January 2008

Another new State Agency, the Public Benefit Corporation, or Governor Jon’s Asset Monetization Plan

January 8, 2008

Dear Editor:

Well, after spending a year developing his so called “workable plan” Governor Jon S. Corzine has decided (after spending approximately $8,000,000. in studies) that what the taxpayers of the state need is another state agency. The new agency the Public Benefit Corporation (PBC) would be charged with paying off the existing debt and issuing new bonds that would be paid back by higher New Jersey Turnpike, Atlantic City Expressway and Garden State Parkway tolls.

The Governor hopes to raise $40 billion with his “fiscal restructuring” plan (formerly his Asset Monetization Plan). He has said he will accept less but one thing is for sure -- the motorist will pay more for many years to come.

Once the PBC is created he will then put the whole state for sale by selling naming rights, development rights on state properties and “air rights” to allow building above existing structures. This is truly giving away the store; without any plan to reduce overall spending.

This new debt which will be primarily used for unrelated projects (not the original intent of turnpike, expressway or parkway bonding) is poor public policy. What the Governor is proposing is not good for New Jersey; Senator Leonard Lance has said “What he is doing is borrowing to pay down borrowing and then continuing to borrow.” Not a good idea. The service on the debt he will incur will be over $1 billion annually for at least 50 years.

The Governor said “the state needs dramatic changes in the ways it raises and spends money.” Absolutely correct, the problem is he continues to raise money and fails to dramatically curtail spending. A plan destined for disaster.

In the meantime his Wall Street friends will stand to reap a bonanza with the sale of the new PBC bonds and the residents of New Jersey will be saddled with new and enormous debt that is backed by the State of New Jersey.

It appears that the Governor’s plan will be the largest public bond issue ever. It is interesting to note that recently the Governor said his plan “would be backed by reliable revenue—highway tolls.” He also said, “....a new state agency is needed partly to assure investors they’ll get their money back.” One has to wonder where the Governor has been these last few years when he makes such statements. The Turnpike, Expressway and the Parkway have an excellent record on their bonds. So why does he have such concern for the future with his new PBC bondholders?

The only thing the Governor is doing with his so called plan is exchanging existing Turnpike, Expressway and Parkway bonds for new and massive long term debt. He is creating a new agency where he will be in a position to place more of his political friends; all at the expense of the citizens, taxpayers and users of the toll roads. Prudent fiscal policy would be to reduce the number of state agencies—not creating new ones.

In December 2007 the Governor said “I actually think, from what I understand of the market-place’s evaluation of infrastructure-financed projects, that there is no serious worry or even negative aura surrounding those kinds of debt instruments.” Well, Governor as chairman of Goldman Sachs you must have been in an “ivory tower” insulated from the real world. Transportation bond issues have been part of New Jersey since 1951 with the building of the original turnpike. Bonds have been guaranteed by the Turnpike, Expressway and Parkway and further they have been backed by the strength of the State of New Jersey.

Once the Governor’s “fiscal restructuring” plan is adopted he then will call for a constitutional amendment requiring most borrowing by the state to be approved by the voters. That is like saying “the horse is out of the barn, so now we will close the barn door.”

Incidentally, counties, cities and towns for years have used “anticipation notes” and then bonding on all types of projects such as: airports, roads, schools, utility authorities etc. What makes your idea so unique Governor? All you are doing is refinancing and pushing the hard decisions well into the future.

Governor, you really have given New Jersey only additional debt; you have done nothing to reduce over all current debt, number of employees, wages, pensions and excessive health programs.

To straighten out the terrible debt the state finds itself in refinancing is not the answer. Instead of creating another agency further adding to the bloated woes of the state; you should “begin with little things”—like reducing costs through deeper spending cuts, a hiring freeze and not depleting the Transportation Trust Fund by using it for operational spending instead of construction..

A recent Star Ledger article by Paul Mulshine referred to the classic work “The Confessions” by Saint Augustine bishop of the North African city of Hippo Regius wherein Augustine asks the Lord to “Grant me chastity and continence, but not yet.” That in a nutshell is how Governor Jon Corzine plans to curb Trenton’s lust for borrowing money. But not yet, maybe tomorrow?

Very truly yours,

Louis C. Ripa, J.D., B.S.C.E.

Jupiter, FL and Ocean City, NJ

Ho, ho, ho, Ocean City, start planning for a tax hike

Required spending forcing city budget to increase

By ERIC AVEDISSIAN, Ocean City Sentinel, 12/27/2007

OCEAN CITY - Increases in pension costs, health care and salaries will affect the 2008 budget and city's tax rate, auditor Leon Costello told city council Tuesday.

Costello gave a PowerPoint presentation on Ocean City's budget at council's workshop meeting, painting a picture of required pension increases and rising health care costs for city employees.

"A lot of this is stuff you didn't do or cause, but these are the facts that you're going to be dealing with as the budget season progresses," Costello said.

Costello said preliminary figures indicate the budget will increase $3.6 million with annual expenses such as health care, pensions and contractual salaries the city won't control. The tax rate will increase 4.7 cents per $100 of assessed valuation with 1 penny equaling $835,000.

Pensions for the Police and Firemen's Retirement System (PFRS) in 2008 will rise to $2.2 million from $1.4 million in 2007, an increase of $759,837.

Pensions for city employees through the Public Employees Retirement System (PERS) will increase in 2008 to $660,558 compared to $375,291 in 2007, a $285,266 increase.

The actual PERS pension costs for 2008 are $825,698. The PERS system factors a percentage of the three highest salary years, making today's pensions a lot more than in previous years. The city's debt service will also rise by $254,250, from $6.8 million in 2007 to $7.1 million in 2008.

Health insurance costs will rise to $5.9 million in 2008, compared to $5.1 million in 2007, a $794,000 increase.

Salaries will increase $1 million in 2008 to $26 million, compared to $25 million in 2007.

The public library will cost $4 million in 2008, a $533,121 increase from $3.5 million in 2007.

According to Costello, local tax levy countywide remained stable around $2.3 million from 1993 to 2003; after that, local purpose taxes spiked from $6.9 million in 2003 to $14.3 million in 2007. "Obviously, this is a trend that is a scary-looking picture," Costello said. "It's a pretty dramatic change that's been happening throughout the county for all the local budgets."

Costello attributed the local tax levy increases to municipalities making pension contributions. He said pension contributions are at 20 per-cent a year and the system s the pensions need for survival are under-funded.

Costello said he predicts $11 million in increases countywide for 2008. He said the range budget increases are now 3 to 5 cents in places where budgets have very little increases.

The city will have to cap spending at 4 percent due to a state budget cap law that goes into effect in 2008.

Costello said ratable increases the city used for tax relief and surplus will decrease in 2008. In 2007, the city had a ratable increase of $254 million, giving the city $1.1 million in tax relief and $1.5 million in surplus. For 2008, Costello projects the city will have a $95 million ratable increase with $444,586 in tax relief, a figure that will not cover the city's salaries and wages. The amount of surplus generated for 2008 is not known at this time, Costello said.

The city increased its health insurance appropriation for 2007, but it wasn't enough, Costello said.

City council will vote on an ordinance Dec. 20 for emergency appropriations for $350,000 to cover a shortfall with Insurance Group Health Insurance in the 2007 budget. He said health insurance will increase countywide by $11 million.

Costello said the more fund balance the city uses in 2008, the less the city will have in 2009.

"If you have less in 2009, you'll not fit into these caps at all and then you're have to make some real tough decisions," Costello said. "What you do with your fund balance is going to be crucial in future years."

Costello said the city can increase revenues to ease the taxpayer's burden.

"Any new revenues you come up with could offset those increases," Costello said.

Council President Keith Hartzell said the city "missed the boat" with new revenues to eliminate tax increases.

"I would challenge all of us and the administration to take a harder look at revenues because it seems revenues are the best way out," Hartzell said. "You don't want to lay people off, you don't want to do without services and the state's basically saying if you create a revenue you can spend it." Councilman Scott Ping said the public wants no changes to public safety expenditures, and echoed Hartzell's concerns with finding additional revenues.

"Year after year the public comes out and says they don't want to make a change with our public safety. I don't know where we can go to make these changes we have to make unless we push for revenues," Ping said. "We have to create a whole new way of thinking in order to keep what we have and still be able to afford it without, taxing our residents out the door."

Mayor Sal Perillo said all municipalities are facing higher pension costs courtesy, of the state Legislature.

"The pension number is as", a result of what the state has, done in the last 11 years. They've done some crazy things in terms of what they've done with the pension system," Perillo said. "I don't want to create an impression that the world is coming to an end in Ocean City. We've all got challenges to face. We all probably picked a bad time, economically to be in office."