New Jersey’s already hefty credit card bill is about to get bigger, with Gov. Phil Murphy’s administration planning to issue more than $800 million in new debt this week.
The new borrowing is scheduled to occur in two phases, with a first set of bonds due to go on sale Tuesday to raise money for spending that was previously approved by New Jersey voters, including for school facility improvements and library upgrades across the state.
In fact, the sale of those bonds, totaling approximately $325 million, comes well after voters authorized new general-obligation borrowing for libraries and schools, in 2017 and 2018, respectively.
An additional $500 million in new debt is being rushed to market later this week, but without any voter approval. In that case, the Murphy administration is using the state Economic Development Authority to help facilitate the bond sale for New Jersey Transit, the state’s beleaguered mass transit agency.
Future gas-tax revenues will be used to pay off those bonds, which are scheduled to go on sale Thursday, with the proceeds funding the purchase of new locomotives and buses.
Already one of the most indebted states in the country, New Jersey is carrying roughly $45 billion in long-term bonded debt as of the latest official accounting released by the Department of Treasury last year.
New Jersey’s bonded debt is fourth highest among all states when measured as a percentage of gross domestic product and per capita, according to figures from Moody’s Investors Service. And that doesn’t factor in the state’s long-term obligations to retired workers, including at least $100 billion in unfunded pension liabilities.
Debt is bigger than annual budget
At $45 billion, the state’s total for bonded debt outstrips the annual budget for fiscal year 2020 of $38.7 billion. The state’s annual debt-service payment, which is effectively like a credit-card bill that covers both principal and interest, currently exceeds $4 billion.
The state constitution generally requires borrowing that totals at least 1% of annual spending to first win the approval of voters in a general election. But some established exceptions have helped drive up the state’s credit card bill, and New Jersey voters also haven’t been shy about authorizing new debt issues in recent years.
For example, voters easily approved a 2018 ballot question that sought authorization for $500 million in new borrowing to fund a variety of school-related projects; these included K-12 and county college career-technical education projects; school water-infrastructure improvements; and general upgrades in school security.
The previous year, New Jersey voters authorized up to $125 million in new borrowing to fund long-planned facility upgrades and modernization projects at public library branches throughout the state.
The $325 million bond issue that goes on sale Tuesday includes $87.5 million of those voter-approved library bonds, equaling roughly 70% of the total authorized, said Treasury spokeswoman Jennifer Sciortino.
The Murphy administration has been criticized for not issuing the library bonds sooner; it has blamed delays on the complicated nature of the debt issue, which was authorized under a prior administration.
‘Critical projects’ for libraries
Yesterday Murphy announced that his administration will soon begin accepting applications from libraries for a first round of funding. The applications can be submitted to the New Jersey State Library between March 9 and April 6, according to a notice posted on the agency’s website.
“With this funding, libraries across our state will be able to fund critical projects to improve their facilities and ensure a productive and pleasant experience for patrons young and old,” Murphy said in a statement.
In addition, bond documents indicate Tuesday’s general-obligation debt sale will also raise approximately $175 million for the various school-related projects that were authorized by voters in 2018. It’s unclear why the Murphy administration is not issuing the full amount of debt approved by voters for the school projects right away, although it is not unusual to conduct such borrowing in multiple series. In addition, not all the approved borrowing for library upgrades is being issued at once, which will leave some funding available for an additional round of grants, Sciortino said.
Last month, the state Department of Education issued draft regulations and preliminary funding guidelines for the school-facility funding but has not yet launched an application process.
Additional funding will also be raised through the same bond sale for several other voter-approved purposes, including “Green Acres” land preservation, stormwater-management projects, and Port of New Jersey revitalization, according to bond documents.
The “general-obligation” label means the bonds will be backed by the full faith and credit of New Jersey’s taxpayers, making them the most secure — and highest rated — of state borrowing issues.
How state will pay off NJ Transit bonds
By contrast, the $500 million bond sale for NJ Transit that is planned for Thursday is considered a debt issue that is “subject to appropriation,” meaning lawmakers aren’t required to fund the debt service in the annual appropriations act.
It will involve a lease arrangement between NJ Transit and the Economic Development Authority, a Trenton-based agency that courts have determined has the authority to issue bonds for specific projects without voter approval.
Under plans approved by both the NJ Transit and EDA boards last month, an estimated 600 buses and 17 train locomotives will be purchased using the proceeds of the $500 million bond sale.
The Murphy administration is planning to use “pay-as-you-go” revenue from the state’s Transportation Trust Fund — which is supported by the constitutionally dedicated gas tax — to pay off those bonds. The repayment of the bonds can take no longer than 28 years and the annual interest can be no higher than 6%, according to EDA documents.
Murphy, a Democrat, has made improving NJ Transit a frontline issue since taking office in early 2018, and Treasury officials said last month that it could have taken more than a year to raise the funds needed to upgrade the agency’s equipment if they sought voter approval to issue a general-obligation bond. Sciortino also cited favorable interest rates available under current market conditions as another reason to bring the issue to market as soon as possible.