Are you ready for this? New Jersey taxpayers reportedly are paying nearly $1 million a month to a partnership run by Goldman Sachs Group for protection against rising interest costs on bonds that no longer exist.
Bloomberg News broke the story today: The payments are the result of a “debt swap” the McGreevey administration made with Goldman in 2003, after New Jersey’s Transportation Trust Fund Authority sold $345 million in auction-rate bonds whose yields fluctuated with short-term interest costs. The state has since replaced the bonds with fixed-rate debt, but the agreement remains in place.
According to Bloomberg, the state can’t cancel the deal until after 2011 without paying a penalty of roughly $37.6 million to get out.
As a result, Bloomberg reports, “the state paid $940,000 under the agreement last month and a total of $11.4 million since the auction-rate bonds were redeemed.”
The fund is reaching its borrowing limit as Gov. Corzine, a former Goldman chairman who was a U.S. senator at the time the deal was made, tries to find $400 million in budget cuts. “The payments are draining money from a dwindling account that may not be able to support new projects because the $895 million in annual gasoline taxes and toll revenue dedicated to the fund will be needed to pay down $10.3 billion in debt,” Bloomberg reports.
To help prop up spending, officials have suggested raising New Jersey’s 14.5 cents-a-gallon gas tax, the fourth-lowest in the country.
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