New Jersey is about to have the ability to borrow up to $9.9 billion without asking voters for approval, but Gov. Phil Murphy is not saying exactly how he plans to spend the money.
The governor has been pressing lawmakers to endorse the emergency-borrowing legislation as part of his administration’s response to the coronavirus pandemic, and it is expected to land on his desk Thursday, following scheduled votes in the Assembly and Senate.
Murphy, a first-term Democrat, signaled during a media briefing on Wednesday that he will sign the borrowing bill, “pretty much as soon as it gets” to his desk.
But the governor declined to offer any specifics on how his administration plans to spend the money that would be raised by issuing new debt in response to the health crisis.
Murphy circumspect on spending specifics
Murphy said, “it’s too early to tell,” before citing some general budget priorities, such as funding education, health care and public-worker pensions. He also pointed to ongoing budget discussions with legislative leaders that have occurred in recent weeks.
“But the details, bear with us on that,” Murphy said.
The legislation up for final vote Thursday in the Democratic-controlled Assembly and Senate would give the Murphy administration preliminary authorization to borrow up to $2.7 billion before Sept. 30, and up to $7.2 billion between Oct. 1 and June 30, 2021.
The measure would also establish a four-member select committee of lawmakers with the power to approve or reject individual borrowing proposals any time the governor wants to use debt to finance state spending, through the end of June 2021.
Senate President Steve Sweeney (D-Gloucester) and Senate Budget and Appropriations Committee Chair Paul Sarlo (D-Bergen) will serve on the panel, as well as Assembly Speaker Craig Coughlin (D-Middlesex) and Assembly Budget Committee Chair Eliana Pintor-Marin (D-Essex). There is no requirement that a Republican serve on the four-member panel.
Countering COVID-19 debt
Murphy has requested the power to borrow money as part of the state’s ongoing effort to manage revenue losses that his administration has been projecting as a result of the pandemic, and the reduced economic activity it has triggered.
Under a three-month stopgap budget enacted by the governor earlier this month, spending is balanced through the end of September without borrowing; the Department of Treasury projects a nearly $1 billion surplus. But some $2 billion in planned spending was deferred to balance the stopgap budget, and Murphy has projected additional revenue losses will persist into 2021.
A new budget plan is now due by Oct. 1, and the governor is by law required to deliver a spending proposal to the Legislature by August 25. He said during Wednesday’s briefing that the next budget is still being formulated, and it was too soon to say exactly how revenue from bond sales could be utilized to maintain balanced spending.
“How that will be spent …we’re working on the budget,” Murphy said.
The borrowing legislation authorizes a wide range of potential options for issuing debt, including borrowing from the Federal Reserve, which created a new lending program specifically to help governments struggling to offset revenue losses triggered by the pandemic. Borrowing would have to occur before the end of the year, and repayment would be required within three years, according to the current program rules drafted by the Fed.
But the borrowing legislation also permits public- and private-debt sales, and for general-obligation bonds to be issued. It also authorizes long-term refinancing issues that could stretch out repayment as far as 35 years.
What about the payback?
How any debt issued in response to the pandemic would be repaid has not been clearly spelled out by the Murphy administration. Language in the bill discusses the repayment of general-obligation bonds — which are backed by the “full faith and credit” of the state — and makes it clear the sales tax could be increased and statewide property-tax assessments enacted, in the event the debt service on those bonds cannot be repaid with general budget revenues.
Republicans have seized on that language in their criticism of Murphy’s borrowing plan, and the legislation has advanced thus far without receiving any votes from the GOP.
How much the state could sustainably borrow was among the issues that were tackled in a new analysis of New Jersey’s fiscal predicament published Wednesday by the nonpartisan Pew Charitable Trusts.
The analysis looked at ways the state could utilize the Fed’s new lending program without jeopardizing public-worker pension contributions, and suggested New Jersey could create a sustainable financial plan if it borrowed up to $1.4 billion from the Fed and paid it off within three years as the economy eventually rebounds. Up to $4.5 billion in borrowing from the Fed may be sustainable if it allowed repayment over five years instead of the current, three-year limit, according to the analysis.
“Pew based the New Jersey assessment on a model designed to more evenly distribute projected state revenue over the next three to five years,” the analysis said. “The methodology assumes one-time borrowing this calendar year, to be repaid in fiscal 2023 to 2025, when the economy is expected to be in recovery.”
Sweeney — who negotiated recent changes made to an original piece of borrowing legislation that passed the Assembly last month — said the Pew analysis provides state policymakers with “valuable information that will help guide all of us in making vital decisions on state finances.”
“We should want to be as informed as possible in making these critically important decisions that will shape our future,” said Sweeney.
Meanwhile, the Pew analysis also highlighted a need for policymakers to work within tight limits on spending and borrowing that have been written into the state Constitution.
Republicans ready to sue
The Murphy administration has argued language in the Constitution eases those restrictions during times of war or major emergencies. But Republicans maintain at least some remain in place even during an emergency, and they are vowing to sue to block any deficit spending attempted by the Murphy administration.
A recent opinion issued by legislative counsel for the nonpartisan Office of Legislative Services may have provided some clues on how the upcoming legal case could play out.
The opinion suggested emergency borrowing could be allowed to cover “expenses directly addressing COVID-19,” and to offset revenue losses triggered during the fiscal year the pandemic began. But the opinion said bond proceeds “may not be used to replace general revenue to support non-COVID-19 related spending in future budgets.”
Murphy defended the legality of the borrowing proposal when asked during Wednesday’s briefing about the threat posed by the looming court challenge.
“We wouldn’t attach our name to something if we thought it wasn’t completely constitutional and legal,” he said.