NJ Ballot Question 2 – Gas tax lockbox ?>

NJ Ballot Question 2 – Gas tax lockbox

Why are we arguing over New Jersey ballot question 2?  Because we’re not all in possession of the same facts.

On 1 November, the New Jersey gas tax increased.  That’s a done deal.  No matter what you are told, we are unlikely to see a rollback.  On 8 November, NJ voters will be asked to vote to change the NJ Constitution to dedicate motor fuel revenue to the Transportation Trust Fund.  That is a different question.  It will not affect what you pay at the pump.

The ballot measure, on its face, is a fine idea.  When I read it the first time, I was in favor.  I researched it a bit, then rewrote it with two small changes that reflect the truth.  Experts who’ve read it say it is accurate.

How the ballot should read

CONSTITUTIONAL AMENDMENT TO DEDICATE ADDITIONAL REVENUES TO STATE TRANSPORTATION SYSTEM

Do you approve amending the Constitution to dedicate all revenue from the State motor fuels tax and petroleum products gross receipts tax to the Transportation Trust Fund? This amendment would provide that an additional three cents of the current motor fuels tax on diesel fuel, which is not dedicated for transportation purposes, be dedicated to the Transportation Trust Fund. In doing so, the entire State tax on diesel fuel would be used for transportation purposes. The entire State tax on gasoline is currently dedicated to the Transportation Trust Fund and used for transportation purposes. The amendment would also provide that all of the revenue from the current State tax on petroleum products gross receipts be dedicated to the Transportation Trust Fund. In doing so, the entire State tax on petroleum products gross receipts would be used for transportation purposes, including debt service.   This amendment does not change the current tax on motor fuels or petroleum products gross receipts.

INTERPRETIVE STATEMENT

This amendment would dedicate all of the revenue from the State tax on motor fuels to the Transportation Trust Fund. The current dedication is 10.5 cents per gallon on gasoline and diesel fuel. The amendment would include an additional three cents of the tax on diesel fuel that is not currently dedicated. The total revenue from the tax on motor fuels this fiscal year is estimated to be $541 million. The amendment also dedicates all of the revenue from the tax on gross receipts of the sale of petroleum products to the Transportation Trust Fund. The current minimum dedication is $200 million per year. This fiscal year, the revenue from the tax on gross receipts of the sale of petroleum products is estimated to be $215 million. The amendment does not change the current tax on motor fuels or petroleum products gross receipts.  The amendment allows the Transportation Trust Fund to issue additional bonds. The dedication to the Transportation Trust Fund ensures that the revenue is only used for transportation purposes.

A YES vote allows the TTF to borrow more.  The TTF is currently borrowed up to its statutory limit.  A YES vote gives the constitutional dedication of gas tax revenue to the TTF, allowing it to borrow more.

Borrowing is a good strategy for capital projects, ones that will last longer than the thirty years it takes to pay off a bond issue.  One might take a second mortgage to build a kitchen.  Taking a second mortgage to paint the house is unwise.  We are facing the same kind of question with the New Jersey Transportation Trust Fund.

How did we get here?

When the legislature is faced with requests to maintain our roads and transit system, it has three choices:

  • Spend out of current revenue
  • Borrow
  • Do nothing.

Doing nothing is not a realistic alternative.  One might notice, frankly, that NJ highways are better than in other states.  We can argue this, but it doesn’t change the issues on the table.

No legislator wants to propose a higher gas tax or propose road and transit spending out of sales or income taxes.  It’s unpopular.  We haven’t had a gas tax increase since 1988.

The easy answer is to borrow.  The state started in a big way in 1984 with the creation of the Transportation Trust Fund.  Despite the name “Trust Fund”, the TTF is a borrowing entity.  Under N.J.S.A. 27:1B-9(i)) the TTF can only borrow more if it has constitutionally dedicated funds.  Every time gasoline consumption went up, the TTF went to the credit markets and borrowed.  It is as if every time you got a raise, you bought a new house with a higher mortgage.  The bank limits your mortgage based on your income.  The TTF is limited by the amount of gas tax collections.

In 2016, there was no borrowing more.  It had bond debt of approximately $18 billion. There was no going back to the well.  The gas tax had to go up.

The New Jersey Assembly voted to increase the motor fuel tax by 23 cents.  The governor signed it.  It’s a done deal, effective 1 November.  I didn’t want to see the price of gas go up any more than anyone else.  We needed it, though, to put some cash back in the system.

With a new revenue stream, legislators had two choices: spend the gas money as it comes in or use it to borrow.  Borrowing allows more money to be spent sooner.  Instead of spending a billion a year, the TTF can commit its future cash stream and get its hands on the money now.

Money now allows the legislators to satisfy contractors who want contracts in the next fiscal year.  It allows the legislature to donate road funds to municipalities, currying favor with mayors and town councils.

The problem with such a plan is that after that money is borrowed and the TTF is up to its limit again, the cycle will start again.  The legislature will have to raise the gas tax again to recharge the TTF.  In the meantime, yes, road improvements happen faster.  There is a great temptation to accelerate the borrowing and spend on projects not of the highest priority.  That’s what the Q2 fight is all about.

The big projects

In New Jersey, we have two big projects aching for transit money: Hudson Bergen Light Rail and the Gateway Tunnel into Manhattan.  Light Rail will benefit inner-city workers, carrying them to new jobs, we hope, in Bergen County, and Bergen County residents to jobs in Newark.  That’s noble.  The Gateway Tunnels will serve the NJ commuters who already rely on rail to get them to work in Manhattan.  If the reports are true, the existing hundred-year-old tunnels are about to collapse.  So what do we do, support what we have or build a new network?  We cannot afford both.

Legislators are ready to build the Light Rail system today.  All they need to do is write a check.  We’ll need to wait a couple of years for the studies and estimates to be done on the Hudson Tunnels.  A legislator facing a reelection battle needs to bring home the bacon now, not in a couple of years.  It’s easy to see why the potentially borrowed money is burning a hole in their pockets.

Ignoring the Gateway Tunnel is just a way of kicking the can down the road.  Our legislature is good at that.  When that project gets its environmental approvals, and if there isn’t money in the TTF, voters will feel duped and legislators will look stupid.

Arguments for the lockbox (YES)

The constitutional question facing us – dedicating the funds – is a good one.  It limits what the legislature can do with the gas tax money.  For now, at least, borrowing is limited by law.  For those who don’t trust the legislature, it’s a way of keeping them in check.  What is law, though, can be changed by the legislature.  If it wants to borrow, really wants to borrow, it can rewrite the law.  Citizens vote on constitutional changes.  The law is changed by 120 members of the state legislature.  If you don’t trust the legislature, then you need to change legislators.  The constitution gives some protection against monkey business, but it isn’t complete.

Arguments against the lockbox (NO)

New Jersey needs to live within its means.  If it needs more money for roads, the gas tax needs to go up.  Or we need to contain our expectations of what we can do with the money we have.  Borrowing just pushes the problem into the future – to our kids or the next crop of legislators.

My conclusion

I am in favor of increasing the gas tax to get road and mass transit projects working again.  I am opposed to additional borrowing.  My recommendation is to vote NO on Q2.

2 thoughts on “NJ Ballot Question 2 – Gas tax lockbox

  1. Pingback: Mum – Hadow.org
  2. Pingback: NJPF – Hadow.org

Leave a Reply