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Let's Talk About Asset Monetization

by: Juan Melli

Tue Nov 27, 2007 at 05:48:56 PM EST



New Jersey has $32 billion in debt and over a $3 billion structural budget deficit. There are no honest, pain-free ways to close the deficit, but New Jersey lawmakers have never shied away from shrugging off that responsibility through budget gimmicks. That's exactly how we got to where we are today, and for a while it looked like Governor Corzine might be on track to follow in that irresponsible tradition. For months he touted his asset monetization plan as a way to fund all kinds of worthy projects for which there is no money:
Among the goodies Corzine had said his proposal might free up money for _ preschool and full-day kindergarten for everyone, new schools, expanded state college facilities, tuition aid, environmental cleanups, preserved open space, universal health care and affordable housing.
But last month voters who overwhelmingly support stem cell research voted down a ballot question that would have borrowed $450 million to fund the research over 10 years. The message to lawmakers was clear: get your fiscal house in order first. Luckily it seems Corzine got that message:
"I think it would be very hard to justify new programs...I think we've moved away from the view of anything other than pay down debt and the Transportation Trust Fund."
Assembly Speaker Joe Roberts agrees:
"Every single dollar needs to be used to pay down debt."
And Senate President Codey seems to be going along with the plan because he has no better ideas:
"The governor is doing what he has to do, frankly, to bail us out...We all have an obligation to either say yes or to come up with a better plan, and at this point I don't have a better plan."
That's a pretty honest assessment of the situation. Maybe too honest.

Corzine's plan to pay down half the state's debt is estimated to reduce interest payments by around $1.5 billion per year, which would help significantly close the structural deficit. Some have criticized the plan by pointing out that it's simply borrowing money to pay off debts. Like filling up a hole with dirt dug out of another hole. There's some truth to that, but the benefits could be greater than the sum of the parts.

With the state's fiscal health improving, Wall Street should be willing to lend the state money at a lower interest rate. In 2004, for example, some state-issued bonds were issued a rating just "two grades above junk bond status." Wall Street had low trust in our state's fiscal health and charged us a higher interest rate to borrow money. But by slashing our debt and implementing some stronger ethics reform measures, Corzine may be banking on the fact that Wall Street will have more faith in our state's fiscal situation, and lend us money at a lower interest rate.

So not only would we save the interest payments by paying off some of our debt, but we should save money on the interest payments from any future bonds issued. Ideally, the savings should further close the structural deficit and speed up the path to fiscal sanity.

But we don't live in the land of chocolate lakes, rainbows and unicorns where things happen the way they're supposed to. In Trenton, good ideas often turn into bad ideas on their way to being signed into law. To win support, it's likely and probable that individual legislators will want something in return, and that translates into more debt, negating or lessening the benefits of the proposed fiscal reform. So while I haven't seen the details of Corzine's plan, I theoretically support the plan because it could put us on the right path to fiscal sanity. But the cynic and realist in me thinks the final product won't be worth it. I hope I'm wrong.
Juan Melli :: Let's Talk About Asset Monetization
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Let's Talk About Asset Monetization | 35 comments
well (3.00 / 1)
I've made my suspicious reaction clear enough.  But even if this plan is exactly as I think Corzine suggests -- i.e., it pays off $15 billion in debt and maintains bridges around the state at the price of higher tolls, with no other consequences -- I still think it is basically unjust to make people and communities in NJ who depend on these toll roads to get to their jobs to balance the budget for everyone.  Basically it is a regressive tax aimed at those who trusted the state government to live up to its obligations.  The toll increases will be staggering.

Now, personally, I hardly use the Turnpike, so it makes no difference to me. 

Frank LoBiondo Record and Jon Runyan Watch

Re: well (3.50 / 2)
That's a good point. Maybe there's a way to mitigate the burden on the most vulnerable. Dare I say it....rebates, maybe? Or specially-programmed EZ-pass tags?

Our toll roads are much cheaper than most of our neighbors, yet a large percentage of drivers are from out of state. We're paying for their higher tolls, but giving them an easy ride on our roads. Raising tolls will hurt, but a large chunk of that will be paid by non-residents. To raise the same amount of money, the burden on NJ will be smallest if it's done through something like toll hikes.

[ Parent ]
My long term wish (0.00 / 0)
is to see the Toll Booths done away with. Its a very inefficient way to generate revenue I would think.

Check out my 3 paragraph primer on Polywell Fusion.
[ Parent ]
Agreed (0.00 / 0)
There are better ways of generating revenue that cause a lot less hassle to a lot of people.
[ Parent ]
Tolls=regressive, yes. (0.00 / 0)
The Whole darned country is in a recession due to in part to regressive tax policies of the last 26 yrs or so.

Recession..... except for the priveleged few.

Check out my 3 paragraph primer on Polywell Fusion.

[ Parent ]
The Commonwealth (4.00 / 1)
Our taxes pay for infrastructure like air traffic controllers and hiways and the FDIC, FDA FCC, FBI Fannie Mae.

The Commonwealth if you will.

We enter into a social contract to get a job, be a good bloke, pay our taxes.

Now the Governor wants to toss out a very idea of Jeffersonian Commonwealth.....

.... and do what ... ?

Call it Knee jerk, but I see nothing Democratic about any of this.

On Economics its just wrong. If The Democrats in Trenton cant get us moving to a balanced budget we should consider their replacement. The Bond market would be expected to uprate NJ Bonds if the State showed it could improve its fiscal position by fiscal prudence as the country moved to a balance budget in the 1990's. This uprating would save the state some money.

Check out my 3 paragraph primer on Polywell Fusion.

how to mitigate the pain (4.00 / 1)
Toll hikes can help shift the burden to the out of state folks that use our roads but don't pay NJ taxes.

Maybe refundable tax credits for a percentage of the amount of taxes paid on a sliding scale with income (keep your EZ Pass receipts)... this way the ones hurt most by toll raises are spared, but the ones that can afford it can't complain using the commuting poor as their excuse.

The part I am not convinced on yet is whether borrowing a big chunk against the future revenues really makes any sense.  Is the interest we are paying on the debt really at that much a higher rate than the return on investment the buyers of our income stream from tolls will require, plus the cut of the middlemen?

I need to see the numbers before I am convinced this isn't a shell game.

Its a shell game, & its anti democratic (0.00 / 0)
Of course it make little or no sense.

What makes sense is to remove the toll booths, and do what democracies do, use tax dollars for roads, and the FAA, FDA, etc.

Its called the Commonwealth. Jefferson wrote at length repeatedly, about the commonwealth.

26 yrs of regressive fed tax policy has seen more burden shifted to the states and locales.

We need to return to progressive tax policy, 91% top pers. rate,. not 33% 50+% corporate. Progressive tax policy got us out of the depression and won WW2.

Check out my 3 paragraph primer on Polywell Fusion.

[ Parent ]
Tradeoffs (4.00 / 1)
Somehow we are supposed to figure that half of the State's debt can be refinanced at a better interest rate and it will only result in the doubling(?) of the tolls.  This is "acceptable" because 50%(?) of the people driving on the Turnpike, Parkway and Expressway(?) are from out of state.  It would be easy to show the EZ-Pass figures for those roads, but I doubt it would back you up.  If you are on the Titanic with icebergs all around, that is not the time to say, "Full Speed Ahead!"
Todays Ledger I think it was, had it at (0.00 / 0)
57% of turnpike users were out of state.

To me thats not the point, we paid for the hiways its ours. If want to balance the budget do so, if not lets get some DEMs who will.

We saw the US budget balanced in the 1990's. Is NJ special, where we dont have to... ?

Check out my other comment on the Commonwealth.
Photo Sharing and Video Hosting at Photobucket

Check out my 3 paragraph primer on Polywell Fusion.

[ Parent ]
Turnpike Facts (4.00 / 1)
According to the Turnpike, it is 53% of revenue.  http://www.state.nj....

I couldn't find anything about the Parkway or the Expressway.

However, the Turnpike Authority (both the Turnpike and the Parkway) states it had $737.3 million in toll revenue in 2006 and the South Jersey Transportation Authority (the Expressway) states it received $59.5 million.  That only totals $797 million, so I am not sure where this $1.8 billion in toll revenue is coming from.  Also, the Turnpike Authority has almost $5 billion in debt.

Increasing tolls to revitalize the Transportation Trust Fund might have some merit, but is still going to be very problematic because you aren't going to be able to give "discounts" or "rebates" to in-state motorists.  So, even though "those people" from NY, PA and DE will pay more so will you and I.

[ Parent ]
why pay more? (4.00 / 1)
If the technology doesn't exist to program EZ-Pass tags so that NJ residents are charged less than non-residents, the state could allow residents earning less than ?K per year to deduct their annual toll expenses from their taxable income.
[ Parent ]
bond covenants, not EZ-Pass technology! n/t (0.00 / 0)

[ Parent ]
huh? (0.00 / 0)
What is a bond covenant?
[ Parent ]
Two Grades Above Junk Bond Status??? (4.00 / 1)
That's a pretty fantastic rate of return given that there's practically zero risk of failing to pay off the bonds.

Aren't these bonds also tax free???

If they are tax free; then it seems that the taxpayers are being truly ripped off by the "investors" and the companies that take their pound of flesh out of the whole deal.

Why can't something as large as NJ simply issue bonds on it's own without paying a cut to middlepeople?  After all, they're just IOU's right?  Why should anyone get, or pay, "commissions"  on such a simple transaction?

And why not ask for lower interest payments given that there's no way the state's going to default and that these are tax free?

In fact, why not have a "let's bail out NJ" bond drive that is geared toward having ordinary working and middle class New Jerseyans invest in their/our own state at fair rates.  Perhaps some kind of special incentives could be given to NJ residents.

And let's do it in such a way that no financial institutions skim off any of the money...surely Corzine has the expertise to arrange it to be done in house at a large savings.

Look at the piddling rates of return on CD's and that money is taxable.  Why not invite NJ citizens to invest in buying down the debt in such a way that it's actually good for ordinary people?

Of course, nothing like the above could work unless the citizenry truly BELIEVED that all the pay to play legalized corruption was going to be completely squashed and that the state was going to be run on the up and up from here on in.

In short "monetization" is connected to everything else.  There is no partial solution to this crisis...we need to go the whole hog.....or all we're doing is prolonging the eventual collapse of New Jersey's economy.

There's a limit to how many leeches a body can stand, eh?

Tobacco Bonds (4.00 / 1)
The tobacco bonds had a coupon of 5% when the federal funds rate was 1%.  Even if the "AM/TS" bonds were AAA, would they be any better than 5% when the federal funds rate is 5%?

This math just doesn't add up.

I know that they will all scream at the outrage, but... (4.00 / 1)
since NJ is in this fiscal problem that its citizens are going to have to fix, couldn't we expect the gaming industry to do the right thing and pitch in to help our state, a state that has been very good to them in making money, with a greater percentage of revenue from the gambling proceeds until this fiscal mess is sorted out.  After all, it's the Parkway that gets half of their customers to AC in the first place.  It's the least that the Donald and his buddies could do to help out a state in need.
progressive state income tax increase (4.00 / 1)
What is that state income tax rate on individual incomes of 100K or more and family incomes of 200K or more?  How much more could be raised by increasing these income tax rates by 1%?  2%?  3%?  4%?  5%?

If it were possible to significantly increase state income taxes on the state's top earners, use that money to pay down debt and fund education expenses in a way that would reduce, if not eliminate, property taxes on the first 500K of a home's value, think that this would probably be the best solution to this problem and one that should be safe enough for the Democrats to pass.

I also think that the State Division of Taxation should be able to review tax records since the Bush tax cuts were passed and retroactively institute a surcharge on the cash value of these cuts since the cuts to state aid that supported these tax cuts were a major contributor to our state's current fiscal problems.

I would be more open to Corzine's asset monetization plan, especially if the technology was available to pass the bulk of the toll increases onto the backs of out-of-state drivers, once the state income tax was significantly increased on the state's wealthiest residents first and school funding formulas were reevaluated.

roughly speaking (0.00 / 0)
If you double the income tax, you can eliminate the education portion of property tax.

If you triple the income tax, you can eliminate the property tax entirely.

One percent of filers pay about 40% of the income tax because they have 40% of the income.

[ Parent ]
correction (4.00 / 1)
2.5 times to eliminate education.

3.5 times to eliminate property tax

[ Parent ]
what are... (0.00 / 0)
...the current state income tax rates?

How would they compare to NY's after a 250% increase?

[ Parent ]
Research--Do Some!! (0.00 / 0)
Instead of constanting posing questions for others to play Stepin Fetchit for you on the Net while you play Socrates, do some research yourself!

You work at a place that sells bonds.  I would think that someone could tell you about bond covenants.

A lot of tax information is on the Web.  Since both states have graduated income tax systems, it would be difficult to do an exact comparison.  You can look it up yourself and see what you come up with.

Additionally, there would be a difference between a state with both income and property taxes versus a state with only an income tax.  It would affect different people in different ways.  Again, there is no "perfect" solution.  Some people will always complain.  Others will have different impacts under different systems.  The question is, what is fairest for the highest number?

I sincerely doubt that there is going to be a reverse exodus to New York even of the Governor's super-wealthy friends because New York is facing the same fiscal issues that we are as well as quality of life questions.

[ Parent ]
Obviously, "constantly" instead of "constanting" :-( n/t (0.00 / 0)

[ Parent ]
Spoken like a Republican (4.00 / 1)
The plan is privatization-lite.  Paying down debt is an old Republican virtue. 

The plan is crap.  And politically, it's poison for Democrats.

thanks (4.00 / 2)
Thanks for the constructive feedback.

If trying to be fiscally responsible makes me a Republican, then I'm guilty as charged.

[ Parent ]
Guilty, yes. (4.00 / 1)
The problem is that your concept of "fiscal responsibility" involves myopically shifting a large portion of the debt burden onto those least able to afford it, not to mention that it reeks of corporatism.  There are myriad better proposals, the most effective of which (as has been amply suggested) would be substantially increasing the top tax rates.
[ Parent ]
"Not to mention that it reeks of corporatism" (0.00 / 0)
I smell the same thing. Yup.

FDR would be turning in his grave.

Check out my 3 paragraph primer on Polywell Fusion.

[ Parent ]
Durned republicans. (0.00 / 0)


Check out my 3 paragraph primer on Polywell Fusion.
[ Parent ]
I want nothing to do with (0.00 / 0)
Asset Monetization.

Its a violation of the social contract that paid and built the Commons. As Government assets go private, does the dollar dive faster?

Check out my 3 paragraph primer on Polywell Fusion.

[ Parent ]
Just Posted A Diary (0.00 / 0)
http://www.bluejerse...

Take a look.  Hopefully, recommend!

Let's Talk About Asset Monetization | 35 comments
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