The High Price of New Jersey's Cheap Gasoline Tax

NJ Gov. Chris Christie
NJ Gov. Chris Christie

New Jersey Gov. Chris Christie's recent decision to pull the plug on the $8.7 billion "ARC" commuter rail tunnel between New Jersey and New York, the nation's largest public works project, is a testament to the state's decades-long inability to adequately fund its transportation needs. It's also a statement about the governor's refusal to raise the Garden State's gasoline tax, which has remained unchanged at 10.5 cents per gallon since 1988.

Talks are underway between the U.S. Department of Transportation and the state in a last-ditch effort to save the project. But the tunnel, on which work finally got started just recently after 20 years of planning, could easily fall victim to the state's transportation funding woes. New Jersey's primary mechanism for funding transportation projects is the state's Transportation Trust Fund (TTF), which gets its money primarily from the gas tax -- and is projected to be insolvent in 2011.

That's forcing Christie to scramble to find additional revenue to repair roads and bridges and maintain public transit systems. The governor said he canceled the tunnel project because it would likely face billions in cost overruns. Tunnel advocates say the overrun concerns are overblown. Instead of building the tunnel, Christie plans to take money that the federal government has appropriated for ARC and use it for other New Jersey projects instead -- something his detractors say isn't possible.

Could the ARC Mess Have Been Avoided?

Of course, New Jersey's transportation woes predate Christie's governorship and have festered for years. Politicians from both parties are to blame. Gas taxes, after all, have long been considered the third rail of New Jersey politics. But it seems clear that had New Jersey adequately funded the TTF via higher gasoline taxes, the state would have had a financial buffer against cost overruns at the ARC, potentially avoiding the current impasse with the federal government. The Christie administration denies that the issues are connected.

"Clearly, given the fiscal condition and budget of TTF, it's difficult to see how it can be seen as a legitimate fix to the issue of ARC cost overruns," says Kevin Roberts, Christie's deputy press secretary, in an email. "Whether it hypothetically is or not doesn't help the reality of the situation now."

Martin Robins, director emeritus of the Alan M. Voorhees Transportation Center at Rutgers University, argues that the two issues are linked and that the state would be in a far better position regarding the ARC tunnel if the TTF were adequately funded.

"The cost overruns are not real," he says. "They're based on a risk analysis process that may be faulty. . . . If you have a robust Transportation Trust Fund -- you can at least know you have a fallback position." Without a solvent TTF, says Robins, "every risk you take is magnified."

$2,000 a Minute

Democrats, including Sen. Frank Lautenberg, are livid with Christie. They say the tunnel's benefits exceed its risks. According to a study released Oct. 14 by the Regional Plan Association (RPA), the project

will reduce travel times by as much as 30 minutes for thousands of commuters to New York. In addition, every minute a commuter saves adds nearly $2,000 to the value of their homes, the group says. That figure goes to $3,000 for people living within walking distance of a station.

"If this project is canceled, New Jersey's transportation system will become a parking lot -- isolated from job opportunities in Manhattan," Lautenberg said in statement. "Jobs that would have gone to New Jerseyans will instead go to people in Connecticut, Westchester County and Long Island."

While New Jersey residents pay the highest property taxes in the U.S., they pay surprisingly little to fill up their gas tanks. The state's gasoline levy is the third-lowest in the U.S., undercut only by Wyoming and Alaska, according to data from the American Petroleum Institute. A gallon of regular unleaded fuel in the Garden State now averages $2.68, far cheaper than in New York, where the average is $2.97, and in Pennsylvania, where it's $2.83. The national average is $2.82 a gallon, according to the American Automobile Association.

New Jersey drivers not only get gas cheaply but they're also prohibited by state law from pumping it themselves. The state, whose dense population breeds mammoth traffic congestion, has paid a high price for this perk and for its cheap gas.

map of ARC tunnel from NJ to NY
map of ARC tunnel from NJ to NY

Commuting in New Jersey, however, is not cheap. Drivers pay high tolls on bridges, tunnels, the New Jersey Turnpike and the Garden State Parkway. Many commuters also pay steep prices to park their cars at train stations.

Hardly Self-Sufficient

According to a report by the RPA earlier this year, the state's Department of Transportation estimates that "all the major transportation improvements planned in the State of New Jersey for the next decade -- road and bridge repairs, new transit vehicle purchases, train station rehabilitations, local road improvements, and new rail service -- will cost $34 billion. Nearly half, or $18 billion, is to be paid for by the Transportation Trust Fund – $1.6 billion a year at first, and then growing to more than $2 billion a year by the end of the decade. Without the TTF, the state and federal funding necessary for these major capital projects, each of which is vital to the state economy, will be lacking."

When lawmakers established the fund in 1984, it was supposed to be self-sufficient. Over the years, the opposite became true because officials found it easier to borrow to pay for transportation projects instead of funding them adequately at the time. In 2003,
a blue-ribbon commission advised Democratic Gov. Jim McGreevey that the state's gasoline tax should be doubled to adequately meet the state's transportation needs. That report was ignored.

Three years later, Gov. Jon Corzine increased the TTF's bonding authority from $650 million to $1.6 billion annually and maximum bond maturities from 21 years to 31 years, thereby avoiding bankruptcy. For years, state officials played "kick the can down the road," says State Sen. Raymond Lesniak, a veteran Democratic legislator who backs a gradual increase in the gasoline tax. "We are at the end of the line now."

Road Projects Caught in the Middle

Starting next year, money coming into the TTF -- some $895 million including the gas tax -- will go toward paying interest on existing bonds. However, money won't be available for new projects. Earlier this month, Democrats allowed a new $1.4 billion transportation bond issue to move forward after a dispute with Christie led to a temporary halt on multitudes of road-work projects meant to repair crumbling infrastructure throughout the state. It's for such projects that Christie wants to use the federal government's $3 billion now allocated for the ARC tunnel.

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Democrats, including Assembly Transportation Committee Chairman John Wisniewski, argue that a transfer of funds isn't legal and that the state would have to return the $300 million it has taken from Washington for the project. Wisniewski says other states are already clamoring for the money that was meant to go to New Jersey.

"This is the kind of the decision that in the short-run is easy to make," but the consequences will be seen in the future, Wisniewski says. He's also head of the New Jersey Democratic Party and argues that calling for higher gas taxes isn't the political suicide some may think. "I'm still here." he says.

So far, Christie shows no sign of changing his mind on the gas tax. Democrats aren't even bothering to introduce a bill on the topic because they're sure it's doomed to a Christie veto. And the governor plans to release a plan to fix the TTF by year-end, but administration spokesman Roberts declines to release any details.

The debate over the ARC tunnel will continue while everyone awaits a compromise proposal by U.S. Transportation Secretary Ray LaHood. Whatever happens, Christie isn't likely to do the one thing that would ensure the badly needed tunnel can be built: raise the state gasoline tax.