They warned “winter is coming” and said then-President Donald Trump’s administration deserved “shame” for not sending New Jersey more robust federal aid.
Democrats who control both houses of the state Legislature last year said they needed an emergency borrowing issue — bypassing the constitutional mandate for voter approval — as a “last resort” to deal with the COVID-19 pandemic. Their goal: address what Gov. Phil Murphy’s administration was calling a “historic fiscal crisis.”
But now the state’s fortunes are nowhere near as dire as predicted. A revenue collapse that at one point was being forecast by Murphy to be on par with the Great Depression has not fully materialized.
After Murphy and lawmakers went ahead with the emergency borrowing last year and also hiked several taxes to bring in more cash, his administration is in the midst of amassing what should be a record state-budget surplus. Further, the nearly $4 billion in emergency debt also cannot be paid off early because it was issued as “noncallable” to secure the lowest possible interest rate.
Feast, not famine
So just months after the governor was pleading for more aid from the federal government, saying it was needed to prevent thousands of public-worker layoffs, Murphy — a Democrat who is up for reelection in November — is now proposing a state budget that calls for a more than 10% increase in year-over-year spending.
As part of a record $44.8 billion budget plan unveiled by Murphy earlier this week, New Jersey would boost spending in a number of key areas during what’s expected to be the state’s long recovery from the pandemic. They include K-12 education, public-worker pension funding, higher education and support for small businesses.
“This budget lives up to our stronger and fairer mission,” Murphy said during his budget address Tuesday.
Meanwhile, even with the state’s improving fiscal outlook, Murphy is still seeking more coronavirus relief from the federal government. And a nearly $2 trillion relief measure that is up for debate in Washington, D.C., could soon provide the state with billions in additional aid.
Yet amid New Jersey’s major fiscal turnaround, not everyone in Trenton is happy right now.
Republicans rain on Dem’s parade
Among those who are upset with how things have played out are Republican lawmakers. They warned months ago that, as residents were going to be hit with higher taxes and the interest costs from the long-term debt, revenue forecasts issued by the well-respected nonpartisan Office of Legislative Services in Trenton had indicated the losses would not be as severe as Murphy’s administration was predicting.
More recently, the Republicans have argued Murphy’s newest spending proposals will be funded, at least in part, by spending down the same budget reserves that have been amassed in recent months in the wake of the emergency borrowing.
And with more than 10% of Murphy’s new spending plan covered by nonrecurring or “one-shot” revenue sources, they’ve also begun to ask how the state will be able to maintain such a high level of spending in the future, after the borrowed money is used up and the federal-aid spigot is turned off.
“The whole budget is kind of a scam,” said Assemblyman Hal Wirths (R-Sussex), who serves on the Assembly Budget Committee, during his response to Murphy’s budget address.
“This is a smoke-and-mirrors budget,” said Wirths, who was among those raising concerns about spending and debt during budget debates last year.
To be sure, there was a lot of uncertainty about the direction the economy was heading last year as Murphy and lawmakers were making tough decisions about the state budget and borrowing. And even as the revenue losses haven’t piled up as high as once projected, concerns about the economy remain. New Jersey’s unemployment rate is still relatively high compared with a year ago, before the onset of the pandemic, and many small businesses remain desperate for additional government assistance.
Murphy was asked about his new budget proposal for the first time during a press briefing on Wednesday, and he reminded reporters that “we’re still in the middle of the game.”
“The jury is still way out on the impact of this pandemic on our fiscal reality,” Murphy said.
But Murphy was also asked how the new budget complies with a ruling issued by the state Supreme Court last summer that seemingly limited the use of the bond proceeds to covering only expenses tied to COVID-19. That decision was issued after Republicans filed suit in a failed attempt to block the state from issuing the emergency debt without voter approval, arguing it would violate the state Constitution.
Murphy did not directly answer the questions about the court ruling on Wednesday.
Last year, lawmakers were also led to believe by the state treasurer that the borrowed money would be used to fund a long list of specific items since the state was expecting to lose much of the revenue needed to fund them. Those items included aid for local schools, health programs, social services and higher education.
During background briefings held earlier this week in advance of Murphy’s budget address, Department of Treasury officials defended the administration’s latest budget plans, including the handling of the borrowed funds.
“Those monies were deposited and are available in the general budget and so it’s in the mix. It’s not as if it’s sitting in a defined fund; it’s part of our overall resources,” a Treasury official said.
“It’s supporting the overall state budget, which is supporting the items that the treasurer delineated would be supported with the borrowing,” said the official, who was not allowed to be identified by name by the Murphy administration as part of the ground rules established with reporters for the briefings.
Hoping for more federal aid
After being pressed to explain why the Murphy administration is still seeking to receive more aid from the federal government despite the state’s now seemingly overflowing reserves, another Treasury official noted the borrowing was just a “one-time infusion.”
“Going forward, there will still be an impact of this pandemic and we will need resources to tackle it,” the official said.
During the budget debates in the Legislature last year, Sen. Michael Testa (R-Cumberland) accused Murphy and lawmakers of using the pandemic as a “Trojan horse” to usher in unnecessary spending.
Testa, a practicing lawyer, also participated in the unsuccessful court challenge seeking to block the debt from being issued in the first place.
Responding to the latest budget proposals put forward by Murphy earlier this week, Testa suggested they effectively indicate the administration was off by more than $3 billion last year, yet there’s no way now to correct the mistake.
“The trouble is, the money is now borrowed, and you can’t pay it back early,” Testa said during an interview Thursday. “Where is the redress, other than I told you so?”
Asked how he feels about Murphy’s new proposal to spend down surplus during his reelection year, Testa immediately raised concerns about how the budget would be balanced going forward, saying, “How are we going to go into the future without raising taxes significantly and, or, borrowing more money yet again?”