Who makes money on toll scheme?
December 9th 2007 05:13 pm
An article in the Sunday Star-Ledger makes it clear that some people stand to make huge amounts of money on Governor Corzine’s secret monetization plan (emphasis added):
Gov. Jon Corzine’s plan to raise highway tolls so he can slice the state’s debt by $16 billion is expected to unleash a huge free-for-all by Trenton lobbyists and special interests.
With so much money at stake, interests that could cash in on the plan — from construction firms craving new road jobs to bankers eager for bond deals — are already laying down their bets.
…
Bankers and bonders: It could lead to the largest state bond issue ever — from $20 billion to $40 billion — while generating tens of millions of dollars in fees to underwriters, bond attorneys and financial advisers. Bankers and bond attorneys have recently spent more than $1 million in Trenton.
As I have pointed out before, it doesn’t have to be this way. The gas tax could be raised and the people of New Jersey could keep all the funds. Corzine’s toll scheme will divert tens of millions of dollars to his banking friends.
finsuburbia responded on 09 Dec 2007 at 10:47 pm #
I think that this is a silly argument. Should we not invest money in the transit system because unions lobby? Stick to the merits of the proposal (which of course is not officially out yet) and don’t bring up red herring. Honestly I don’t know why NJ-ARP is so against this. Yes the gas tax should be raised but if this is a way to help get the TTF (and the state’s finances generally) fixed up, then what is the problem?
Bob Scheurle responded on 10 Dec 2007 at 5:09 am #
The post is my personal opinion, not an NJ-ARP position. Please see the disclaimer at the bottom of the page: “The opinions expressed in the blog are not necessarily those of NJ-ARP or its members.”
Wouldn’t you prefer something where all the money gets to go to the State treasury instead of having tens of millions of dollars (that’s OUR money!) going to line the pockets of Corzine’s banking friends? And for what? Moving money around? They’re not even fixing any bridges or building anything.
Eine Kleine Multi-level responded on 10 Dec 2007 at 6:08 am #
Indeed. This is some of the worst kind of political patronage. Even worse, paying directly into these people’s accounts, after a fashion? Were Theodore Roosevelt around, the big stick would go into action.
finsuburbia responded on 10 Dec 2007 at 1:22 pm #
Bob,
I read the disclaimer after I posted.
It’s not just moving money around. Those tolls would not be raised otherwise because it is politically untenable. An independent authority can raise tolls to the level to cover debt repayment. When it is covered by the general fund, it steals money from other programs. Corzine has promised that it would help the TTF. It remains to be seen if it will actually happen or not but you can’t say it would not go towards fixing bridges or building anything. This is because all that we know about the plan is what Corzine has talked about because the plan has not been officially released. Everything else is speculation. Wait until Jan 8.
Eine,
I don’t even understand what you are saying. Paying directly into people’s account…? Political patronage? Yeah right. It’s not patronage when those people did not fund your campaign. Underwriters are used all the time bonds are issued and there are plenty with the current state debt.
Eine Kleine Multi-level responded on 11 Dec 2007 at 1:02 am #
How do you not understand what I am saying? It’s plain as day. Tens of millions of dollars out of these bonds, for what purpose other than to make vultures richer?
In your view, was Tammany Hall a good thing? Since political corruption has precedent, it must continue and get even worse, is that it? It’s not relevant whether these “people” have “fund(ed) your campaign” or not. Unnecessary spending is unnecessary spending. Did you miss the bit about the bankers and bond attorneys already having spent money in Trenton? It’s no less patronage whether you do that during an election or whether you do it with an incumbent.
Bob Scheurle responded on 11 Dec 2007 at 7:44 am #
I don’t understand:
1. Why we want to borrow more money when we have so much debt in the first place.
2. Why the past debt should be restructured on the backs of the toll road users.
3. Why we want to pay interest via a new scheme, when we have an extant mechanism that allows the money to be put to work instead of being thrown away.
finsuburbia responded on 12 Dec 2007 at 1:49 pm #
Eine,
Yes I know about the lobbying but that does not address the merits of the idea itself. Will people in the financial industry make money from this? Yes, of course, just like they currently make money on the debt. I was a political science major back in college and one of the things you learn is that almost every interest group lobbies to promote their favored policy. Some are successful, some are not. If this turns out to be a poor plan (when its released, which it has not yet), then you can take that as evidence of possible corruption but that requires to first find out if its a good plan or not. You can’t just say its a bad plan on superficial arguments with little justification on a plan that has not even been released yet. Good policy is good policy no matter who supports (or does not support it). To argue otherwise is ad hominem.
To call it Tammany Hall is outright silly.
Bob,
1. The state of NJ is not going to borrow more money, the public benefit corporation will. This is to allow it to assume a substantial chunk of the State’s debt obligation.
2. I believe roughly half the toll revenue comes from out of state sources (long distance trucking, etc.). The tolls are a political issue and have not been raised in years. They have been declining in real value for years. Two way tolls are $0.03 in 1957 dollars. If the had been indexed to inflation, they would be $1.79 for two way tolls (or $3.58 for the new one-way tolls). Compare that with the type of higher-than-inflation fare hikes that NJ Transit. The (up until extremely recently) declining real cost of driving has perversely stacked the decks against transit ridership so you can excuse me if I don’t weep for toll road users. Higher tolls will make transit comparatively more attractive for those who commute and will help tilt the economic scales in favor of TOD rather than sprawl.
Moving control of the toll rates to a separate authority will help toll hikes become more regular and keep them from being a political issue because they would be largely outside of the political process.
3. I don’t even know what you are talking about here. The state of NJ is not going to be paying off the bonds, the public benefit will using toll revenue. Most of the state’s debt, AFAICT does not have an “existing mechanism” but rather is paid through with general revenue. The TTF does have an existing mechanism, but the gas tax is such a touchy issue in NJ that it is unlikely that it will be raised significantly any time soon. There was a poll recently that asked whether they would rather have the bridges repaired using a gas tax hike or a toll hike and a toll hike was overwhelmingly favored. This may be due to selfishness as most people who drive don’t use toll roads, but it is the political reality. Should the gas tax be raised? Yes, a lot. Is it going to happen? Doubtful.
Bob Scheurle responded on 12 Dec 2007 at 2:11 pm #
If it was a good plan, it would have been released 6 months ago.
Saying that the state is not borrowing money is semantics. The taxpayers will still be on the hook to pay it back.
NJ Turnpike tolls were increased most-recently in 2000 and 2003.
I thought the New Jersey Turnpike Authority was already “a separate authority”.
The state could increase extant sources of revenue (tolls, motor fuels tax, income tax) and use the additional monies to pay the debt directly, instead of borrowing more and paying more interest. But then Corzine’s friends wouldn’t get richer at our expense.
Do not underestimate the ability of New Jersey politicians to screw their constituents.
finsuburbia responded on 12 Dec 2007 at 3:37 pm #
It should not have been released 6 months ago if it was not complete. Even if it was complete at that point, Corzine just got into that accident and was in no condition to launch a major policy initiative. By the time he had recovered, it was too close to the election. A contentious policy program should not be launched right before an election because people do not have the time to fully understand the implications and judge it fairly.
NJ taxpayers, AFAICT, would not be on the hook to pay it back. The debt would be held by the public benefit corporation, not the state. This is more than just semantics. The revenue that the tolls would generate would not go into the general revenue fund and would not be subject to the appropriations process. If you still believe the taxpayer would be on the hook, please explain to me how rather than just asserting it.
So what if there have been two toll hikes on the turnpike in the past 7 years? How many have NJ Transit riders have had to endure during the same time period? If you want to look at it historically, the total toll from north to south was $1.75 in 1952. It is now less than $0.86 for peak and $0.65 for off-peak (both in 1952 dollars). If it had been adjusted for inflation, the toll should have been $13.12 in 2006. The parkway has had *one* toll hike in its history (from $0.25 to $0.35 in 1988).
Yes the turnpike is a separate authority that receive *no* taxpayer funding. This would, in a way, be extending this concept to take on the general debt load.
It is politically infeasible to sustain the types of toll increases to pay off debt otherwise (the state’s erratic history of toll hikes goes to show that). As I previously mentioned, raising the gas tax is a non-starter and so is raising the income tax (raise the rate, and you are going to see people leaving the state at an even higher rate than they do now). Transferring the debt away from taxpayers will allow the state to free up revenue right now rather than years down the road. If the right controls are put in place (as Corzine has hinted at), it could form the basis of keeping further debt at bay in the future. The statement about “Corzine’s friends” is ad hominem and a red herring. Please stick to the merits of the policy as we know it thus far and not get stuck using logical fallacies to defend your argument.
Yes politicians screw over the state but its usually for either personal gain or to become politically popular (see Whitman, tax-cuts and playing with the pension fund). It is ludicrous to believe that Corzine spent as much money as he did to win his senate seat and then the governorship just to steal money from the state. If he did, the amount of money that he would have to steal to make it worth it would make it so obvious that he would get locked up for a very long time as a result. The program is obviously not popular with a lot of people so I doubt he is doing it for popularity. So why would he want to “screw” his constituents? What would be his motive?
finsuburbia responded on 12 Dec 2007 at 3:49 pm #
Also consider this, with the current debt service obligation, even if the state were to double the current motor fuels tax, it would require the issuing of further debt. The state would have to raise the gas tax around 28 cents a gallon to move to 100% PAYGo to size of the TTF’s annual bonding authority ($1.6 billion) with the current debt load.
Bob Scheurle responded on 12 Dec 2007 at 4:59 pm #
Even if Corzine’s motives are pure, I wouldn’t be surprised if the Legislature messes with it to our detriment. If you don’t think so, you haven’t lived here long enough.
If I understand what you’re talking about, this “public benefit corporation” would be completely unaccountable to the public. So that’s even worse than your typical government agency (e.g., NJ Transit) which is at least accountable via our representatives in Trenton. Do we really want the state’s financial future in the hands of a corporation that is accountable to no one?
If this corporation were to default on its payments for whatever reason, you don’t think we taxpayers would have to foot the bill one way or another? Hmmm, I have a bridge to sell you (which might be what Corzine’s selling us in the first place).
finsuburbia responded on 12 Dec 2007 at 5:12 pm #
What do you mean by accountability exactly? It would be accountable to the law and to its charter. As far as its day to day operations go, I don’t know, because those details have not been released yet. What many people mean by accountability, however, is a way to stop toll hikes. That is something I specifically do not agree with because it has helped contribute to the perverse incentive to drive.
How could it default on its payments? There’s only two scenarios in which I could see this happening:
A) People stop driving and goods stop getting moved by truck.
B) Politicians somehow manage to stop toll increases.
A) Is extremely unlikely but if it happened, I wouldn’t cry too much.
B) Is what happens now.
If those things don’t happen, the revenue can always been raised to match debt service payments.
Bob Scheurle responded on 12 Dec 2007 at 5:37 pm #
When the “public benefit corporation” lets the Turnpike and Parkway go to Hell and become pothole-ridden disasters, because they can take the maintenance savings and increase their executives’ seven-figure salaries even higher… Where is the accountability?
As far as defaulting on its payments, I’m sure there are a number of scenarios that could cause that. From mismanagement, to fraud, to embezzlement, to general economic problems like a depression, to terrorist attacks… You never know what could happen. After all, I’m sure Larry Silverstein thought leasing the World Trade Center was a no-lose proposition.
finsuburbia responded on 12 Dec 2007 at 7:26 pm #
Performance rules can be built into the charter to help prevent those things. The Turnpike Authority is relatively independent (aside from the politicization of their tolls) but it is in very good condition.
Fraud, embezzlement and mismanagement still don’t prevent the public-benefit from paying back their loans. Depression may make it more difficult, but if a depression were to happen, the state would already be screwed because the drop in revenue would put the state in risk of a default anyhow considering the size of its debt obligation.
If there was a terrorist attack large enough to destroy a significant part of the turnpike infrustructure, then the state would probably have bigger issues to deal with anyhow. In any case, it probably would take out insurance on the roads (although the federal government might have to underwrite it).
I guess my problem is that it seems like you are spreading FUD which does not get anyone anywhere and prevents us from making rational choices on policy. Its the same thing NIMBYs do.
Bob Scheurle responded on 12 Dec 2007 at 9:54 pm #
They’ll do whatever they want to do, whether it’s a Good Thing or not. Who knows, maybe 10 years from now someone will end up running for governor by saying he’ll fix the mess Corzine created. Things never change.
finsuburbia responded on 12 Dec 2007 at 10:38 pm #
That’s really not an argument, I think you’ve run out.
Seriously though, I know that this doesn’t reflect the opinion of NJ-ARP, but I don’t understand what this has to do with passenger railroad advocacy. Your piece about MOM was an absurd appeal to fear (as I noted in the comments section). Raising the tolls in and of itself would benefit transit by making it more competitive in terms of monetary cost. If it helps to fix the TTF, even better. If you want to write about this on your own blog, fine, but I do not see the relevence here.
Please convince me otherwise.
Bob Scheurle responded on 13 Dec 2007 at 10:24 am #
Not relevant? Some of the toll hike money better be going into the Transportation Trust Fund. That’s why it’s relevant.
finsuburbia responded on 13 Dec 2007 at 2:54 pm #
Perhaps I should have put it a different way. Opposing asset monetization does nothing to further railroad passenger advocacy. Since Corzine said that the money would be used to help fix the TTF (which I alluded to in my last post) we should give him the benefit of the doubt until the plan is released.
In any case, even if no new money came to NJT as a result of asset monetization, public transit would benefit because it would become more competitive with driving as a transportation option.
Bringing up fear mongering stories at this point only really benefits those who oppose higher tolls (which is one detail of the plan which is definite). As I said, you can write about this on your personal blog but the “plight” of drivers afflicted by higher tolls is irrelevant to railroad passenger advocacy.
Bob Scheurle responded on 13 Dec 2007 at 3:13 pm #
If Corzine’s scheme results in money being wasted in the form of additional interest payments and fees to his friends in the banking industry, instead of being used for things like new rail service or hiring more car cleaners, it will have a detrimental effect on rail transportation.
Bob Scheurle responded on 13 Dec 2007 at 3:20 pm #
And if it’s such a good plan, why has the administration been trying to bamboozle us?
finsuburbia responded on 13 Dec 2007 at 6:03 pm #
You’re still using ad hominem with both of your posts.
For the first, this is not necessarily true. It really depends on how the bonds that constitute the current debt obligation are set up. If they are callable bonds, they can be repaid early without paying full interest with possibly a small premium.* I don’t know if they are or they are not. I am also not an expert at finance, but I don’t think that you are either.
I don’t really like what Kolluri does myself (i.e. the turnpike widening), but that does not say anything about the merits of the idea itself.
*Government bonds are usually considered low risk investments so if there is a premium, it would likely not be very large.
Bob Scheurle responded on 13 Dec 2007 at 6:56 pm #
I may not have made it clear that I don’t particularly care about a toll increase vs. a gas tax increase. I care that Corzine is creating a whole new bureaucracy with its own, new sources of overhead and waste. We already collect tolls and allocate the money among several beneficiaries. Why do we need something new? Like Assemblyman Wisniewski said, “If it was as simple as borrowing money from the turnpike tolls to pay off debt, it would have been done a long time ago.”
finsuburbia responded on 13 Dec 2007 at 7:06 pm #
Not necessarily, if it means that they get rid of the turnpike authority. In any case, the plan is not out so you are really just creating strawmen out of the details that are already available.
Please don’t use the argument of “never trust a pol” and then use a pol in an appeal to authority.
You should really read this article.
Bob Scheurle responded on 13 Dec 2007 at 8:09 pm #
I read that article at 5 AM on the day it was published. To quote from it:
The first answer illustrates that the potential for us getting screwed is quite high. The second answer illustrates that even after spending $5 million of taxpayers’ money on this scheme, they still don’t know what they’re doing. If it was a good plan, they would have released it by now!
And if you think New Jersey politicians have your best interests in mind, you haven’t lived here long enough.
finsuburbia responded on 13 Dec 2007 at 8:52 pm #
The first does nothing of the sort as far as I can see. Can you explain your reasoning?
The second is politics. The public knocked down the stem cell plan and almost the green acres plan as well, largely on the debt issue (nj residents largely support stem cell research). I’ve already went over the problems with releasing the plan over the last six months. He has not released it yet after the election because it is a lame duck session trying to put it through now would look really bad.
I’ve lived in NJ about 90% of my life.
Bob Scheurle responded on 14 Dec 2007 at 8:09 am #
We’re just going around in circles. I’m done.
If it was a good plan, it would have been released months ago and Kolluri wouldn’t have tried to bamboozle us about the costs.
finsuburbia responded on 14 Dec 2007 at 9:49 am #
If we are going in circles, its because you’re driving the discussion that way. This has largely followed this form: You make a claim, I rebut that claim. Sometimes you try and rebut my rebuttal but most of the time you drop the point and respond with some absurd appeal to fear or some other logical fallacy to justify your position.
I don’t understand your reasoning for the claim that it should have been released months ago and why this makes it a bad plan (remember, if Corzine really wanted to just shove it through, he would have done so during the lame duck period). Can you please explain?
Using Kolluri is a straw man.
Eine Kleine Multi-level responded on 16 Dec 2007 at 3:05 am #
What logical fallacies?
And calling me “silly” is an ad-hominem. You’ve failed to prove your position. You’ve thrown excuses, [i]argumentum ad verecundiam,[/i] diversionary statements and blanket statements out here. Bob’s argument is solid; that’s why you can’t punch holes in it.
finsuburbia responded on 16 Dec 2007 at 7:53 pm #
Did I call you silly? No, I said calling it Tammany Hall is silly after I attacked your reasoning. Calling it Tammany Hall was not an argument in and of itself. You were using it as a term for general corruption and political patronage which I already addressed as lacking evidence. I could go and explain why it was silly but I really didn’t feel like wasting my time then and I don’t really feel like wasting my time now.
I don’t really know what Bob’s argument is anymore because it changed so many times during this debate when I pointed out something was unfounded in his argument. Would you care to enlighten me?
finsuburbia responded on 19 Dec 2007 at 5:40 pm #
I guess you don’t.