[Updated: 4:30 p.m.] Gov. Phil Murphy’s administration would be able to borrow as much $9.9 billion without voter approval to help offset revenue losses caused by the coronavirus pandemic, but only after getting permission from a four-member panel of lawmakers each time the state asks investors for money, according to a deal announced Friday.
The agreement on the borrowing issue between the governor and Senate President Steve Sweeney (D-Gloucester) comes after lawmakers in the Assembly had previously approved legislation that was opposed by Sweeney, which sought to give the governor the power to borrow as much as $14 billion.
Murphy, a first-term Democrat, confirmed during a media briefing on Friday that he and Sweeney had settled their differences and had reached a “nice breakthrough.”
“That borrowing capability puts us in really a much better place,” Murphy said.
Sweeney, in a news release, said the agreement would “ensure we will have the resources needed to respond to this fiscal and economic crisis in a responsible way.”
While legislation is still being drafted, the deal would allow the state to issue as much as $9.9 billion in new debt without voter approval to offset steep revenue losses caused by the pandemic, according to details provided by legislative sources. The Murphy administration has projected roughly $34 billion in revenues will be collected through the end of June 2021, well below the $38.7 billion budget that was enacted around this time last year for fiscal year 2020.
Special legislative committee must OK the borrowing
Also under the deal between Murphy and Sweeney, each time the state wants to borrow money by issuing bonds, borrowing proposals will first have to go before a special select committee of four legislators — two from the Senate and two from the Assembly — and will require approval from at least three of four members, the sources said.
The appropriation of bond proceeds would also have to be approved as part of the state budget process, sources said.
Legislation that reflects the deal between Murphy and Sweeney is now expected for a committee review Tuesday, and to go before the full Senate on Thursday.
The new version of borrowing legislation will also have to get approval from the Democratic-controlled Assembly before it can go to Murphy for a final sign-off. Assembly Speaker Craig Coughlin (D-Middlesex) is “fully supportive” of the borrowing agreement, spokeswoman Regina Wilder said Friday.
“The historic nature of the current pandemic has led to this unprecedented last resort due to the current fiscal crisis,” she said.
GOP legal challenge
Even with the breakthrough announced Friday, the borrowing initiative is still in line to draw a legal challenge from Republicans who oppose using debt to finance deficit spending. GOP opponents have cited language in the state Constitution that tightly restricts how bond proceeds can be used by the state, and maintain those restrictions in place even during emergencies. They also want Murphy and lawmakers to exhaust all other options before turning to borrowing.
“This debt plan is bad policy, and without voter approval is clearly unconstitutional. We will file suit to stop it,” the state GOP said in a statement issued Friday.
In addition to the legal issues, how any new debt would be paid off by taxpayers remains an open question.
The original Assembly-approved bill allowed for the state to take advantage of a new lending program established by the Federal Reserve in response to the pandemic that would require repayment within three years. But it also allowed for the issuance of general-obligation bonds, as well as refinancing issues with up to 35-year repayments.
General-obligation bonds are backed by the “full faith and credit” of the state, and their issuance always comes 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.
Asked during Friday’s briefing about the potential impact that new borrowing could have on taxes, Murphy said “it’s too early to tell.” He also said any “revenue raisers” will be up for discussion with lawmakers as they determine how to set the next state spending plan, which must be enacted before Oct. 1.
Any new debt issued to offset revenue losses during the health crisis could trigger another credit-rating downgrade as New Jersey has already been given negative outlooks by major Wall Street credit-rating firms.
Despite some recent progress, New Jersey is one of the nation’s most-indebted states, and maintains the second-worst credit-rating of any U.S. state, behind only Illinois. Another downgrade would move New Jersey’s general-obligation bond rating out of “A”-level or higher territory for the first time in its history.
“I appreciate the magnitude of the fiscal crisis we are in, but we haven’t even exhausted other fiscal management practices,” said Sen. Steve Oroho (R-Sussex) in response to Friday’s announcement.
“This borrowing scheme is reckless behavior that will only exacerbate our problems long term,” said Oroho, who serves on the Senate Budget and Appropriations Committee.