TEXT - Fitch rates NJ Transportation Trust Fund Authority
Nov 20 - Fitch Ratings assigns an 'A+' rating to the following bonds of the New Jersey Transportation Trust Fund Authority (NJTTFA): --$326.255 million transportation system bonds, 2012 series A; --$920.745 million transportation program bonds, 2012 series AA. The bonds are expected to sell via negotiation on Dec. 4, 2012. In addition, Fitch affirms approximately $13.4 billion outstanding NJTTFA obligations at 'A+'. 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 'AA-' GO bond rating. The state contract for the system bonds, pursuant to statute, specifies an appropriation of minimum equivalent amounts from several transportation-related taxes and fees and stipulates that the state's general fund cure any shortfalls. The state contract for the program bonds is similarly structured, although fees are no longer dedicated and shortfall support has been limited to the state sales tax. CONSTITUTIONALLY DEDICATED REVENUE SOURCES: Certain transportation revenues are constitutionally dedicated and pledged to the Transportation Trust Fund Account, although these monies need to be appropriated by the legislature. Monies appropriated to the Transportation Trust Fund Account have always been sufficient to cover annual debt service. LONG-TERM STATE CREDIT QUALITY: The state of New Jersey's GO bond rating of 'AA-' with a Stable Outlook reflects strong wealth levels, a diverse economy, limited financial flexibility, a high debt burden, and significant long-term liabilities. The state is currently challenged by a slow economic recovery and unemployment rates that remain above national averages. Further, while management has proactively responded to past revenue weakness and growth in state spending has been contained, the state's budget remains structurally imbalanced as full funding of annual pension obligations is several years off. REVISED TRANSPORTATION FUNDING PROGRAM: The 2012 legislature approved an almost $6.4 billion transportation funding plan through fiscal 2016, supported by $3.5 billion of NJTTFA bonds. The 2012 series A bonds currently offered utilize the remaining bonding capacity related to the prior transportation trust fund authorization; the 2012 series AA bonds are being issued under the new bond program. CREDIT PROFILE The 'A+' rating on the transportation system and program bonds is based on annual contract payments, subject to legislative appropriation, to be made by the state of New Jersey. Debt service is paid under a contract with the state treasurer, from payments to be made to the authority from the transportation trust fund account within the state's general fund. The payments are pledged to debt service on these bonds. The contract for the system revenue bonds, pursuant to statute, specifies minimum equivalent amounts from several transportation-related taxes and fees, the vast majority of which are constitutionally dedicated to transportation although not specifically pledged, and may not be used or borrowed for any other purposes. The taxes and fees themselves are not pledged as security. The contract requires the state to cover any funding shortfalls from its general fund. The 2012 series A bonds currently offered will utilize substantially all of the remaining authorization under the now-former transportation trust fund authorization dating from 2006. A new transportation reauthorization act was adopted in the 2012 legislative session, authorizing $6.4 billion in transportation capital spending spanning fiscal years 2013-2016. NJTTFA borrowing of almost $3.5 billion was authorized; the 2012 series AA program bonds currently offered represent the first borrowing under the new program and associated bond resolution. Bonds issued under the new program are secured by the same constitutionally dedicated revenue sources as the system bonds although certain statutorily dedicated revenue sources supporting the 2012 series A and parity bonds are not available for bonds issued under the new program, including truck and motor vehicle registration fees and toll road contributions. These allocations accounted for a modest 1% of fiscal 2012 dedicated revenue sources and generally had not been appropriated to the NJTTFA as robust amounts of dedicated taxes have been available for debt service requirements. Should a shortfall of the dedicated revenues occur, the state's collection of sales tax revenue is available to cure the deficiency. While the sales tax represents a narrower stream of available revenue as compared to the system bonds, it remains a substantial pool of resources and the state plans to utilize increasing amounts this revenue to fund NJTTFA's capital program. Sales tax collections made up about 46% of the state's $17.6 billion budget-basis General Fund in fiscal 2012. The new four-year capital program for transportation projects is also supported by additional pay-as-you-go allocations from the NJTTFA as well as the New Jersey Turnpike Authority and $1.457 billion contributed from the Port Authority of New York and New Jersey. The NJTTFA bonds are expected to be issued annually beginning in fiscal 2013 at about $1.25 billion and declining thereafter to $627 million in fiscal 2016. The program allows for up to 30% of permitted annual bonding to be issued prior or subsequent to the designated fiscal year, subject to certain restrictions. The enacted fiscal 2013 budget includes an appropriation of $1.094 billion to the transportation trust fund account for debt service expense, expected to total just over $1 billion in fiscal 2013. LONG TERM CREDIT QUALITY New Jersey's 'AA-' GO credit rating reflects its high wealth levels and broad economy, offset by a high debt burden and a multitude of spending pressures, including continuing capital needs, as well as significant unfunded pension and employee benefits obligations. Despite passage of pension and benefits reform legislation which will restrain future growth in the state's accumulated liabilities, continued pension funding level deterioration is projected through the medium term as full funding of the actuarially required contributions is phased in over several years, resulting in sizeable, planned increases in annual contributions. Fitch believes that meeting the requisite increases in pension contributions will be challenging and is likely to conflict with other long-term challenges, such as property tax relief, school funding, and infrastructure needs. Hurricane Sandy resulted in tremendous damage to infrastructure in the state, particularly to its coast line and transit operations. Cost estimates for damages in the state are indeterminable at this time, but significant federal reimbursement through FEMA is expected. The magnitude of expenses that will need to be covered by the state and how the state will fund those costs given its narrow cash balances prior to receiving FEMA reimbursements is uncertain, although Fitch believes that cash flow borrowing this fiscal year, beyond what the state has recently financed, is a possibility. Fitch will continue to evaluate the state's financial and economic condition as it relates to recovery from the hurricane as additional information becomes available. For additional information on the state of New Jersey, please see "Fitch Rates NJEDA's $399MM School Facilities Construction Bonds and Notes 'A+'; Outlook Stable" dated Sept. 14, 2012, available at www.fitchratings.com.