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NJ TRANSIT BEGINS FY06 BUDGET PREPARATION

Outlines costs & financial policies driving consideration of fare increase

November 10, 2004
NJT-04-061

NEWARK, NJ –
Citing skyrocketing fuel, security, and health care costs, as well as a shrinking pool of non-fare revenue options, NJ TRANSIT Executive Director George D. Warrington today announced a timeframe for public hearings that will focus on a potential fare increase averaging 15 percent next summer.

During the Corporation’s regular monthly Board meeting, Warrington laid out certain preliminary assumptions that are being used to develop the Corporation’s FY06 operating and capital budgets. Among those assumptions: that fuel prices will remain elevated, which this year alone will result in an incremental increase of $15 million. In addition, security costs have risen $13 million, with expenses for policing the system up from $15 million to $28 million since 9/11, with minimal federal support for homeland security expenses. Health benefit costs have grown at an annualized rate of 18 percent over the last three years.

While stressing that cost and revenue assumptions will continue to be refined over the next several months, Warrington said the gap between revenue and expenses could range between $55-65 million dollars.

“We are intent on reducing the size of the gap and will be focused on identifying more internal and overhead efficiencies, as we’ve done successfully over the last couple of years with more than $50 million in business efficiencies,” Warrington said.

He added that, given the state’s budget constraints, the Corporation cannot reasonably assume a level of state subsidy exceeding the $279 million, which NJ TRANSIT received for FY05.

In addition, the recent significant change in federal policy has shut down leveraged lease revenues which, when coupled with capital to operating transfers, have been used to bridge operating budget gaps for 14 years. In fact, transfers of capital to operating ballooned from $9 million in 1990 to $356 million in FY05, with a cumulative total transfer of $2.3 billion.

“There’s a real consequence to increasing reliance on capital dollars to cover operating expenses, and the most important is that it diverts essential funds away from state of good repair maintenance,” Department of Transportation Commissioner and NJT Board Chairman Jack Lettiere said. “As a matter of policy last year, we froze the transfer at the prior year’s level. It’s prudent fiscal policy and we’re going to continue to hold the line on it.”

Over the last three years, rail service levels have increased by 30 percent – about 15 million more train miles – while bus vehicle miles will have increased by three million by the end of FY05. In addition, recent substantial service expansions include Secaucus Junction, the River LINE, the Montclair Connection, and the Hudson-Bergen Light Rail system. In inflation-adjusted dollars, NJ TRANSIT fares are at all-time lows and have increased by only 10 percent over the last 14 years, versus a 48 percent increase in the Consumer Price Index.

Warrington said that a detailed budget with all cost and revenue assumptions including potential fare changes and structures will be presented to the Board of Directors in January, and will be the basis for public hearings beginning in February. It is expected that upon conclusion of the public hearing process, and internal budget tightening, a final recommendation with respect to budget assumptions and fares will be presented to the Board of Directors in the spring.

“While we’ll continue to work the numbers down and squeeze costs, I want to be direct with our customers and stakeholders about the budget and encourage public participation in the process early next year,” Warrington said.