Bond lawyers and credit analysts say New Jersey Gov. Christine Todd Whitman's attempts to merge the state's three tollway authorities would force a review of the agencies' credit rating, and may run afoul of Internal Revenue Service refunding guidelines.
At the moment, the Whitman Administration is preparing a proposed consolidation of 500 state boards, agencies, and commissions. Consolidation plans could be completed by the time Whitman presents her budget to the legislature in February.
While state officialsdetermine the size and scope of the consolidation, municipal market executives have begun to examine what little information is available, and they are fretting about the proposal's future.
Specifically, municipal market executives say the ioncould have a substantial impact on the credit ratings of the state's three transportation bonding authorities.
All told, the three agencies -- the New Jersey Turnpike Authority, the New Jersey Highway Authority-Garden State Parkway, and the South Jersey Transportation Authority -- have more than $3.5 billion of outstanding debt.
"From our perspective, a lot of issues have to be addressed," said Marci Herzlinger Tavashi, manager of the toll road group for Moody's Investors Service. "It's a big undertaking and certainly there are credit implications"
In addition, bond lawyers said they are worriod that IRS restrictions on refunding could hamper the proposal. New Jersey, for example, may have to advance refund the agencies' debt through a bond sale by a new state agency that oversees the toll roads, bond lawyers for several New Jersey issuers said.
But IRS restrictions on the number of tax-exempt advance refundings could force the state to issue more costly taxable debt, they said.
The IRS revenue code permits one advance refunding for bonds issued after the Tax Reform Act of 1986 went into effect, and two advance refundings for bonds issued before that time.
State officials did not return numerous phone calls for comment.
In September, Bergen County, N.J., reconsidered a plan to dissolve its utilities authority following an unfavorable IRS ruling. The IRS told county officials that a refunding could violate federal limits, on the number of times an issuer is allowed to refund tax-exempt bonds, county officials said.
According to Tavashi, the New Jersey Turnpike refunded all of its outstanding debt in 1991, and the Garden State Parkway has also refunded portions of its outstanding debt to take advantage of lower interest rates.
When the Atlantic City Expressway merged with the South Jersey Transportation Authority in 1992, the authority sold $60.48 million of revenue bonds to refund the expressway's debt.
According to Moody's last update in April, the Garden State Parkway had $639.26 million of debt outstanding. The agency rates the the parkway's outstanding debt A1. Standard & Poor's rates the debt AA-minus. The New Jersey Turnpike has almost $3 billion of debt outstanding. Moody's and Standard & Poor,s both give the turnpike an A rating.
The South Jersey Transportation Authority has $59.52 million of debt outstanding. All of its debt is insured and carries a AAA rating.
