Fitch Rates NJTTFA's $627MM Transportation Bonds 'A-'; Outlook Stable
The bonds are expected to sell via negotiation on or about Nov. 16 and 17, 2015.
The Rating Outlook is Stable.
SECURITY
Debt service is paid under a state contract between the state treasurer and the authority from certain dedicated revenue sources, subject to annual legislative appropriation.
KEY RATING DRIVERS
APPROPRIATION OBLIGATION OF THE STATE: State contract payments provide for debt service; payments must be appropriated annually by the state legislature, resulting in a rating one notch below the state's 'A' GO bond rating. Pursuant to statute, minimum equivalent amounts from several transportation-related taxes and fees are pledged to the bonds and the state contract for the program revenue bonds stipulates that sales tax revenue cure any appropriation shortfalls; the state contract for NJTTFA's system revenue bonds provides for the entire general fund to be pledged to NJTTFA to cure shortfalls.
CONSTITUTIONALLY DEDICATED REVENUE SOURCES: Certain transportation revenues are constitutionally dedicated and pledged to the NJTTFA, although these monies need to be appropriated by the legislature. Monies appropriated to the NJTTFA have always been sufficient to cover annual debt service.
STRUCTURAL BUDGET IMBALANCE: The state's recent revenue performance has been more positive and the revenue forecast for the fiscal year that began on July 1, 2015 appears to be conservative, reducing the threat of late-year budget underperformance that has plagued the state in recent years. Despite these improvements, structural budget imbalance continues, encapsulated in pension contributions that are far below actuarially-recommended levels.
LONG-TERM LIABILITIES CONSIDERABLE: Above-average state debt obligations are compounded by significant and growing contribution requirements for the state's unfunded retirement liabilities. Continued pension funded ratio deterioration is projected through at least fiscal 2022, based on the governor's current proposed schedule of escalating pension contributions, absorbing a significant share of expected organic revenue growth to fulfill.
WEALTHY ECONOMY AND LAGGING RECOVERY: New Jersey benefits from a wealthy populace and a broad and diverse economy. However, the state's economic performance has lagged the nation through the current expansion with New Jersey regaining only 68% of jobs lost during the recent recession.
MINIMAL CASH BALANCES RESULT IN LIMITED OPERATING FLEXIBILITY: Minimal cash balances have been maintained in recent years and the state has no internal financial reserves to absorb unforeseen needs or revenue under-performance. The state estimates the fund balance improved to 1.9% of appropriations in fiscal 2015 with a further increase budgeted for fiscal 2016.
BROAD EXPENDITURE REDUCTION AUTHORITY: The governor has strong executive powers to implement any necessary expenditure reductions to balance the budget, and the state has a consistent history of doing so.
RATING SENSITIVITIES
The rating is sensitive to shifts in the state's 'A' GO credit rating to which this credit is linked.
CREDIT PROFILE
The 'A-' rating on the transportation program bonds (program bonds) is based on annual contract payments made to the authority from the state treasurer, subject to legislative appropriation. The contractual payments are pledged to debt service on these bonds and are received from the transportation trust fund account within the state's general fund, similar to NJTTFA's outstanding system bonds (system bonds).
The contract for the system bonds and program bonds, pursuant to statute, specifies minimum equivalent amounts from several transportation-related taxes and fees, all of which are constitutionally dedicated to transportation and may not be used or borrowed for any other purposes. The taxes and fees themselves are not pledged as security. The enacted fiscal 2016 budget includes an appropriation of $1.28 billion to the transportation trust fund account; an increase from $1.26 billion in fiscal 2015.
The 2015 series AA program bonds are the fifth issuance under the state's transportation authorization act that was adopted in the 2012 legislative session. The bonds will fund various transportation-related capital projects in the state. The 2012 act authorized $6.4 billion in transportation capital spending spanning fiscal years 2013 - 2016 and almost $3.5 billion in NJTTFA borrowing.
The capital program for transportation projects is also supported by pay-as-you-go allocations from the NJTTFA and the New Jersey Turnpike Authority (NJTA). The Port Authority of New York and New Jersey is also a participant in the capital program, contributing $1.457 billion over the four years. As NJTTFA's current bonding authorization is depleted with this issuance, Fitch expects the state to consider a reauthorization bill in the 2016 legislative session.
The state contract providing for the payment of debt service on the program bonds requires the state to cover any funding shortfalls in the transportation trust fund account from its collection of state sales tax revenue. While the sales tax represents a narrower stream of available revenue for the program bonds, it remains a substantial pool of resources and the state plans to utilize increasing amounts of this revenue to fund NJTTFA's capital program. Sales tax collections made up an estimated 43.6% of the state's $18.7 billion budget-basis general fund in fiscal 2015.
For additional information on the state of New Jersey, please see 'Fitch Rates New Jersey EDA Bonds 'A-'; Outlook Stable' dated Oct. 28, 2015, which is available on our web site at fitchratings.com.
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