Tuesday, January 27, 2009
BY CLAIRE HEININGER
Fallout from the financial crisis could cost NJ Transit $150 million, leading to increased fares or delayed capital improvement projects even as construction begins on an $8.7 billion rail tunnel under the Hudson River, officials said yesterday.
NJ Transit is one of at least 31 transit agencies in 18 states now vulnerable because of downgrades in the credit ratings of banks, NJ Transit Executive Director Richard Sarles told a legislative committee in Trenton.
NJ Transit’s agreements with AIG – the insurer that received billions in government bailout money this summer – have led to “technical defaults” that could force the agency to pay investors about $150 million, unless the federal government guarantees the transactions, Sarles said.
He said he believes a federal solution will be found before commuters are hurt.
“Any kind of increase would be a last resort, so I would hope not to get there,” Sarles said after testifying before the Assembly Transportation Committee. “But in the end it would require probably just deferral of some projects a little longer.”
If the agency was forced to pay, it would try to find the money by postponing expansion projects instead of increasing fares, which would have to rise by more than 10 percent, Sarles said. He declined to specify possible targets for delay, saying he hopes to avoid that scenario by reaching a federal solution with the help of Sen. Robert Menendez of Hoboken.
Sarles said other transit agencies – including ones in Atlanta, Los Angeles and Washington, D.C. – have banded together to lobby for the federal government to use its AAA credit rating to back the transactions.
The agreements allowed banks to pay for equipment for transit agencies, if the agency agreed to pay them back and found another company to guarantee it, Sarles said. Together, NJ Transit and the 30 other transit agencies could be on the hook for $1.5 billion.
Sarles’ testimony came nearly two weeks after the federal government gave final approval for a new commuter rail tunnel under the Hudson River.
He said the project is on track to begin construction this summer and be completed by 2017. The tunnel would more than double the capacity for train traffic between New York and New Jersey, from 23 trains to 48 trains per hour, and state and federal officials say it will produce 6,000 construction jobs per year.