New Jersey Shaves Bonded Debt but Remains Among Most Indebted States

For only second time in past decade, the state has reduced its total bonded debt — but the improvement is likely to be short-lived

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Piggy bank
New Jersey recorded a rare reduction last year in the grand total that’s owed to all the state’s bondholders and other investors, but not enough to knock the Garden State out of its standing as one of the nation’s most indebted states.

The latest official accounting of the state’s borrowing was released by the Department of Treasury on Friday, and it showed the total bonded debt for New Jersey dropped by nearly $1 billion to $45.16 billion as of the end of fiscal year 2018.

The reduction is just the second to occur over the last decade, but the improvement is likely to be short-lived. That’s because about $1 billion in new state borrowing has occurred since the figures reflected in Treasury’s new report were tallied. Recent bond issues approved by New Jersey voters will also push the total even higher once those bonds are brought to market.

Meanwhile, when New Jersey’s non-bonded long-term obligations are scored by Treasury — such as all the money owed to retired public workers who’ve been promised a pension in New Jersey — the overall total for both bonded and non-bonded debt soars to well over $200 billion. That sum is more than five times the size of the state’s annual budget.

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Public-finance experts generally agree that some level of debt is acceptable as states pay for long-term investments in things like roads, schools and the like — items that are expected to last for generations and can’t be paid off in a single fiscal year. But state-government borrowing has surged on several occasions since the early 2000s, making New Jersey one of the most indebted states in the country.

The last big increase occurred during FY2017, the last full year in office for former Republican Gov. Chris Christie. Total bonded debt surged by nearly 8 percent that year, setting a record for New Jersey at $46.1 billion.

Reduction of $1B under Murphy

But the following year brought a nearly $1 billion reduction in the debt total as Democrat Phil Murphy replaced Christie in the governor’s office, according to the latest debt report. Treasury officials have attributed the year-over-year decline to the state making larger debt payments compared to any new borrowing that occurred. Despite the reduction, which measured 2 percent, New Jersey’s aggregate bonded debt is still up by nearly $10 billion over the last decade. (Total debt for New Jersey was $36.3 billion in FY2009.)

Meanwhile, more than $1 billion in new state borrowing has already been issued since the end of FY2018, with $750 million in bonds sold to pay for Transportation Trust Fund projects in January 2019, and another $350 million for school-construction projects in November 2018, according to the latest debt report. Even more new borrowing is due to occur in upcoming months as bond issues approved by voters in recent years are already in the state’s pipeline. They include $125 million for library improvements and $500 million for school security and vocational-technical facility upgrades.

What all the borrowing means for New Jersey residents once the numbers are crunched is a per-capita, tax-supported debt bill of $4,281. That ranks fourth-highest among all the states, according to figures from Moody’s Investors Service that are cited in Treasury’s report. Connecticut has the highest net tax-supported per-capita debt bill, at $6,544; it’s followed by Massachusetts ($6,085) and Hawaii ($5,257).

New Jersey also ranks fourth-highest when it comes to measuring debt as a percentage of the state’s gross-domestic product, which was 6.7 percent. Connecticut again leads the way, with 9 percent; followed by Hawaii, 8.86 percent; and Massachusetts, 8.25 percent.

Not forgetting other liabilities

And on the nonbonded side of New Jersey’s ledger, the state’s continued underfunding of its obligation to the $76.5 billion public-worker pension system shows up in the official debt report’s assessment of the state’s net pension liability. That sum was pegged at nearly $100 billion as of the end of FY2018, marking some improvement as Murphy has been sticking to a pension funding ramp-up schedule that was first established by Christie.

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The state also uses its own way of calculating the overall pension obligation for budget purposes that’s different from the general accounting standards for such liabilities; the unfunded liability for the retirement funds for both state and local-government workers using that accounting method is a more
modest $62 billion.

In the annual budget, which totals more than $38 billion, the costs tied to the state’s bonded debt and other long-term fiscal obligations include general debt-service payments, which will come to roughly $4 billion in FY2020, and the state pension payment, which is projected to be $3.8 billion in FY2020. Under the current pension-funding ramp-up schedule, the state will reach full payment of its annual employer contribution in FY2023, when the required payment will total more than $6 billion. The size of the annual payment will then have to stay at that level for several decades to offset the many years of underfunding.

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