Gov. Phil Murphy is asking lawmakers in response to the ongoing coronavirus pandemic to authorize emergency borrowing powers that were written into New Jersey’s Constitution to help fortify the state’s coffers during times of war or major disaster.
The governor made a case for flexing those special fiscal powers during a media briefing in Trenton on Thursday, citing the significant economic uncertainty caused by the pandemic, which has already caused hundreds of thousands of New Jersey residents to lose their jobs.
“This is something that I feel pretty strongly that we need to have as a tool in our toolkit,” Murphy said.
Draft legislation obtained by NJ Spotlight did not include a total amount of emergency debt the governor is seeking to have authorized, but during the briefing Murphy suggested as much as $9 billion could be requested. It remains to be seen whether Democratic legislative leaders will cooperate with any request for new borrowing from Murphy, a first-term Democrat.
Already overburdened with debt
New Jersey is already one the nation’s most indebted states, and some Republican lawmakers have begun to air concerns about using new borrowing to backstop the budget amid the pandemic. But the governor’s emergency bonding proposal is getting immediate support from key liberal groups that are part of his Democratic base.
More than a dozen states have put out updated revenue forecasts in response to the growing pandemic, according to the National Association of State Budget Officers. But the Murphy administration has yet to revise a set of optimistic economic projections it made before the pandemic took hold.
Still, the impact is expected to be significant since New Jersey has been among the hardest-hit states, trailing only New York in reported COVID-19 infections and fatalities. In addition, more than 140,000 New Jersey residents filed new claims for unemployment benefits last week, according to data released on Thursday by the Department of Labor and Workforce Development, pushing the total number of new claims filed since mid-March to 718,000.
Little margin for error
New Jersey also began the current fiscal year with only a small percentage of total spending socked away in reserves, leaving little margin for error in the face of a downturn. The Murphy administration froze nearly $1 billion in planned spending late last month in an effort to build up a bigger cushion.
The state Constitution generally restricts the state from borrowing to sustain annual operating costs, but it also offers special treatment for debts or liabilities issued “for purposes of war, or to repel invasion, or to suppress insurrection or to meet an emergency caused by disaster or act of God.”
It’s those emergency powers that would be triggered under the draft legislation that Murphy’s administration sent to lawmakers for consideration, which was first detailed by Bloomberg News in a report published on Wednesday.
“It is necessary for the State to take action to ensure the continued viability of the State’s financial condition and to assist the State’s population in dealing with the financial and economic problems resulting from the COVID-19 Pandemic thru the issuance of general obligations bonds pursuant to this act to provide financial resources for the State budget,” the draft legislation said.
Asked about the emergency bonding request during Thursday’s daily coronavirus media briefing, Murphy pointed to the recent step taken by the Federal Reserve to establish a new borrowing program worth up to $500 billion to help support states and large cities and counties that may be struggling to cope with the pandemic and its economic impact.
Gutting state programs
Without the emergency bonding power and significant cash assistance from the federal government, Murphy said, “folks should assume we’re going to have to gut programs.”
“The fact of the matter is we are going to have serious cash-flow challenges, and then beyond cash flow, we will have serious programmatic challenges,” Murphy said, adding that state aid to schools and municipalities could be at risk.
“This is going to be real stuff if we don’t find the right sources of money,” Murphy said.
Lawmakers rushed to draft and approve bipartisan legislation sought by the Murphy administration that was enacted earlier this week that extended the current state fiscal “year” by three months to September 30. New Jersey is the only state in the nation to take that virtually unprecedented step in the wake of the pandemic, according to credit analysts.
But legislative leaders did not similarly put Murphy’s draft legislation seeking emergency borrowing authority up for immediate consideration, and its fate remains in question.
A spokesman for Assembly Speaker Craig Coughlin (D-Middlesex) said on Thursday that no final decision has been made about Murphy’s borrowing request.
“All options have to be on the table as we prepare New Jersey to regain its economic footing,” Coughlin spokesman Kevin McArdle said.
Senate President Steve Sweeney (D-Gloucester) could not be reached for comment, but he was quoted in the Bloomberg News report raising concerns about the governor’s request.
“I’m not prepared to look at borrowing or writing a blank check without knowing where we stand,” Sweeney said, according to the report.
While the draft legislation left only a blank placeholder for the amount of emergency borrowing that would be authorized by lawmakers, the Federal Reserve’s municipal-lending facility caps total borrowing that can be provided to any state at 20% of annual revenues as of fiscal year 2017, which would be around $7 billion for New Jersey.
First, assess economic damage
Sen. Steve Oroho, a Republican from Sussex County who serves on the Budget and Appropriations Committee, cited the longer amount of time the state now has to assess the economic damage under the fiscal-year extension legislation that was approved earlier this week. That measure requires the Murphy administration to produce updated economic forecasts by mid-May.
“Given the extra time we now have, it’s premature to discuss bonding,” said Oroho, who co-sponsored the extension legislation.
“Bonding should be a last resort consideration at the end of the budgetary process if all else fails to meet the state’s emergent needs during this crisis,” he went on to say.
But New Jersey Citizen Action, a group that regularly advocates for the state’s lowest-income residents, urged lawmakers to immediately get behind Murphy’s push for emergency bonding authority.
“We simply can’t survive this pandemic without an immediate infusion of new, robust sources of revenue,” said Dena Mottola Jaborska, the group’s associate director. “New Jersey was already stretched financially before COVID-19, but right now we’re facing complete economic ruin.”