
Christie, 50, is back on track to limit the fund’sborrowing, as originally planned, for the fiscal year beginningJuly 1, Andrew Sidamon-Eristoff, the state’s treasurer, hassaid. The governor, who is up for re-election this year, is alsoreviving his proposal for a 10 percent tax cut that Democrats inthe legislature had blocked. ‘Fiscal Responsibility’
“The Christie administration is exercising fiscalresponsibility” in fiscal 2014 “by supporting $1.6 billion ofroad and mass transit projects around the state with less than$850 million in new borrowings” by the Transportation TrustFund agency, William Quinn, a spokesman for Sidamon-Eristoff,said via e-mail.
Michael Drewniak, Christie’s spokesman, referred totestimony Commissioner of Transportation James Simpson made tolawmakers this month in which he said the state has returned toChristie’s blueprint.
Investors have been seeking munis rated four to six stepsbelow top-rated securities for their higher yields as interestrates remain below historical averages. The transportationfund’s A+ rating, Standard & Poor’s fifth-highest, falls in thatrange. Twenty-year general-obligation bonds yielded 3.93 percentlast week, below a 52-year average of 5.88 percent, according toa Bond Buyer index. ‘Holy Grail’
“That’s the holy grail,” said Howard Cure, director ofmuni research in New York at Evercore Wealth Management LLC,which manages about $4.5 billion. “Just a basic A rated creditwould get a little more yield, but far enough away frompotentials for having real fiscal problems,” as credits in thetriple-B range may face, he said.
Single-A transport bonds have earned 1.3 percent in 2013through April 12, beating the 1.2 percent gain for the broadermarket, according to Bank of America Merrill Lynch data. Itwould be the third straight year for the transport debt to beatthe market.
The $875 million refunding deal is backed by revenueappropriated by the legislature every year from the state’s10.5-cent per gallon gasoline tax. Transport Choices
Investors have several transportation deals to choose fromthis week, data compiled by Bloomberg show. The New JerseyTurnpike Authority, which oversees the highway, plans to sell$780 million today; Pennsylvania Turnpike Commission is set toborrow $175 million; and Illinois State Toll Highway Authorityplans to issue $500 million.
The extra yield investors demand to buy transportation debtrated A+, four levels below benchmark munis, is about 0.7percentage point above top-rated debt, 18 percent below thethree-year average, Bloomberg data show.
The abundance of such debt this week may require the NewJersey fund to boost yields, Dalton said.
Yields “may come a little wider than they generally would,which is why it’s interesting and why we’re looking at it,”Dalton said.
The state may miss revenue forecasts by as much as $302million in the current budget and $335 million next fiscal year,David Rosen of the nonpartisan Office of Legislative Servicestold lawmakers April 4. 2011 Plan
Christie announced an $8 billion transportation plan inJanuary 2011 that would support the fund for another five years.The program was scheduled to run out of money in fiscal 2012 asthe full $895 million it collects from the state’s gasoline taxwas needed to repay principal and interest payments.
The central thrust of the plan was ending the traditionalreliance on municipal bonds as the primary source of roadsfunding and moving toward a larger cash component, or so-calledpay-go financing. The plan was designed to provide $1.6 billionannually to roadwork and included $672 million for New JerseyTransit and $200 million for local-government projects.
“What you have here is a plan that is fiscallyresponsible, that will not burden over the long haul ourchildren and grandchildren with extraordinary debt payments,”Christie told reporters in 2011.
Christie proposed a combined $4.4 billion in borrowing fortransportation over five years, starting with $1.2 billion infiscal 2012 and then declining each year.
To get back on track next fiscal year, the administrationhas proposed using $250 million raised through prior bond salesat a premium, while also accelerating federally funded roadprojects. Those moves will allow the state to keep to theinitial plan without extra borrowing, said Quinn, thetreasurer’s spokesman. Credit Driver
The additional bonding for this year and last shows thebudget limitations at the state level are making it difficultfor New Jersey to finance more road and bridge work with cashrather than debt, said Baye Larsen, a Moody’s Investors Serviceanalyst.
“The relatively small change in their pay-go plans in andof themselves are not a material credit driver,” Larsen said inan interview. “But they are one more indication of changes thatthe state is having to make to address its overall budgetpressures.”
Issuers from California to Florida are set to issue $21.7billion for the two weeks ending April 19, the biggest wavesince June, Bloomberg data show.
As supply has increased, yields on tax-exempt debt aretrailing Treasuries to start this week.
With 10-year muni yields at 1.78 percent, the lowest sinceJanuary, the securities are still yielding 106 percent of the1.68 percent yield on benchmark, Bloomberg data show. That’sabove the one-year average ratio of 102 percent. The higher thefigure, the cheaper munis are in comparison.
To contact the reporters on this story:Michelle Kaske in New York at;Terrence Dopp in Trenton at
To contact the editor responsible for this story:Stephen Merelman at

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