Gov. Phil Murphy’s administration received help from outside bond attorneys with decades of experience as they drafted a proposal to exercise emergency borrowing powers to aid the state’s response to the coronavirus pandemic.
Copies of retention agreements obtained by NJ Spotlight through a recent public-records request indicate that two law firms were hired as bond counsel by the administration last month to assist in the drafting of emergency borrowing legislation.
The outside lawyers were permitted to bill between $225 and $250 per hour for their work, with total billing capped at $30,000 plus disbursements for each firm, including for any paralegal work, according to the retention agreements. The two bond counsels are West Orange-based Chiesa, Shahinian & Giantomasi and South Orange-based Jeremy Ostow.
Outside assistance not unusual
The state often uses outside attorneys to help prepare bond issues, including those that require legislation to enact. And the Murphy administration has also sought help from other outside consultants during the pandemic, including to assist the Department of Health’s ongoing response.
But the borrowing proposal has now stalled in the Legislature, and some lawmakers have openly questioned whether Murphy’s plan runs afoul of strict limits on spending and debt written into the state Constitution.
New Jersey is among the states that have been hit the hardest by the pandemic, with nearly 150,000 positive cases of COVID-19 reported as of Tuesday, resulting in a reported 10,586 fatalities.
Murphy, a first-term Democrat, has been repeatedly warning that state revenues are “falling off the cliff” during the pandemic. He has also cautioned that massive public-worker layoffs may become necessary in a matter of weeks.
Last week, the Murphy administration released revised long-term budget projections that take into account the effects of the pandemic. The updated forecasts assume total revenues for the current fiscal year will fall about $2 billion short of a projection written into the $38.7 billion spending bill the governor approved last June. In addition, the administration is projecting total revenues will fall another nearly $3 billion lower in fiscal 2021, which begins this fall.
To help offset the projected losses, Murphy has been regularly calling for members of Congress to work with President Donald Trump to provide state and local governments with significant financial assistance.
Murphy pushes emergency borrowing plan
But the governor has also been urging lawmakers to approve the emergency borrowing plan, so the state can issue general-obligation bonds as part of its response to the pandemic.
The New Jersey Constitution generally requires general-obligation borrowing issues that are worth more than 1% of total annual spending to be approved by voters before any bonds can be sold. However, those rules can be relaxed, according to the Constitution, “for purposes of war, or to repel invasion, or to suppress insurrection or to meet an emergency caused by disaster or act of God.”
The governor’s borrowing plan, according to a copy of the draft legislation obtained by NJ Spotlight, calls for using short-term borrowing, including by taking advantage of a new municipal lending facility that has been established by the Federal Reserve. But the draft legislation also lays a foundation for the short-term borrowing issues to eventually be refinanced, and allows for a maturity of the bonds as far as 35 years in the future.
Several lawmakers have raised concerns that the Constitution’s emergency-borrowing language does not allow the Murphy administration to use proceeds from bond sales as revenue to balance the state budget, even during a public-health crisis. They cite the Constitution’s “appropriations clause,” which requires revenues and expenditures to line up on an annual basis.
It’s unclear how the outside attorneys hired by the Murphy administration addressed those types of concerns, and whether they drafted any formal legal opinions that could explain how the plan aligns with the state Constitution. Murphy spokesman Darryl Isherwood provided a brief statement in response to several questions that were emailed to the governor’s office by NJ Spotlight earlier this week, including whether any legal opinions were produced by bond counsel.
“The two firms assisted in drafting the bond-act legislation,” Isherwood said.
“The state always has bond counsel assist us with borrowing in capital markets,” he said. “It’s not unusual for public entities to hire bond counsel.”
The copy of the retention agreement with Chiesa, Shahinian & Giantomasi that was emailed to NJ Spotlight in response to its public-record request indicates the firm’s lawyers can bill the state at a rate of $250 per hour. The agreement is signed by Dorit Kressel, a member of the firm’s public-finance group who has more than 20 years of experience, according to a bio posted on the firm’s website. She could not be reached for comment.
The copy of the retention agreement with Jeremy Ostow allows him to bill at a rate of $225 per hour. Ostow has over 30 years of public experience and has acted as bond counsel for the state on numerous occasions, according to a bio posted on his firm’s website. He could not be reached for comment.
A recent opinion drafted by legal counsel for the nonpartisan Office of Legislative Services took on the issue of borrowing to respond to the COVID-19 pandemic, including by citing a 2004 state Supreme Court ruling that determined bond proceeds do not meet the general definition of “revenue” for state-budgeting purposes under the Constitution’s appropriations clause.
The OLS opinion, according to a copy that was obtained by NJ Spotlight, said a plan to sell bonds without voter approval during the current fiscal year to respond to the health emergency would likely be constitutional. However, the opinion called into question any plan to use cash raised from borrowing to “replace general revenue to support non-COVID-19 related spending in future budgets.”
Murphy defended his borrowing plan when asked by a reporter during a recent media briefing if he had a response to the constitutional questions that lawmakers have been raising.
“We wouldn’t be doing this if we didn’t think it was constitutionally feasible,” Murphy said.