Committees Grill Treasurer Muoio on Administration’s Health-Crisis Spending Plan

Senate Budget Committee hearing marked by sharp exchange with O’Scanlon; committee Chair Sarlo stresses savings must come before state borrows a single dollar
Credit: (Thomas Costello, Gannett)
File photo: State Treasurer Elizabeth Maher Muoio addressed New Jersey’s new fiscal landscape Friday and set out budget changes.

Efforts to find savings in the wake of the coronavirus pandemic took center stage Monday as lawmakers scrutinized a borrowing proposal and other spending adjustments that Gov. Phil Murphy proposed in response to the health crisis.

During two separate legislative hearings that spanned several hours, members of both the Assembly and Senate repeatedly questioned whether Murphy, a first-term Democrat, is doing enough to reduce the state’s bottom line as he’s seeking approval to exercise emergency borrowing powers.

Savings from proposed public-employee health care changes and potential worker furloughs were among the issues that lawmakers wanted to discuss with state Treasurer Elizabeth Maher Muoio as she testified before the Senate Budget and Appropriations Committee using videoconferencing software.

In one exchange, Sen. Declan O’Scanlon (R-Monmouth) asked for an update on the status of a bill that would allow many employees of state and local government to take full advantage of enhanced federal unemployment benefits if they are furloughed to save taxpayer dollars. That measure passed the Legislature with broad bipartisan support last month, but Murphy has yet to take action.

Sharp exchange with treasurer

Muoio said on Monday that questions about the bill should be directed to the governor’s office, drawing a quick response from O’Scanlon, who said it was appropriate to also direct such questions at the treasurer since it “falls to you to balance our budget.”

“If you’re not looking at those things in conjunction with the (governor’s) office to save money, that’s a little shocking to me, that we’re not including these savings in our long-terms plans,” O’Scanlon said.

“That sends a really irresponsible message, I think, with all due respect, to the taxpayers of New Jersey,” he said.

Lawmakers also raised questions Monday about the administration’s handling of federal relief funds for small businesses, its overall approach to reopening the state economy and whether it has a backup plan to address budget shortfalls in the event state courts determine the borrowing plan — which advanced out of committee in the Assembly on Monday — runs afoul of the state Constitution.

“We want to ensure, before we borrow one dollar, that we’re taking a look at every possibility (for savings),” committee Chair Paul Sarlo (D-Bergen) said as the Senate hearing came to an end.

“Looking at every potential alternative, reforms as Sen. O’Scanlon said, before we borrow a dollar,” Sarlo said. “I think that’s our job as part of providing oversight of the administration.”

New Jersey has been hit hard by the pandemic in recent months, with more than 160,000 COVID-19 infections and 11,721fatalities reported by the Murphy administration as of Monday.

Projected revenue losses could reach $5B

The Department of Treasury is also projecting the state will suffer significant revenue losses as a result of the pandemic, at least through the middle of next year. As part of its new forecasts, the revenue estimate for the fiscal year 2020 budget was slashed by nearly $2 billion compared to Treasury’s original projections. Treasury is also now forecasting revenue losses totaling another nearly $3 billion by the time FY2021 is due to come to a close next June.

Earlier this year, Murphy was asking lawmakers to approve a year-over-year spending increase totaling nearly $2 billion. But now his administration has instead been looking for ways to cut spending to help offset the projected revenue losses.

For example, more than $1 billion has been slated for “de-appropriation” by the end of the month, according to new budget plans that Treasury released on May 22. Another $850 million in spending hikes that Murphy had been seeking just a few months ago has also now been cast aside or deferred, including increased funding for K-12 schools and public-worker pensions.

During Monday’s Senate hearing, Muoio said she took issue with O’Scanlon’s suggestion that the Murphy administration isn’t taking seriously its responsibility to find savings to help offset the revenue losses.

“With all due respect, Senator, I don’t think anybody that looks at the proposed budgets that we submitted on May 22 would say that we are shying away from major cuts,” Muoio said.

Still, during the Assembly hearing, which focused entirely on Murphy’s emergency borrowing plan, the idea that new debt should be issued only as a last resort was raised by several lawmakers.

Burdened with debt-service costs?

The borrowing proposal allows for up to $5 billion in state general-obligation bonds to be issued in response to the pandemic. It also permits the state to borrow additional funds from the federal government, including on behalf of local governments in New Jersey, totaling up to $9 billion. The bill also gives the Murphy administration the authority to refinance bonds with up to 35-year maturities, and Treasury officials project debt-service costs could run as high as $50 million annually for every $1 billion that’s borrowed.

“Are we really protecting the taxpayers?,” asked Assemblywoman Nancy Munoz (R-Union). “We are going to have to pay this back. This is not a grant. This is a loan.”

Among those asking if the administration has a backup plan in the event the borrowing plan is ruled unconstitutional was Assemblyman William Spearman (D-Camden). Muoio largely sidestepped the constitutional questions, but she said if the borrowing is not allowed by the courts, the governor and lawmakers would have to fill a “massive hole” in the budget for FY2021.

“It would be drastic cuts,” she said. “We would have to come up with a budget with the Legislature, and it would be a brutal budget.”

Before voting 9-4 along party lines to advance the borrowing proposal, the Assembly Budget Committee took testimony from a number of witnesses, also using videoconferencing software.

Rev. Raul Ruiz of the Spanish American Baptist Church in Union City was among those supporting the proposal, which could now go before the full Assembly on Thursday. He said the bond funding would ensure resources for things like public education and prisoner-reentry programs will remain available even as the state suffers through its budget problems.

“Please do not abandon the poor,” Ruiz said.

But state GOP chair Doug Steinhardt urged lawmakers to oppose the borrowing plan, suggesting it could bring on tax hikes that would only fuel problems that many residents have with affordability issues in New Jersey.

“There are reasonable alternatives that put New Jersey on a better path,” he said. “Thinking we can borrow and tax our way out of a recession sounds easy, but in reality, it isn’t.”