Moody’s Again Warns Investors to Be Wary of Uncertain Finances in NJ

NJspotlight.com 01/26/2016

A major Wall Street credit-rating agency has once again warned investors to keep a close eye on New Jersey’s fiscal problems, a sign that the state is still struggling with significant budget issues even as Gov. Chris Christie has been downplaying those concerns while running for president. Moody’s Investors Service cited “extraordinary decisions and challenges” that New Jersey faces in 2016 with its Transportation Trust Fund and public-employee pension system in a notice issued to investors late last week. The report noted that the Transportation Trust Fund is set to run out of money on June 30. And it warned that a pending state Supreme Court case threatens to add billions more to the pension system’s $40 billion unfunded liability. The rating-agency’s lengthy message stood in contrast to the more optimistic portrayals Christie, a second-term Republican, has been offering over the last several months as he’s been seeking the GOP’s 2016 presidential nomination. In fact, in his State of the State address earlier this month he bragged about bringing “discipline back to our public finances” during his six years in office.

The Moody’s notice also underscored efforts by New Jersey lawmakers to address the state’s budget challenges while Christie has been devoting much of his time to the presidential contest. Those efforts include proposed constitutional amendments that lawmakers hope to put before voters in November that, if approved, would change how the state funds transportation projects and the pension system. New Jersey already has one of the worst debt grades among U.S. states; the rating agency didn’t lower that A2 debt grade any further in its notice. But it also chose to maintain the state’s “negative” credit outlook rather than bump it up to “stable.” No fix for the transportation fund has been put forward either by Christie or by Democrats who control the state Legislature, although more information could be coming in the annual state budget address the governor is scheduled to deliver on February 16. The current, soon-to-be-depleted transportation fund has paid for about $1.6 billion annually in road, bridge and rail improvements throughout the state over the last five years, while also drawing federal matching funds.

New Jersey is already the nation’s third-most indebted state, and Baye Larsen, a Moody’s senior analyst, predicted the solution to the transportation-funding dilemma would include “a mix of borrowing and pay-go financing that will influence the state’s future leverage position.“ State lawmakers, meanwhile, are advancing a measure that seeks to ask voters this fall to approve dedicating all revenue raised by state fuel taxes to the Transportation Trust Fund. The proposal wouldn’t solve the transportation-funding issue on its own, but if the fuel tax rates are increased later this year it would prevent future raids of those funds for other budget purposes. A response to the Moody’s notice issued last week by the Christie administration glossed over the transportation-funding issue altogether, choosing instead to focus entirely on the future of the pension system. But according to Moody’s, if the state loses a looming court challenge of retiree cost-of-living adjustments that were suspended as part of a broader 2011 reform effort, it could mean adding billions of dollars to system’s unfunded liability. That would put more pressure on the state budget to ramp up state contributions into the pension system.

Open-Space Preservation Funding Gets Put on Legislative Fast Track

NJspotlight.com 01/27/2016

Hoping to free up funds sooner rather than later, a legislative committee yesterday quickly revived a bill to provide money to preserve open space, farmland, and historic structures. In a unanimous vote, the Senate Environment and Energy Committee approved legislation to allocate approximately $146 million over the next two years from corporate business taxes to enable towns, counties, and others to acquire and protect open spaces and agricultural land. An identical bill had been pocket vetoed by Gov. Chris Christie last week, along with dozens of other measures passed on the final day of the lame-duck legislative session earlier this month. Even though money for the open-space programs is being collected, it cannot be distributed until implementing legislation is signed into law, which gives urgency to resolving the issue as quickly as possible.

“Hopefully, we get it on the governor’s desk soon,’’ said Sen. Bob Smith (D-Middlesex), the sponsor of the bill (S-969) and the previous measure in the lame-duck session. “This time we are going to get it done.’’ Conservation groups and others echoed those concerns, saying it is important to start releasing the funds for the programs, some of which have run out of money. The bill implements a constitutional amendment dedicating a portion of corporate business taxes to open space, which was overwhelmingly approved by voters in November 2014. “Uncertainty about the status of funding will persist until a compromise solution is reached between the Legislature and the Christie administration,’’ said Ryck Suydam, president of the New Jersey Farm Bureau. “The urgency to release these voter-dedicated funds increases with each passing day,’’ agreed Ed Potosnak, chair of New Jersey Keep It Green, a coalition of more than a hundred conservation, historic-preservation, and park advocates who had lobbied to put the constitutional amendment to voters.

Christie opposed the ballot question, even though he campaigned during his initial run for governor vowing to create a stable, long-term fund for open-space programs. Christie’s did not spell out a specific reason why he vetoed the most recent open-space bill, but his press office blamed it on the more than 100 bills approved by lawmakers on the last day of the previous legislative session. If the bill wins approval, it would establish general parameters where the money could be spent during the next four years. Smith called the legislation the most important environmental bill in the current session. He noted $66 million has yet to be allocated from taxes collected in the current fiscal year, which ends July 1, and another $80 million should be available in the next budget. The bulk of the money would go for the state’s popular Green Acres program (61 percent), which funds open-space acquisition and park development, including in urban areas. More money is allocated for urban communities than in the past, Potosnak, noted. Thirty-one percent would be used for farmland preservation projects and 5 percent set aside for historic preservation.

With Public Waterfront Access Restored, DEP Needs to Work Out the Details

NJspotlight.com 01/27/2016

The state has regained the authority to require public access to beaches and waterfront areas, but where and for what purpose remains subject to considerable debate. It is an issue high on legislative priorities in the wake of a state appeals court that briefly quashed the Department of Environmental Protection’s ability to mandate access through its coastal protection and waterfront permits. That was quickly rectified in a bipartisan bill that sailed through the lame-duck Legislature earlier this month. But it left unanswered the tougher question of how extensive that access should be. The legislation signed into law last week essentially restores rules put in place by the DEP in 2012 governing beach and waterfront access. But those regulations were opposed by conservationists — so much so that it led to the court challenge that wound up being decided by the appellate panel. The details of how that program should work were left to the new legislative session. Sen. Bob Smith (D-Middlesex), the influential chairman of the Senate Environment and Energy Committee, quickly took up the issue at the first meeting of the New Year.

Using a strategy he adopted to draw up proposals to revamp some of the state’s energy policies, Smith is convening a special stakeholders group to come back to the committee in 90 days with recommendations to lawmakers on what they should do. The composition of the group is yet to be determined, but Smith selected four chairpersons to try and forge a consensus — two from the business community and two from conservation groups. Environmentalist dislike the current regulatory scheme because they say it reduces access to beach and waterfront areas, but business interests fear the process may end up giving the public access to areas that should be restricted because of concerns dealing with New Jersey’s sensitive infrastructure, such as oil refineries and tank farms. Forging a consensus on those issues is likely to be challenging, both sides agree.

For instance, Mike Egenton, executive vice president of the New Jersey Chamber of Commerce and one of the four chairman tapped by Smith, noted he pushed for an amendment in the recent bill that allowed public access to the waterfront where it “is feasible and appropriate’’ to address security concerns. On the other hand, Tim Dillingham, executive director of the American Littoral Society and another co-chairman of the stakeholder group, said there are still significant parts of the coast and tidal areas where public access is limited. “We want them to be opened up in a meaningful way,’’ he said, talking about an area that would range from the Hudson River in the north, all the way down the coast to Delaware Bay and up the Delaware River. Some skeptics already have suggested to Smith it is unlikely the group will come up with consensus recommendations. Smith remained optimistic, but urged the members to come up with majority and minority reports in areas in which an accord could not be reached.

Christie announces state takeover of Atlantic City finances

NJ.com 01/27/2016

Avoiding possible bankruptcy and a hostile state takeover of a once-glittering gambling resort town, top New Jersey political leaders and the Atlantic City mayor Tuesday announced a five-year compact to repair the city’s finances. Lawmakers said the arrangement stops short of the kind of intervention the Democratic state Senate president was seeking and the bankruptcy Mayor Don Guardian threatened to pull the city out of financial crisis. “Last Thursday, I placed a telephone call to the mayor, and I told him my view was the city needed help, and I wanted to help the city and we needed to work together,” Gov. Chris Christie said at a Statehouse news conference Tuesday afternoon, flanked by Senate President Stephen Sweeney (D-Gloucester) and Guardian.

Under the agreement, the state would take expanded responsibility and decision-making authority over Atlantic City’s finances, including the power to restructure municipal debt, alter or terminate municipal contracts and collective bargaining agreements, strike shared service agreements with the county, and sell or lease city-owned services, Christie said. The state also would have assumed these functions under Sweeney’s takeover bill (S970) but Guardian classified the new plan as cooperation and not a takeover. Ultimately, whether it’s a takeover depends on nuances of the legislation, said Mark Pfeiffer, a former deputy director with the state Division of Local Government Services. “The devil in this case is in the details,” said Pfeiffer, an assistant director at Rutgers’ Bloustein School of Planning and Public Policy.

Lawmakers will swiftly develop and pass legislation in February, Christie said. The state’s expanded role will expire within five years. “The city’s finances are now the greatest threat to its well-being,” the governor said, adding that a bankruptcy is “clearly not my preference.” But previous efforts haven’t included the comprehensive solutions necessary to address the city’s complex financial straits, he said. Atlantic City holds about $240 million in debt and owes another $160 million in tax appeals to Borgata Hotel Casino alone. Last week, Standard and Poor’s described those financial commitments as “unsustainable in the long term.” Those remarks accompanied a “super-downgrade” of Atlantic City’s credit rating, which was already in junk bond territory, by four notches. S&P suggested that without intervention, the city would default within six months.

The mayor was scheduled to hold an emergency city council meeting Tuesday night in preparation for asking the state’s permission to file for bankruptcy. Guardian said it would be premature to speculate what some of the cost-cutting measure for Atlantic City might be, such as selling the $100 million water utility, or seeking givebacks from labor contracts. Atlantic City, long the East Coast’s gambling destination, has faced growing competition from neighboring states. In 2014, four of the city’s 12 casinos closed, taking a bite out of the city’s tax revenue and leaving 10,000 casino workers unemployed. Lawmakers last year introduced a rescue aid package, which Christie twice rejected, even after the Legislature agreed to his recommended changes. That veto leaves a $33.5 million gap in the city’s municipal budget, and officials have said the city could run out of cash by April.

Obama Proposal Could Cut Methane Emissions But Boost Energy Costs

NJspotlight.com 01/25/2016

The Obama administration is proposing new rules to curb methane emissions, a potent form of greenhouse-gas emissions, a step that may help deal with climate change but could hamper the fast-growing natural-gas sector. The proposal, made public on Friday by the U.S. Department of Interior, would mostly affect oil and gas drilling on public lands. But it also would require the industry to do a better job of monitoring leaks in pipelines delivering the fuel to customers. Both industry lobbyists and environmental groups said the proposal could raise energy costs, an outcome with implications in New Jersey, which has become increasingly reliant on natural gas not only to heat homes during the winter, but also to produce much of the electricity used here.

“The boom in natural-gas production has not only kept energy costs low, but has also brought new life to America’s manufacturing sector,’’ said Thomas Pyle, president of the Institute for Energy Research, an industry trade group. “(The Department of Interior’s) regulation threatens this progress by hindering production, raising energy costs, and killing jobs.’’ But the spurt of growth of new natural-gas plants in New Jersey and an expansion of pipelines from newly exploited deposits of the fuel in neighboring states has generated heated controversy. Many of the pipeline proposals traverse public land previously set aside with taxpayers’ dollars, or go through relatively affluent suburbs. “We hope this rule moves forward because it will help regulate methane leaks from fracking, while making it costlier for the gas and oil industry to operate and propose pipelines in our state,’’ said Jeff Tittel, director of the New Jersey Sierra Club. He noted there are at least 15 pipelines that have either been proposed or approved in the state.

According to the Bureau of Land Management, which proposed the rule, it would cost the industry $126 million to $161 million a year. Under the old rules, only new pipelines were subject to increased monitoring for leaks, according to Doug O’Malley, director of Environment New Jersey. “It’s a huge loophole. Existing pipelines are a big source of methane,’’ he said. In proposing the new rule, DOI estimated that between 2009 and 2014 enough natural gas was lost through venting, flaring, and leaks into the atmosphere to power more than 5 million homes for a year. In addition, the Government Accountability Office said as much as $23 million annually in revenue is lost to the federal government and states. New technology can reduce the waste, federal officials said. “By asking operators to take simple, common-sense actions to reduce waste — like swapping out old equipment and checking for leaks — we expect to cut this waste almost in half,’’ said Neil Kornze, director of the Bureau of Land Management. But Pyle said companies have the incentive to capture methane as a valuable commodity. The rules would be phased in over several years to allow operators to make the transition more cost efficiently, according to the Bureau of Land Management.