NJ Repubs challenge constitutionality of Corzine tollroads scheme - say can't grant franchise to PBC

New Jersey Republican legislative leaders have raised an interesting constitutional challenge to Governor Cozine's tollroad monetization scheme. Senate GOP leader Tom Kean and assembly leader Alex DeCroce say it violates a constitutional bar on granting special privileges.

They say the issue arises under Article IV, Section 7, paragraph 9 of the New Jersey Constitution: "The Legislature shall not pass any private, special or local laws... Granting to any corporation, association or individual any exclusive privilege, immunity or franchise whatever..."

Corzine's draft bill provides for a newly created Capital Solutions Corporation (CSC), the successor to the New Jersey Turnpike Authority, to enter into a long term concession agreement with a to-be-created Public Benefit Corporation (PBC). The bill requires that the CSC "enter into a concession agreement with the PBC on a sole source basis, giving it the exclusive right to operate maintain, manage, expand and improve any or all assets of the CSC specified in the agreement during the PBC concession period and to impose, adjust and collect tolls and charges."

The draft bill states on p1, section (f) that "the domestic nonprofit corporation, hereinafter referred to as the Public Benefit Corporation, upon incorporation in accordance with this act, (1) will be a separate and independent legal entity from both the State of New Jersey and the New Jersey Capital Solutions Corporation."

Kean says: "The language of the state constitution clearly prohibits the legislature from 'Granting any corporation or individual any exclusive privilege, immunity or franchise whatever.' "

DeCroce is quoted in a joint statement: "On its face this (Corzine bill) appears to be a violation of the constitutional prohibition against granting a corporation an exclusive franchise. We already know that this plan is not fiscally prudent, but now it appears the Governor’s proposal is not even constitutional. If that is the case it would be the final blow to this already troubled proposal."

The two Republicans are asking the Office of Legislative Services to examine the constitutionality question.

ANALYSIS: Kean strangely refers to the "private nature" of the PBC. Apparently he is referring to the efforts to make the PBC independent of the government of the day. Corzine's PBC is a creature of the state, set up by the state, with its board of directors appointed by elected officials of the state, so it is not in the least private in the normal sense of the word.

Granting of exclusive privileges and franchises was one of the main activities of most governments in the 18th and 19th centuries. Most canals, ferries, railroads and toll bridges were built by grant of a "charter" which was the grant of an exclusive franchise to a private corporation or individual. In New Jersey the only surviving toll charter is the Dingmans Ferry Toll Bridge over the Delaware River NJ-PA. It was granted in the early 18th century by the states of New Jersey and Pennsylvania and has legal force to this day as a right in perpetuity. The toll bridge is located in Sussex County NJ in what is now the Delaware Water Gap National Park.

The largest toll bridge US-Canada by truck volumes is the Ambassador Bridge Detroit-Windsor. It was built and continues to be operated by a private company under a charter - an exclusive franchise in perpetuity - granted by the City of Detroit in the 1920s. The Brooklyn Bridge in New York City was built by charter - exclusive franchise granted by the state of New York to a private New York Bridge Company. Many problems arose from mixing of private and public funds. But that was the normal way public works got funded throughout the US until the 20th century.

Charters or exclusive franchises granted by government came into serious disfavor because they were associated with corruption - especially when taxpayer money was thrown into the mix.

The New York Bridge Company was the most spectacular example having its charter revoked even before the Brooklyn Bridge was completed due to the frauds perpetrated by the Tammany Hall 'rings' which controlled it, and milked it to enrich themselves. Perthaps the all-time scoop of the New York Times was their exposure of the fraud and bribery associated with the Brooklyn Bridge as described in David McCullough's book "The Great Bridge."

From the 1880s onward in the 20th century reformers under the slogan of 'good government' called for legal and constitutional bans on the granting of charters. Robert Moses in New York was one of the leaders of the reform movement. Open competitive bidding and high bid selection rules were held to be the best way to avoid the corruption that went with simple grants of charters or exclusive franchises.

Maybe Article IV, Section 7, paragraph 9 of the New Jersey Constitution was written around that time?

It is less clear that there is any bar to legislative grant of an exclusive franchise to a government created body. After all the New Jersey Turnpike Authority (NJTA) at present has an exclusive franchise to conduct toll business on the Turnpike and Garden State Parkway. The Turnpike Authority was created around 1950 as precisely the same kind of public benefit corporation that Gov Corzine proposes for his Public Benefit Corporation (PBC).

The NJTA while created by the state and with a board of directors appointed by the governor was initially touted as being independent of the state - "at arms length." Its debt was not debt of the state, it always said when borrowing, and was secured only by toll revenues.

It was what Tom Kean would call "private" too. Or as "private" as the PBC.

There's a strong argument that all simple grants of privilege and franchises whether to private, public or quasi-public bodies should be barred - that all such 'franchises' should all be handled with open competitive bidding. That's exactly what Governor Rendell is doing with the Pennsylvania Turnpike. The present Turnpike Commission responded to the initial requests for expressions of interest along with private bidders.

Now if Gov Corzine's bill were amended to require the CSC to call for competitive bids from other companies, private, public, whatever, along with a bid by the PBC you wouldn't have the issue that Kean and DeCroce raise. The people of New Jersey would probably get a better deal too.

HISTORY: Joseph Marbach a politics professor at Seton Hall University points out a fascinating historical analogy with Gov Corzine's plan to monetize the state's tollroads:

"From 1830 until the 1860s, the state (of New Jersey) relied on a deal it struck with the Camden & Amboy (C&A) railroad to fund most of the operations of state government.

"The deal granted the C&A a monopoly on the highly profitable route between Philadelphia and New York. In exchange for this grant, the railroad provided the state with stock in the company and guaranteed it an annual dividend that amounted to over ten percent of the state's operating budget. In addition, the state taxed riders. The total income from this deal provided the state with more than half its annual budget.

"The costs were largely passed on to out-of-state riders, who because of the monopoly paid fares that were estimated to be four times higher than comparable rates charged by railroads in states that permitted competition."

OUR OPINION: Open competitive bidding and some contractual limits on corporation power are needed regardless of the makeup of the corporation getting those privileges. All people with power are liable to misuse it if there are no limits, regardless of whether they have shareholders or are called 'public benefit.' Naming something 'not-for-profit' doesn't make it so. It doesn't magically turn the staff into a collection of selfless mother theresas. If they aren't allowed to declare a profit as such, they'll just take the profit under an accounting category called 'Expenses.'

TOLLROADSnews 2008-02-13