New Jersey has once again reduced the grand total of debt that it owes bondholders and other investors, but not enough to drop out of the group of the most indebted states in the country.
The latest official accounting of all state borrowing released by the Department of Treasury in recent days shows the total bonded debt for New Jersey dropped slightly to $44.4 billion as of the end of fiscal year 2019.
The year-over-year decline is the second straight to occur in the state’s last two completed fiscal years. It’s also the third reduction in the overall borrowing total that’s been recorded in the past four fiscal years, according to the new accounting.
But state borrowing over the past decade still remains up by nearly 20% due to debt binges earlier in the decade, and new borrowing since fiscal 2019 ended last June has totaled more than $2 billion. That suggests the state’s grand total for debt may tick back up once all the new borrowing is fully accounted for in the report due to be issued by Treasury around this time next year.
NJ’s $200B burden
Meanwhile, when New Jersey’s nonbonded 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 nonbonded debt is still well above $200 billion, roughly five times the size of the state’s annual budget.
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 other items that are expected to last for generations and can’t be paid off in a single fiscal year. In fact, a good share of New Jersey’s total debt is underwriting ongoing investments in education and transportation, purposes that generally win strong support from taxpayers.
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 fiscal 2017, the last full year in office for former Republican Gov. Chris Christie. Total bonded debt rose by nearly 8% year-over-year, setting a record for New Jersey at $46.1 billion.
Still, the state has enjoyed a steady decline since then. That includes a nearly $1 billion reduction in the debt total in fiscal 2018 as Democrat Phil Murphy replaced Christie in the governor’s office, and as the state generally took on less borrowing than what it was able to pay down on principal over the 12 months of the 2018 fiscal year.
The state’s grand total dropped again by roughly $750 million by the end of fiscal 2019, from $45.16 billion to $44.4 billion, according to the latest version of the debt report. Treasury officials again attributed the progress to the state taking on less new debt than the amount that was paid down on principal over the course of fiscal year 2019.
No shortage of new debt
However, the debt report also details a total of $2.175 billion in new borrowing that has occurred just since the end of fiscal year 2019. Included on that list is $1 billion in new debt issued for the state Transportation Trust Fund, which is supported by the state gas tax and pays for road, bridge and rail-network capital investments throughout New Jersey. The state borrowed another $500 million to buy new locomotives and buses for New Jersey Transit, the state’s cash-strapped mass-transit agency.
Other big new borrowing issues that have gone to market since last June included $350 million for school facilities; $175 million for school security upgrades and other purposes; and $150 million for general purposes, according to the debt report.
Several new refinancing initiatives were also completed in more recent months as interest rates have remained attractive, but it’s unclear from the latest debt report exactly how much the refinancing may have saved. And short-term borrowing the state takes on during the fiscal year for cash-flow purposes is also not reflected in the report. The ongoing coronavirus pandemic is also putting a strain on state finances, but Treasury officials have indicated all bond payments and state pension contributions are being made on schedule.
Despite the progress in recent years, New Jersey’s new grand total for state borrowing is still nearly $8 billion above the total measured at the end of fiscal year 2010, which was $37.7 billion.
Meanwhile, updated state-by-state borrowing comparisons that are also included in the annual debt report show New Jersey remains one of the nation’s most indebted states by many measures.
For example, New Jersey is the fourth-highest among all U.S. states in the category of gross tax-supported debt, behind California, New York and Massachusetts. New Jersey also ranked fourth-highest in per-capita debt, behind Connecticut, Massachusetts and Hawaii, and fourth-highest in debt as a percentage of gross-domestic product, behind Connecticut, Hawaii and Massachusetts.