Fitch Rates NJTTFA's $1.4B Transportation Bonds 'A-'; Outlook Negative

Fitch Ratings assigns an 'A-' rating to the following bonds of the New Jersey Transportation Trust Fund Authority (NJTTFA):

--$150 million transportation system bonds, 2009 series C;

--$147.5 million transportation system bonds, 2009 series D;

--$764.055 million transportation program bonds, 2014 series AA;

--$297.5 million transportation program notes, 2014 series BB.

The 2009 series C and D bonds, currently outstanding in a variable-rate mode, are expected to be remarketed on Nov. 18, 2014. On Nov. 25, 2014, the NJTTFA expects a mandatory tender and purchase of these bonds and a conversion of these bonds to a fixed-rate mode. The letters of credit that currently provide support to the 2009 series C and D bonds will not be renewed or replaced.

The 2014 series AA and BB bonds are expected to sell via negotiation on or about Nov. 18, 2014.

The Rating Outlook is Negative.

SECURITY

Debt service is paid under a state contract between the state treasurer and the authority from certain dedicated revenue sources, subject to annual legislative appropriation.

KEY RATING DRIVERS

APPROPRIATION OBLIGATION OF THE STATE: State contract payments provide for debt service; payments must be appropriated annually by the state legislature, resulting in a rating one notch below the state's 'A' GO bond rating. Pursuant to statute, minimum equivalent amounts from several transportation-related taxes and fees are pledged to the bonds and the state contract for the program revenue bonds stipulates that sales tax revenue cure any appropriation shortfalls; the state contract for the system revenue bonds provides for the entire general fund to be pledged to NJTTFA to cure shortfalls.

CONSTITUTIONALLY DEDICATED REVENUE SOURCES: Certain transportation revenues are constitutionally dedicated and pledged to the NJTTFA, although these monies need to be appropriated by the legislature. Monies appropriated to the NJTTFA have always been sufficient to cover annual debt service.

NEGATIVE OUTLOOK: The Negative Rating Outlook incorporates Fitch's concern that there is considerable risk that state actions to address near-term budgetary and pension challenges may leave unaddressed the state's longer-term structural and liability challenges, particularly given the state's lagging economic and revenue performance and narrow liquidity.

LONG-TERM LIABILITIES CONSIDERABLE: Above-average state debt obligations are compounded by significant and growing funding needs for the state's unfunded retirement liabilities. Continued pension funded ratio deterioration is projected through the medium term and full actuarial funding of the required contributions is several years off.

WEALTHY ECONOMY AND LAGGING RECOVERY: New Jersey benefits from a wealthy populace and a broad and diverse economy. However, the state's economic performance has lagged the nation in recovery from the recent recession, with improvement in 2013 trailing off at the close of the year, and very slow year-over-year (yoy) employment growth continuing through 2014.

MINIMAL CASH BALANCES RESULT IN LIMITED OPERATING FLEXIBILITY: Minimal cash balances have been maintained in recent years, providing limited flexibility to absorb unforeseen needs or revenue under-performance.

BROAD EXPENDITURE REDUCTION AUTHORITY: The governor has strong executive powers to implement any necessary expenditure reductions to balance the budget and the state has a consistent history of doing so; however, options have become more limited as the state's fixed cost burden grows.

RATING SENSITIVITIES

The rating is sensitive to shifts in the state's 'A' GO credit rating to which this credit is linked.

CREDIT PROFILE

The 'A-' rating on the transportation system (system bonds) and program bonds (program bonds) is based on annual contract payments made to the authority from the state treasurer, subject to legislative appropriation. The contractual payments are pledged to debt service on these bonds and are received from the transportation trust fund account within the state's general fund. The contract for the system bonds and program bonds, pursuant to statute, specifies minimum equivalent amounts from several transportation-related taxes and fees, all of which are constitutionally dedicated to transportation and may not be used or borrowed for any other purposes. The taxes and fees themselves are not pledged as security.

The 2014 series AA and BB program bonds are the third and fourth issuances under a new transportation reauthorization act that was adopted in the 2012 legislative session. The act authorized $6.4 billion in transportation capital spending spanning fiscal years 2013-2016 and almost $3.5 billion in NJTTFA borrowing. The new four-year capital program for transportation projects is also supported by additional pay-as-you-go allocations from the NJTTFA and the New Jersey Turnpike Authority (NJTA). The Port Authority of New York and New Jersey is also a participant in the capital program, contributing $1.457 billion over the four years. The enacted fiscal 2015 budget includes an appropriation of $1.26 billion to the transportation trust fund account; an increase from $1.16 billion in fiscal 2014.

The state contract providing for the payment of debt service on the program bonds requires the state to cover any funding shortfalls in the transportation trust fund account from its collection of state sales tax revenue. While the sales tax represents a narrower stream of available revenue for the program bonds, it remains a substantial pool of resources and the state plans to utilize increasing amounts of this revenue to fund NJTTFA's capital program. Sales tax collections made up about 46% of the state's $18.5 billion budget-basis general fund in fiscal 2014.

NJTTFA system bonds are bonds issued under TTFA's prior bonding authorization and are secured by the same constitutionally dedicated transportation revenue sources as bonds issued under the new authorization although certain statutorily dedicated revenue sources are additionally available to support the system bonds, including truck and motor vehicle registration fees and toll road contributions. In contrast to program bonds, the system bonds benefit from a backstop of all general fund revenues. Fitch rates both system and program bonds one notch below the state's GO rating.

The 2009 C and D system bonds were originally issued to finance various transportation projects funded by the NJTTFA. The new series 2014 AA and BB bonds will provide funding for the state's current transportation capital improvement program.

For additional information on the state of New Jersey, please see 'Fitch Downgrades New Jersey's GO & Appropriation Ratings; Outlook Remains Negative' dated Sept. 5, 2014, which is available on our web site at fitchratings.com.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 14, 2012);

--'U.S. State Government Tax-Supported Rating Criteria' (Aug. 14, 2012);

--'Fitch Downgrades New Jersey GO & Appropriation Ratings; Outlook Remains Negative (Sept. 5, 2014).

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. State Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686033

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=913334

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