NJ Transit board approves $54 million for HQ move, but still no solution for fiscal cliff

NJ Transit's board authorized spending $54 million to outfit its new headquarters space even as there remains no sign of what cost-cutting measures are being considered to alleviate a looming budget shortfall eight months after state officials announced a restructuring process.

There are only a few months to go before Gov. Phil Murphy introduces his next state budget for fiscal year 2024-25, which largely dictates how negotiations will go with the Legislature and how his administration plans to fund state agencies.

In NJ Transit’s case, the Murphy administration is facing a $120 million operating deficit in the next fiscal year and the state as a whole is facing a large structural deficit.

Diane Gutierrez-Scaccetti, the transit board chair and commissioner of the state Department of Transportation, announced in April that DOT and NJ Transit would review ways to improve the agency's budget outlook, including fare hikes, layoffs, service cuts and other corporate cost-cutting measures.

Asked for an update on the realignment plan at Tuesday’s board meeting, Kevin Corbett, NJ Transit president and CEO, said that’s now being handled through the state Treasury Department, which he said is in the process of hiring a consultant.

"The budget process for this year really kicks off next month so we’re working with DOT and Treasury in preparing our budget," Corbett said.

A Treasury Department spokesperson, however, said the agency is not involved in the restructuring effort, but did sign off on a waiver so DOT could hire a consultant.

Questions to DOT about the status of hiring the consultant, why it wasn't done in the eight months since the announcement of the restructuring, and what work has taken place so far were not answered.

Steve Schapiro, a DOT spokesman, said he couldn't comment because of the ongoing procurement process.

Nearly $1 billion shortfall for 2026

Asked what solutions the Murphy administration is considering to solve the fast-approaching $120 million fiscal cliff at NJ Transit for fiscal year 2024-25, the governor told reporters Nov. 30 that the issue is “not hanging over our head tomorrow ... this is really two years from now,” referring to the nearly $1 billion budget shortfall predicted in fiscal year 2025-26.

The governor did not address a follow-up question about the shortfall expected to hit next year and would only say “everything is on the table.” To address past fiscal crises — including one in 2016 of about $120 million — NJ Transit has relied on fare hikes, layoffs, service cuts and contract renegotiations.

Gutierrez-Scaccetti, who made the April announcement about the restructuring, also did not address the topic at Tuesday’s board meeting, which she said would be her last before fully transitioning to her new role as Murphy’s chief of staff.

More:NJ Transit produced its lease for a pricey new HQ — but isn't revealing the total cost

Approved $54 million for headquarters move

Even as potentially devastating financial trims are being considered for the agency, NJ Transit’s board unanimously approved $53.6 million for moving, furnishing and building costs to outfit the agency’s new headquarters at 2 Gateway in Newark. The agency budgeted $40 million this year — $20 million from its operating budget and $20 million from capital — but increased the amount due to higher-than-expected information technology and labor costs, Corbett said.

This is on top of the $440 million, 25-year lease the agency signed this summer for 407,000 square feet of space at the Gateway building less than a half-mile away from the current headquarters, and a separate lease for parking at nearby garages that start at $400 per space per month for exclusive spots and $250 per space per month for non-exclusive spots, rates that will escalate over time. The agency is expected to also take over another 30,000 square feet in the building, bringing the grand total to 431,680.

The decision to move the agency’s headquarters was shrouded in secrecy and has raised questions about why NJ Transit leadership opted to pursue a lease with the most expensive option, or why it is moving at all. These questions and overarching concerns about the fiscal health of the agency prompted NJ Transit’s board vice chair Cedrick Fulton to resign in February.

NJ Transit is expected to move its 1,600 employees who work out of its current headquarters at 1-2 Penn Plaza East near the end of 2024.

The 431,680 square feet footprint is well over what the original request for proposal listed — 300,000 to 350,000 square feet — and more than 30,000 square feet beyond what is needed to fit 2,225 employees, according to a report produced by NJ Transit’s real estate consultant, Savills.

More:More emails show Onyx pushed NJ Transit HQ deal well before agency sought bids

That analysis also determined that a move to the nearby Panasonic building would have cost NJ Transit about $111 million less than 2 Gateway. Other Newark options, such as 3 Penn Plaza East, offered the most efficient space and cheapest rent, and also came fully furnished, according to the report and commercial real estate listings.

Officials at NJ Transit and Onyx, the company that owns 2 Gateway, discussed with each other details about moving the agency’s headquarters there more than a year before the request for proposal (RFP) for lease bids was released, according to emails obtained by NorthJersey.com.

While Savills made the case that a leasing structure is preferred, it could be cheaper for NJ Transit to remain at its current headquarters, a building where it has been since 1990 and now fully owns.

It has been widely cited that it would cost $118 million to do the necessary updates to the current headquarters, but the Savills report shows only $58 million is needed to do “base building replacements,” things like replacing elevators, HVAC systems, electrical generators and central heating. The other $60 million is for a full interior renovation of each floor.

Taking on more bus routes cost $26 million

At the same time, NJ Transit's bus operations have taken over or expanded multiple routes that were terminated by three private carriers earlier this year, which are costing the agency more than $26 million in new operating expenses to run.

With the improved and added service, ridership has exploded on those routes, providing valuable service to people who don't have transportation alternatives. Corbett has said being able to continue that will require more aid.

Sen. Anthony Bucco, the Republican majority leader, said NJ Transit’s spending on the new headquarters amid its financial distress will be a talking point during budget negotiations and hearings in the spring.

“You have to be a good steward of the taxpayers’ money and it seems to me like that’s not happening here and it’s a shame — the ones that are going to feel it the most are the riders," Bucco said.

"They’re going to be the ones that face increased fare hikes, they’re going to be the ones that see a decrease in the number of routes that are available to the ridership and the disruption that that’s going to cause, and it’s just disturbing that we’re not further along in planning for how the administration and transit is going to address this issue," Bucco said.

Warnings and advice about how to approach the challenge were among NJ Transit board member Bob Gordon’s final remarks at his last board meeting Tuesday. The former state legislator from Fair Lawn has served on the board since February 2020 and announced he was leaving the position last month.

Gordon didn't address the agency’s headquarters move and voted in favor of the moving expenses Tuesday, but he noted his concerns about what he called “the greatest challenge in the agency’s history,” referring to the impending financial straits.

“My hope is that the governor, Legislature and key stakeholders will come together to find a solution that all find acceptable,” Gordon said. “The task calls for both political courage and creativity.”