Gov. Phil Murphy wants a plan in place to borrow billions without voter approval; now legislators are ready to sign off one to make that happen. A revamped version of emergency-borrowing legislation is set to go before lawmakers for the first time Tuesday.
The revamped bill, according to a draft obtained by NJ Spotlight, makes a series of significant changes to the original borrowing legislation that cleared the Assembly last month but stalled in the Senate. Murphy has pressed for the borrowing bill, saying it’s needed to offset the economic losses triggered by the coronavirus pandemic.
This version of the bill is expected to be approved by the Democratic-controlled Senate Budget and Appropriations Committee since it was drafted to reflect a deal negotiated last week between Murphy, a first-term Democrat, and Senate President Steve Sweeney (D-Gloucester).
Under a three-month stopgap budget enacted by the governor earlier this month that was based on his administration’s most recent revenue forecasts, spending has been balanced through the end of September without borrowing. But some $2 billion in planned spending was also deferred, and Murphy has projected additional revenue losses will persist well into 2021.
Here’s a rundown of what’s been changed in the borrowing legislation, what’s staying the same and what will likely happen next:
What’s new: For starters, the new version of the emergency borrowing legislation caps how much debt can be issued without voter approval in response to the pandemic at just under $10 billion. The earlier bill would have allowed for up to $14 billion in borrowing. The new version also splits the potential borrowing into two segments, with up to $2.7 billion authorized for the remaining months of the current fiscal year, and then a second amount of up to $7.2 billion for the fiscal year that begins Oct. 1 and runs through the end of June 2021.
Another major change would give a special panel of lawmakers the power to approve or reject any individual debt issues that the Murphy administration proposes. A four-member select committee of lawmakers will be established, with two members coming from the Assembly and two from the Senate. Sweeney has already said he will be a member, as will Senate Budget and Appropriations Committee Chair Paul Sarlo (D-Bergen). Assembly Speaker Craig Coughlin (D-Middlesex) has yet to say who will serve on the select committee from the lower house, which is also controlled by Democrats. There is no requirement that a Republican serve on the four-member panel.
To get approval, the Department of Treasury will first have to issue to the committee a report detailing its proposed bond sale. From there, the panel will have up to six days to accept or reject any borrowing proposal, according to the draft legislation. It will take three votes in favor to approve a borrowing proposal, and a lack of any action “shall constitute disapproval,” according to the draft legislation. That provision would allow lawmakers to block any borrowing without putting their reservations on the record with a vote.
What’s the same: The new version still authorizes a wide range of potential borrowing options even as the total amount has been whittled down. Those options include borrowing from the Federal Reserve, which created a new lending program specifically to help governments struggling to offset revenue losses triggered by the pandemic. The legislation also allows general-obligation bonds to be issued, and for long-term refinancing issues that could stretch out repayment as far as 35 years. The new draft of the legislation allows for both public and private debt sales, something that was also permitted under the original version.
Language in the bill that’s related to the repayment of the bonds also remains essentially the same, including sections covering the repayment of any general-obligation bonds that may be issued. General-obligation bonds are backed by the “full faith and credit” of the state and always come with a pledge to increase the sales tax and enact statewide property-tax assessments in the event the debt service on the bonds cannot be repaid with general budget revenues.
While Murphy has not said exactly how his administration plans to pay off any debt that may be issued as part of the state’s response to the pandemic, he has hinted that “revenue raisers” should be on the table as part of the plan to balance the state budget due by Oct. 1.
What happens next: Under the current schedule, the new version of the borrowing bill will be released by the Senate committee Tuesday, and then it would go before the full Senate for final approval on Thursday. The Assembly is also scheduled to hold a voting session Thursday, and Coughlin’s office has indicated he has also signed off on the changes made to the original bill. Legislative rules allow for the Assembly to approve the new version on Thursday without forcing it to first go back to a committee for another review.
While Murphy may be anxious to sign the borrowing measure into law by the end of week, that doesn’t mean his administration will be able to immediately issue any bonds. In addition to the new language requiring sign-off from the four-member select committee, any individual borrowing proposal is also likely to end up in court at some point as well. That’s because Republicans have already said they will sue the administration to block any borrowing, citing language in the state Constitution that restricts how the state can issue debt and spend money generated from bond sales. The administration has argued special powers are written into the Constitution that relax those fiscal restrictions during periods of war or major emergencies, but Republicans have maintained at least some remain in place even during an emergency.
Meanwhile, pursuing emergency borrowing could also result in another credit-rating downgrade for New Jersey, given major Wall Street rating agencies have already given the state a “negative” bond-rating outlook. Another downgrade of the state’s rating would make it more costly to borrow money, even from the Fed, and those interest costs would ultimately be passed along to taxpayers.