Senate Moves to Let Towns Go Deeper in Debt to Weather Pandemic Crisis

With tax revenues dropping, lawmakers want to give local officials power to borrow, while others worry about abuse
Credit: Colin Watts on Unsplash
The bill would allow local governments to borrow as COVID-19 hedge.

New Jersey’s local governments could borrow money to help offset revenue losses during the coronavirus pandemic under a bill that’s progressing despite concerns among some lawmakers about oversight and the potential for abuse.

The Senate Budget and Appropriations Committee passed the local-borrowing measure Tuesday, putting it on course to win final approval from the Democratic-controlled Legislature on Thursday.

The bill’s advancement comes just weeks after lawmakers approved another borrowing measure that gives the state the preliminary authority to issue up to $9.9 billion in new debt to offset its own revenue losses.

But some lawmakers have raised concerns that the current draft of the local-borrowing bill would allow too much debt to be issued without direct state oversight. It’s also unclear right now whether Gov. Phil Murphy will sign it.

Still, local government officials and others who testified Tuesday said taking on more debt could help towns deal with severe revenue losses that some have experienced in recent months due to the pandemic.

“These revenues are not going to be recouped,” said Michael Cerra, executive director of the state League of Municipalities.

New Jersey has been hit hard by the novel coronavirus, with more than 180,000 confirmed cases reported by the Murphy administration as of this week. The state’s unemployment rate has also reached record highs after a series of social-distancing measures and economic restrictions were ordered by the governor to help slow the rate of new infections.

‘Record declines’

While the Murphy administration is projecting significant state revenue losses through at least the middle of next year, many local governments have also been suffering fiscal strain.

Cerra said some are now seeing “record declines’ in revenue, particularly those communities that use taxes and fees levied on things like parking, licensing and hotel rooms to offset their reliance on local property taxes.

“This is an unprecedented and swift loss of revenues with the inability to recoup those revenues,” he said.

To help fill the gaps, the current draft of the borrowing bill would permit local governments to issue debt totaling as much as 30% of their annual budget without the normal signoff of the Trenton-based Local Finance Board. Fees for professional services on the borrowing would also escape Trenton’s direct oversight if the bonds fall under the 30% threshold.

Repayment of the proposed “coronavirus relief bonds” could also be stretched out as far as 10 years without state approval, and even longer with it. And like the state borrowing measure, the local version does not require proposed debt issues to go before voters.

Michael Hanley, a principal with Hoboken-based NW Financial Group, which does municipal finance work in New Jersey, said it’s important to give local governments the ability to spread out the impact of their near-term revenue losses, suggesting the extra time will help cushion the blow on local budgets.

“The alternative to that is large tax increases or Draconian cuts in services,” Hanley said.

GOP concerns

But Sen. Declan O’Scanlon (R-Monmouth) said the bill allows local governments to borrow too much without direct state oversight, and doesn’t require local officials to exhaust all other options before turning to the bond market.

A former sponsor of the bill, O’Scanlon said he dropped off after “the Assembly screwed it up.”

“I accept that borrowing might be a component to our (fiscal) solutions, at the state level and with our municipalities, for some extraordinary expenses, but I can’t back this version,” O’Scanlon said.

Concerns about the bill have apparently also been raised by Murphy’s office, and there was talk before Tuesday’s hearing began that there could be new amendments as a result of ongoing talks between the governor and Assembly Speaker Craig Coughlin. But no new amendments were put forward, and the Senate committee ultimately voted 8-3 to advance the version that incorporated only the Assembly’s prior amendments.

Regina Wilder, a spokeswoman for Coughlin (D-Middlesex), said “despite robust conversations with the administration over the past week, we failed to reach a consensus on amendments.”

“We will continue to work to provide the best tools possible for local governments to weather the public health emergency and its resulting negative economic and tax revenue impact,” she said.

The bill has already cleared the full Assembly, meaning it will go to Murphy’s desk if it clears the full Senate on Thursday. It remains to be seen whether a conditional veto is looming.

Murphy spokesman Darryl Isherwood cited the governor’s office’s general policy of not weighing in on pending legislation when asked for comment on the bill.

Senate President Steve Sweeney (D-Gloucester) voted in favor of the bill Tuesday as a substitute member of the committee. He had opposed language in the state-borrowing bill that would have allowed the Murphy administration to issue debt on behalf of local governments. Sweeney said at the time that many local governments have better bond ratings than the state and could get better terms.

The state borrowing legislation is the subject of a legal challenge filed by O’Scanlon and several other Republicans who contend it violates restrictions on spending and debt that are written into the state Constitution. But no such constitutional restrictions are in place for local governments, which operate under New Jersey’s “Local Bond Law.”