BETTER IDEAS ABOUT ASSET MONETIZATION

Last week was an especially eventful one for Governor Jon Corzine. He had to endure an embarrassing article about a former girlfriend. He appeared in a compelling public service announcement about the importance of wearing seats belts.  In between he said that he would announce within the next few weeks the details of an asset monetization plan that will presumably help New Jersey state government deal with its fiscal challenges.

Most political observers did not expect Corzine to discuss this controversial topic until the new state budget was approved.  And, given that polls show that a strong majority of New Jerseyans do not like the idea of selling or leasing major state assets like the toll roads, several legislators in the Governor's own party did not want to discuss asset monetization until after November's mid-term elections.

Nonetheless, Corzine wants to get back into the policy-making and political mix much sooner than that.  Yes, some folks think he is simply eager to move beyond all the talk about his accident and his personal life.  That may be, but the Governor also wants to try to get legislators and citizens to focus on the unpleasant but unavoidable issue of the state's long-term fiscal problems. And, he wants to explain to them that his asset monetization plan will not entail either selling or leasing the Turnpike or Parkway to private companies like some of governments have done with their toll roads. But if Corzine's plan is not as controversial as first assumed, New Jerseyans do need to pay attention to what the Governor and legislators will do with the cash influx obtained from monetizing any state assets.

What does Corzine have in mind?  Apparently the Governor will call for a new state agency or public corporation that will have authority over various assets.  This new organization would try to borrow billions of dollars against anticipated toll revenues.  According to Senator Ray Lesniak, an early advocate of asset monetization, tolls would no doubt increase annually so that prospective investors would receive a decent return on their money.

Such a plan may assuage citizens concerns about the state's loss of control over its toll roads and that maintenance, snow removal and expansion projects would suffer. That is if the Governor can show that the state can keep some toll revenues or find funds elsewhere for these needs while still paying investors enough to justify giving the state billions of dollars.  Even if this is all worked out, citizens will still want to know precisely how the Governor and legislature will use that money.

Based on what he said in his February Budget Address and recently, Corzine wants to use the money gained from asset monetization to pay down the state's $30 billion debt.  That debt, one of the largest in the nation, causes concern among prospective business investors about New Jersey's financial health and the likelihood that at some point the state will have to hike taxes to balance its budget and pay its bills. And the huge annual payment on the debt - closing in on $3 billion - is also a drain on state revenues that can could be used to increase existing state aid packages and expand existing programs or to create new ones.

Getting $15 billion through monitizing assets like the Turnpike and Parkway - that's the figure being bandied about - and using that money to pay down the state debt can reduce debt service payments by more than a billion dollars a year to about $1.5 billion.  That's a more manageable figure in a state budget that tops $30 billion and would show that New Jersey is making serious progress on achieving what Corzine calls "fiscal integrity."  On these terms asset monetization seems to make good financial sense.

Does it make good political sense?  Well, more citizens are likely to support an asset monetization plan that has the state retaining ownership of its toll roads and does not lease them to a private management company.  Creating a new state agency like a public corporation to issue bonds may well be met with cynicism from those folks who worry about creating more bureaucracy and state jobs.  And, annual increases in tolls, even if they are tagged to the consumer price index, will not be a hit. However, these concerns do not seem to outweigh the benefits of the plan.

A more important question is what the Governor and the legislature would do with that billion dollars or more that the state will save because of its smaller debt and hence debt service payments.  In his Budget Address, Corzine mentioned that this money could used to close the structural deficit, to expand pre-K and full-day kindergarten programs, to build new schools and college classrooms and dorms, to expand mass transit in South Jersey, to revitalize brownfields and buy open space.

Those are good causes.  But a more important cause is "fiscal integrity."  To make further progress on that goal, the Governor and legislature can use any money freed up by paying down the state debt through an asset monetization plan to shore up the public worker pension and health insurance funds that are both in need of larger annual contributions by the state to become solvent. There may be more politically popular ways to use that money, but this is a sensible one for lawmakers concerned about the state's long-term fiscal health.

David P. Rebovich, Ph.D., is Managing Director of the Rider University Institute for New Jersey Politics (www.rider.edu/institute). He also writes a regular column, "On Politics," for NEW JERSEY LAWYER and monthly reports on New Jersey for CAMPAIGNS AND ELECTIONS Magazine.