Department of Transportation and Motor Vehicle Commission FY 2017-2018 Discussion Points Department Of Transportation/ New Jersey Turnpike Authority 1a. The FY 2016 Transportation Trust Fund Authority (TTFA) Financial Plan projected an outlay of $1.127 billion for transportation project costs, and a closing cash balance at the end of FY 2016 of $57.7 million. The Governor issued Executive Order No. 210 on June, 30 2016 which directed the immediate and orderly shutdown all non-emergency TTF projects, except for those federally funded, on the premise that the TTFA would exhaust all of its available funds in August 2016. • Question: What was the actual cash balance of the TTFA on the date Executive Order No. 210 was issued? What amount of spending on transportation costs was likely to have occurred during July 2016 had Executive Order No. 210 not been issued? What amount did the TTFA expend for transportation project costs in FY 2016? If this amount fell short of the original projection, please explain the reasons for that shortfall. Answer: As of June 30, 2016, the cash balance in the TTFA totaled $201 million. Prior to the shutdown, the TTFA’s monthly average cash expenses were approximately $90 million. In FY2016, the Authority’s gross transportation costs totaled $1,086.5 million, a figure which accounts for NJ Transit’s repayment of a TTF cash loan totaling $241.5 million. 1b. The TTFA FY 2016 Financial Plan also noted a FY 2015 closing net balance or “tail” of $1.94 billion, which represents authorized project costs that have not yet been realized as a cash expense. The TTFA’s FY 2017 Financial Plan updated that closing net balance or “tail” to $2.51 billion at the close of FY 2016. • Question: Please provide an updated chart for appropriations through FY 2016 with the same information provided in response to OLS discussion point #7 on the FY 2017 Budget, as of April 1, 2017 (the chart was titled, “State Accounts with Unexpended and Uncommitted 480 Funds”). Answer: Please see the attached chart. 2a. Subsequent to the issuance of Executive Order No. 210 the DOT commissioner issued a list of projects impacted by the shutdown, which included $775 million in DOT and local projects and $2.7 billion in NJ Transit projects. As part of the shutdown, the department informed localities that any refusal to adhere to the shutdown order could result in losing previously awarded local aid grants. • Question: What is the estimated total cost to the DOT of the shutdown, including but not limited to affected project demobilization and reassembly costs? What is the total amount of claims filed by contractors on DOT projects for losses incurred due to the shutdown? Have any of these claims been resolved, and if so, with what result? When will the department resolve all remaining claims? Answer: All contracts for both state and local aid projects were extended for up to 102 days (the length of the TTF shutdown). To date four claims have been submitted, 1 Department of Transportation and Motor Vehicle Commission FY 2017-2018 Discussion Points (Cont’d) totaling $1.9 M. Three claims are in step 3 of NJDOT’s 4 step claims resolution process. The fourth claim was resolved through a change order. • Question: Were any localities penalized as a result of their actions during the shutdown? If local projects were impacted by the shutdown, will the department provide any compensation to localities for their costs related to the shutdown? What is the total amount of claims filed by local governments, seeking compensation for losses incurred due to the shutdown? Please list each local government that has submitted a claim and the amount of the claim. Have any of these claims been resolved, and if so, with what result? When will the department resolve all remaining claims? If a claim is resolved to provide a local government additional funding, will those funds be in addition to or within the overall amount of local aid appropriated? Answer: No localities were penalized as a result of their actions during the shutdown. No claims have been filed by local governments at this time. Two local governments have requested compensation for additional costs to shut down a project in an orderly manner in response to the shutdown order. NJDOT is also compensating local governments for costs necessary to accelerate project completion if the shutdown impacted the project completion date. • Question: What is the internal process in place at the department when determining whether sufficient resources exist to advance a project? Are those decisions based on a level of State appropriation which may not necessarily correspond to the amount of funds actually available in the TTFA? Answer: The TTF spending authorization included in the annual Appropriations Act, which is detailed by project or program, rationalizes the amount of work that may be advanced by NJDOT and NJ Transit. Funds are requisitioned as projects begin to develop and ultimately are obligated at the time of contract award. That programming function is separate and distinct from the Authority, however. Using primarily bond sales and pay-as-you-go appropriations, the TTFA generates the resources required to pay the cash need for these projects. 2b. On August 17, 2016 the Governor issued Executive Order No. 213, which directed the State Treasurer to transfer from any State department to the TTFA such amounts determined to be necessary by the OMB Director, in consultation with the Commissioner and the Executive Director, to support transportation projects determined to be absolutely essential for the protection of the health, safety, and welfare of the people of the State of New Jersey, or required to ensure the receipt of federal funding, according to the standards set forth in paragraph 4 of Executive Order No. 210. • Question: Please identify any projects which received funding transfers under this directive, the amount transferred and the funding sources. Answer: The Office of Management and Budget transferred a total of $71 million from the Emergency Services Fund (ESF) to enable the TTFA to pay cash expenses and support accrued expenses. The projects included a variety of emergent needs on the state highway system (e.g., repairs to ensure public safety), critical maintenance on NJ 2 Department of Transportation and Motor Vehicle Commission FY 2017-2018 Discussion Points (Cont’d) Transit rolling stock, and capital program support. The ESF was subsequently repaid by the Authority after the program was reauthorized. 3. The TTFA issued $3.2 billion in 2016 Series A and Series B Federal Highway Reimbursement Revenue Notes, also known as Indirect GARVEEs, in October 2016. The notes mature in annual installments on June 15 in years 2019-2031; interest for the first two fiscal years will be paid from the proceeds of the notes (“capitalized interest account”). The proceeds of these notes can be used for State and federal construction projects. Federal aid the State receives in reimbursement for work completed on any federal projects is pledged to repayment of note principal and interest. Indirect GARVEEs do not under statute count against the limitation on TTFA program bonds, set by law at $12 billion for the period FY 2017-FY 2024. The Direct GARVEEs the TTFA issued in 2006 are linked to a specific project; federal aid will reimburse the State for both project and financing cost (i.e., interest on the notes). Indirect GARVEEs, while also providing cash for projects, are not project-specific, and federal aid will reimburse the State only for federal project expenditures, not for financing costs. Thus, when the State expends federal aid to repay both the principal and interest on Indirect GARVEEs, it will in effect be using State funds to pay for the construction of future federal projects. Or, seen another way, since federal aid is not adjusted upward to cover the interest on Indirect GARVEEs, State funds are the ultimate source to pay these costs, even though federal aid is the initial source of interest repayment. • Question: What advantages did the TTFA and the State secure by choosing to issue Indirect GARVEEs rather than Transportation Program bonds or notes? Answer: When the indirect GARVEE was issued in the fall of 2016, interest rate pricing was very attractive. In addition, since many of the larger investment funds had maximized their legal exposure to TTFA State Contract Debt, the indirect GARVEE presented a new opportunity that investors were eager to pursue. In total, the indirect GARVEE attracted over $13 billion in orders. It also broadened the investor pool, as evidenced by the fact that three of the top fifteen orders were from investors who did not previously hold TTFA bonds. Both the average coupon (4.65%) and the true interest cost (3.96%) for the indirect GARVEE proved to be considerably lower than the comparable measures on recent TTFA debt (respectively, 5.02% and 4.87%, based on the Series 2015AA issuance.) In addition, the shorter term of the indirect GARVEES (i.e., 15 years) versus TTFA debt (i.e., 30 years) provided significant benefits in terms of interest rate spreads, as well as total debt service over the life of the bonds. • Question: What is the total interest cost to maturity on the notes, excluding the amount of interest to be paid from the capitalized interest account? Can any of the notes be retired before maturity? If so, does the TTFA have any plans to retire any notes prior to maturity? What are the terms and conditions for doing so? Answer: Aggregate debt service on the indirect GARVEE issuance, net of capitalized interest, is $4.4 billion. A total of $1.3 billion of the indirect GARVEEs were structured with a two-year par call and another $.8 billion were structured with a 10-year par call.