NJ Transit announced yesterday that there would be no fare increases through its fiscal year 2010, which ends on June 30 of next year. New Jersey will cut operating aid to NJ Transit by 17% ($62 million), but the agency will close the gap with a combination of administrative cuts, to-be-determined service cuts, and some novel use of stimulus funds. Though federal stimulus money cannot be used for operating expenses, it can pay for preventative maintenance, which the federal government considers a capital expense but many local agencies include in the operating budget.

The Times-Herald Record and other media have pointed out the contrast between NJ Transit and the MTA, which is readying major fare hikes and service cuts. But the truth is that NJ Transit’s budget relies on several unsustainable spending patterns that may lead it to issue its own “doomsday budget” in the coming years without action from Trenton.

As MTR wrote yesterday, NJ Transit has for many years used capital funds to pay for almost a quarter of its operating expenses. These capital funds mostly come from the state’s Transportation Trust Fund, which is almost entirely debt-financed. But the TTF will go bankrupt in 2011. Without a plan to replenish it, this chunk of money would have to be replaced by increased state aid, a massive fare hike, or deep service cuts.

The diversion of funds from the capital budget shouldn’t be happening in the first place, since it means that NJ Transit is not spending as much on maintenance as it should.

Furthermore, policymakers in Trenton are approving new transit expansion projects but aren’t increasing operating aid to match. Planned projects include Access to the Region’s Core, an extension of the Hudson-Bergen Light Rail, and new bus lines. But there is no indication that elected officials are ready to pay for the personnel, electricity, and fuel needed to run these new services. This could lead to an embarrassing situation where NJ Transit opens a new station or tunnel but can’t afford to run extra service (which actually happened in Connecticut in 2005).