If you suspected bondholders were a tough bunch but weren't sure about the lengths to which they'd go to protect an investment, a bill now pending before the New Jersey Legislature might provide a gauge.
Under a proposal that passed the Assembly's transportation committee last month, New Jersey would exempt drivers with upper arm disabilities from paying tolls in order to spare them the embarrassment of long delays at toll booths while they struggle to pay the fee.
Lawmakers and authority officials say the roughly $50,000 that could be lost from the popular proposal would be minuscule compared to the annual take on the state's three toll roads.
The problem? Bondholders might sue.
"My experience has been that bondholders complain anytime their security is limited, no matter what degree their security is being limited," explained Peter Markens, counsel to the New Jersey Highway Authority, which operates the Garden State Parkway.
Authority officials expressed that concern to an incredulous Assembly panel last month, which passed the measure anyway along with a dare to bondholders.
"I'd like to see that suit filed," Deputy Speaker Frank Catania, R-Passaic, told the Bergen Record after the committee passed the bill. "I'd go after them like a kamikaze pilot. Do they have ice water in their veins?"
One institutional investor who buys New Jersey debt agreed a lawsuit would probably open bondholders up to criticism from the general public. But he argued that a challenge might be necessary to protect investors' rights.
"As an investor, you'd hope somebody would sue, but you wouldn't want it to be you," he said. "We have a responsibility to make sure the shareholders are entitled to everything that hey get. It would be a violation of my fiduciary trust to say I wouldn't sue."
The investor, who asked not to be identified, said if this exemption is passed bondholders would have to ask whether it would "open up a pandora's box" of exemptions for other special interests.
Mr. Markens, who is himself exempt from tolls as a member of the highway authority's executive staff, stressed yesterday that the authority does not oppose the bill, and only wanted to make sure lawmakers are aware of the risk of a bondholder suit. He said no investors have complained about the idea, and he has no way of knowing whether any would try to challenge the legislation.
"I suspect this is a violation of the bond covenants, and there may be a lawsuit," Mr. Markens said. "We're not going to file it, but it's reasonable to think someone else will."
Richard P. Poirier, financial adviser to the New Jersey Turnpike Authority, said that if the bond covenants forbid granting toll exemptions, it makes no difference whether the revenues lost are small or large.
"If there's debt outstanding under a resolution, then the state Legislature can't just come in and do this unless they refund all the debt," said Mr. Poirier, a partner at Lazard Freres & Co. "I'd be surprised if some of the larger institutions would be concerned about their social responsibilities" given their legal duty to protect clients' fiscal interests.
Theodore W. Mason, a partner at Morgan, Lewis & Bockius, the turnpike authority's bond counsel, said the authority has latitude in its covenants to permit some toll exemptions, "but it has to be shown that it does not have any material fiscal impact."
One other bond counsel who has worked with New Jersey toll authorities said he would not be surprised to see the proposal challenged in court, citing a similar attempt to exempt veterans from tolls that was defeated several years ago.
In addition, he pointed out that the legal cost would be extremely low, so even small investors could bring suit.
Assemblyman Catania, who spearheaded an effort earlier this year to determine the feasibility of eliminating tolls entirely on the state's highways, said he doubts there will be opposition to a bill that helps the disabled and costs so little in revenues.
He explained that he sponsored the bill after reading about disabled motorists who can drive specially adapted cars but who still have difficulty rolling down the window or sorting through purses and wallets for money. In some cases toll collectors must leave their booth to open the car door.
"People start honking their horns and embarrassing them," Assemblyman Catania said, "I don't see anyone in their right mind challenging this. We're trying to help a group of people who have a burden, and the 35-cent toll is not going to break the authority. I could care less what [bondholders'] reaction is."
Dennis Ingoglia, a spokesman for the highway authority, said new technology might make the entire issue moot anyway. Electronic collection, which allows drivers to pay tolls without stopping at a booth, could solve the problem. An experimental system is set for deployment within the next several months, Mr. Ingoglia said.
Legislative sources say the bill should come up for a vote in late summer.