State of New Jersey The Asset Evaluation Program: A Progress Report - PowerPoint PPT Presentation

State of New Jersey The Asset Evaluation Program: A Progress Report May 29, 2008 Council of State Governments 2008 Spring Conference

The Fiscal and Transportation Funding Problems Facing New Jersey are Not Unique….. 23 states, including New Jersey, are facing budget shortfalls in 2009 New Jersey, like many states, is facing significant liabilities in pension and health care costs All states face rising costs and shrinking federal support for transportation investment …..But our approach to tackling them is: We recognized the direct correlation between New Jersey‟s fiscal constraints and our inability to invest sufficient funds in transportation and infrastructure The asset evaluation review began in 2006 resulting in a proposal that upon implementation was capable of producing a positive and transformative effect on several key issues confronting the State and brought the scope of these challenges into the public dialogue Provided long term investment in the toll roads Provided long term funding for investment in the statewide transportation network Provided funds to pay off one half of the State‟s debt 1

Where we Started: The Problem - Financial Emergency 20 years of short-sighted financial decisions by both parties left us in a deep hole Misspending Overspending Irresponsible Borrowing 2

New Jersey Is Not Funding all of our Long-Term Obligations FY 2008 Funding of Long-Term Obligations Post R etirement Medical Expense ($bn) Net Tax-Supported Debt Outstanding Unfunded Pension Expense ($ in Billions) 12.0 Debt Service 9.8 10.0 $35 8.0 6.0 4.9 30 4.0 2.0 25 0.0 Annually R equired Actual Contribution 20 Contributions F Y 2008 F Y 2008 15 Transportation Capital Funding 10 ($bn) 50.0 42.0 5 40.0 30.0 „07 „90 „91 „92 „93 „94 „95 „96 „97 „98 „99 „00 „01 „02 „03 „04 „05 „06 20.0 Fiscal Year 4.0 10.0 CAGR = Compound Annual Growth Rate = debt issued since June 2007 0.0 10-year Capital Plan Existing State F unding ¹ 3 1 Available Transportation Trust Fund funding

Transportation Investment Continues to Require Focus and Money New Jersey… most densely populated corridor state Highly dependent on our transportation network Almost $2 billion in annual federal funding at risk after 2011 $40 billion in transportation needs over the next decade for safety and congestion relief – 700 deficient bridges – 10,000 miles of highways to be resurfaced 2 nd rail tunnel under the Hudson River - 4

Governor Corzine Chose to Investigate Public-Private Partnerships (PPPs) as a Possible Solution… PPPs can Provide the public sector access to private sector discipline, expertise, efficiencies and sources of capital Allow the public sector to transfer financial, construction and operating risks Significant Value can be Generated by Private Sector Financing Capitalization of Net Revenues from an Infrastructure Asset Municipal Model PPP / Concession Model Private Sector Projections Net Revenue Net Revenue Incremental Value Municipal Revenue Generated by Projections Private Sector Risk Municipal Bond Tolerance Investor Loan Capacity 30yrs 30yrs 99yrs 99yrs 5

Where Did We Start? The starting point for our work was to inventory the major State Asset Classes and identify those that merit the State’s near -term focus Asset Classes Convention Real Estate Centers, Newly- Water/ Solid Recreation Naming Rights- Toll Development/ Stadiums Tolled Waterways Student Wastewater Existing Waste Facilities and Other 1 Key Criteria Lottery Rights of-Way Roads Train Stations Facilities and Ports Hospitals Loans Transit Airports Facilities Prisons Facilities (Parks) Equipment S tand Alone + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + - + + - Operation Output/S ervice Delivery Driven + + + NA NA + + + NA + + + + + + + + + + + + + + + + + + + + + + + - S ubstantial Operating + + + NA NA + + + NA + + + + + + + + + + + + + + + + + + + + + + + + + + + + + NA Component Alternative - - - + + + + + + + + + + + - - - - - + + - - - - - - - - + - - - Use of Asset Innovation in + + + + + + + + + + + + + + + + + + + + + - - - Delivery Long-Term + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + - Availability Minimum Transfer of + + + + + + + + + + + + + - - - + - + - - - - - - - + - - - + + S ocial Control Manageable S ecurity/ + + + + + + + + + - + - - - + + + - - - + - - - - - + + + + + S afety Issues R isks Commercial in + + + + + + + + + + + + + + + + + + + + + + + - - - + + - - + + Nature Manageable + + + + + + + + + + + + + + + + + + + + + + + + + + + + - - - - S ize Overall + + + + + + + + + + + + + + + + + + + + + + + + + + + / - - - P otential – S – – Unfavorable – – – Very Unfavorable +++ Very F avorable ++ F avorable + S omewhat F avorable omewhat Unfavorable NA: Not Applicable Note: 1 Other includes racetracks, concert halls and meeting spaces 6

The State‟s Asset Review The State began a review in the fall of 2006 to determine which assets could generate value While several different opportunities were identified, the monetization of toll roads was identified as being the most valuable, feasible and market ready High NJ Turnpike Authority Assets Turnpike ⁴ NJ Newly-Tolled F acilities arkway 4 GS P Relative Value 1 HOT Lanes AC E xpressway Lottery ⁶ AC International Airport NJ iber Optic Network ⁴ F Development R ights at NJ Transit S tations Naming R ights NJ S E A ² P NC Bank Arts Center 4 HE S AA Low Low High Feasibility 3 Market Readiness ⁵ Source: UBS report dated November 2006 Low Medium High Notes: 4 Included in NJ Turnpike Authority Assets which are not individually 1 Relative value net of any directly associated debt available without total NJ Turnpike Authority debt defeasance 2 Reflects a group of 7 venues 7 5 Bubble size indicates the level of market readiness for each Asset 3 Indicates likelihood of completion; Includes Market Acceptance, Risk 6 Value is net of projected reductions to General Fund contributions Profiles and Relative Lack of Complexity

Summary of the Initial Phase of Study The initial evaluation process can be summarized as follows: Pathfinder Analysis Pathfinder Analysis Pathfinder Analysis ¨ ¨ ¨ Individual/Discrete Individual/Discrete Individual/Discrete Market/Investor Market/Investor Market/Investor Net Value to the State Net Value to the State Net Value to the State Asset Class Evaluation Asset Class Evaluation Asset Class Evaluation ¨ ¨ ¨ Asset Evaluation Asset Evaluation Asset Evaluation Interest Assessment Interest Assessment Interest Assessment Feasibility Feasibility Feasibility ¨ ¨ ¨ Market Readiness Market Readiness Market Readiness ¨ ¨ The study concluded that the Assets generally fall into four Tiers based on their Net Value to the State, Feasibility and Market Readiness The study ¨ ¨ All of the Assets in Tier 1 and Tier 2 should be considered in Phase 2. These include: All of the Assets in Tier 1 and Tier 2 should be considered in P Tier 1 Tier 1 Tier 1 Tier 1 Tier 2 Tier 2 Tier 2 Tier 2 ¨ ¨ ¨ ¨ ¨ ¨ Atlantic City Expressway Atlantic City Expressway Atlantic City Expressway Atlantic City International Airport Atlantic City International Airport Atlantic City International Airport ¨ ¨ ¨ ¨ ¨ ¨ Development Rights at New Jersey Development Rights at New Jersey Development Rights at New Jersey Fiber Optic Network Fiber Optic Network Fiber Optic Network ¨ ¨ ¨ Transit Stations Transit Stations Transit Stations “ HOT Lanes “ HOT Lanes “ HOT Lanes ” ) ” ) ” ) High Occupancy Toll Lanes ( High Occupancy Toll Lanes ( High Occupancy Toll Lanes ( ¨ ¨ ¨ ¨ ¨ ¨ Garden State Parkway Garden State Parkway Garden State Parkway Naming Rights Naming Rights Naming Rights ¨ ¨ ¨ ¨ ¨ ¨ New Jersey Lottery New Jersey Lottery New Jersey Lottery Newly-Tolled Facilities Newly-Tolled Facilities Newly-Tolled Facilities ¨ ¨ ¨ ¨ ¨ ¨ New Jersey Turnpike New Jersey Turnpike New Jersey Turnpike PNC Bank Arts Center PNC Bank Arts Center PNC Bank Arts Center 8

How Can we “Unlock” the Value of our Assets? Public Benefit Company Public Authority Model Long-Term Concession IPO “PBC” Authority is created / State assigns the right to State assigns the right State assigns the right retained by the State set and collect tolls and to set and collect tolls to set and collect tolls and given ability to manage the roads for a and manage the roads and manage the roads develop, finance, defined period of time for a defined period of for a defined period of manage, and operate per parameters time per parameters time per parameters the asset stipulated in an stipulated in an stipulated in an Transaction agreement in exchange agreement in exchange agreement in Description for monetary payment(s) for monetary exchange for by a stakeholder- payment(s) by a private monetary payment(s) controlled entity for the sector concessionaire by a concessionaire benefit of the road users whose shares will be and the transportation publicly traded system in the State of New Jersey 9