A new federal lending program that’s been set up specifically to aid states and local governments struggling with major budget emergencies amid the ongoing COVID-19 pandemic could be used to help ease New Jersey’s growing fiscal challenges.
Established late last week by the Federal Reserve, the new program will back up as much as $500 billion in lending to states, as well as many cities and counties, to help them manage cash-flow issues as the pandemic has triggered a wave of economic upheaval across the country.
New Jersey has already frozen nearly $1 billion in spending in response to the health emergency, and state lawmakers are also advancing a virtually unprecedented plan to extend the state fiscal year by three months as Gov. Phil Murphy has said the budget is getting “crushed” by the economic fallout.
Murphy, a first-term Democrat, said during a media briefing on Friday that his administration is now “looking very closely” at the new federal lending program as another fiscal tool the state could use to address its ongoing budget challenges.
“All things are on the table,” Murphy said.
Some states have already begun to produce detailed reports that forecast the economic fallout from the pandemic on their respective budgets, but Murphy’s administration has yet to do so. 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.
The state’s unemployment filings have also surged as strict social-distancing measures have shut down many businesses that have been deemed “nonessential” by the governor.
New Jersey headed into the economic downturn caused by the pandemic with only a small percentage of reserves to back up its nearly $40 billion annual budget, leaving very little margin for error as the revenue losses and new expenses have now started to pile up.
Meanwhile, state lawmakers have also been rushing to pass bipartisan legislation to extend New Jersey’s state income-tax filing deadline, even though the payments that usually come in by April 15 are major sources of revenue for the state budget.
Details of the program
The “Municipal Liquidity Facility” established last week by the Federal Reserve has been set up on an emergency basis to help states like New Jersey address such budget challenges by ensuring there is a market for short-term borrowing that governments may want to issue to help raise funds to stay afloat until tax revenues rebound. Initial funding to back up the new lending comes from the $2 trillion stimulus package that Congress and President Trump approved late last month, according to a summary of the program that was released by the Federal Reserve. All states are eligible to participate, as are cities with populations over 1 million residents, and counties with populations over 2 million.
The type of lending that will be supported by the program includes tax anticipation notes (TANs), tax and revenue anticipation notes (TRANs), bond anticipation notes (BANs), and other similar, short-term notes, as long as they mature “no later than 24 months from the date of issuance,” the summary said.
The Fed’s current plan calls for the lending program to operate through the end of September.
William Glasgall, senior vice president and director of state and local initiatives at the nonpartisan Volcker Alliance, called the new Fed program a “welcome lifeline to help preserve critical government services.”
“Coupled with the Fed’s earlier announcements that it will buy longer-term municipal bonds and accept short-term state and local obligations as collateral from money-market funds, the latest move will help stabilize the $3.8 trillion municipal debt market and preserve governments’ ability to raise funds for critically needed infrastructure projects and the jobs they create,” said Glasgall, whose group promotes sustainable budgeting practices and effective government management.