New Jersey’s bonded debt now totals $44.37 billion, according to the latest official accounting of state borrowing released by the Department of Treasury on Friday.
The new sum for what the state owes its bondholders is roughly equal to the size of the annual state budget. And it doesn’t include more than $5 billion in new debt the state has added since July — more than 10% of the total already owed to bondholders.
The state’s official total for bonded debt is large enough to keep New Jersey among the U.S. states with the highest amount of gross tax-supported debt — behind only California, New York and Massachusetts — even though Treasury recorded little year-over-year change between the 2019 and 2020 fiscal years.
When all obligations are taken into account — including non-bonded obligations to retired public workers — the sum balloons above $200 billion, roughly five times the size of the state’s current annual budget.
Among the borrowing activity recorded in a supplemental section of the new debt report that covers borrowing that’s occurred since the 2020 fiscal year ended last June is nearly $4 billion in emergency bonds that Gov. Phil Murphy’s administration issued without voter approval last year. That debt was issued in response to dire revenue losses the administration was projecting amid the darkest days of the coronavirus pandemic.
The supplemental section also lists $1.5 billion in state Transportation Trust Fund debt that was issued last December, and another $350 million in new borrowing for school facilities that took place in January, according to the report. And just this week, the administration approved $400 million in additional borrowing to pay for voter-approved spending on school, library and environmental projects.
Public-finance experts generally agree that some level of debt is acceptable as states pay for long-term investments in things like roads, schools and other items expected to last for generations and that can’t be paid off in a single fiscal year.
Moreover, a good share of New Jersey’s bonded debt is underwriting ongoing investments in education and transportation, purposes that generally win strong support from voters.
But state-government borrowing has surged on several occasions since the early 2000s, making New Jersey one of the most indebted states in the country. The last big increase occurred during the 2017 fiscal year, the last full year in office for former Republican Gov. Chris Christie. Total bonded debt rose by nearly 8% year-over-year, setting a record for New Jersey at $46.1 billion.
Likely to increase
Since then, the state’s total for bonded debt has been reduced slightly to the $44.37 billion recorded in the debt report for the 2020 fiscal year. But that total is likely to go up due to the spate of new borrowing during the current fiscal year.
The payments needed to keep up with the state’s total bonded debt equal about 10% of annual spending, or roughly $4 billion. This year, lawmakers have once again been airing concerns about state borrowing as they review a $44.8 billion spending plan Murphy has proposed for the fiscal year that begins on July 1.
Their concerns about debt have also focused on the $3.67 billion in general-obligation bonds the Murphy administration sold in response to fears about the economic impact of the pandemic, including projected revenue losses that never fully materialized.
That borrowed money has now left the state with a sizable projected budget surplus, and several lawmakers have said in recent weeks that at least some of an estimated $6.4 billion in COVID-19 relief funds that New Jersey is due to receive under the federal American Rescue Plan Act should be used to pay down state debt. Final guidance on how that funding can be spent is still pending from the U.S. Treasury.
Meanwhile, the new debt report also indicates the total amount for the state’s bonded and non-bonded obligations equaled $204 billion at the end of the 2020 fiscal year. That sum includes the estimated cost of all obligations to retired public workers, including all pension and health benefits.
Where NJ stands among the states
New Jersey is well-known for having one of the worst funded state retirement plans in the country, due largely to more than two decades of underfunding of the amount that actuaries would consider to be a full state pension contribution. Since taking office in early 2018, Murphy, a Democrat, has been following a pension payment ramp-up plan, begun during Christie’s tenure, that has started to whittle away the state’s pension debt.
The state portion of New Jersey’s net pension liability dropped below $91 billion in the latest state debt report, which uses national accounting standards to measure pension debt that are different from those used by the state to tabulate its annual pension contribution. The total pension liability is over $120 billion when the obligations of all local governments and public colleges and universities are included.
Reducing the debt load
In his budget for the 2022 fiscal year, Murphy, who is up for reelection in November, has proposed making a full state pension contribution, which would cost more than $6 billion under his administration’s latest estimates. If the governor lives up to that promise, the full payment will come one year ahead of the ramp-up schedule established by Christie.
“By making the full pension contribution a year early, the year-over-year increase from FY22 to FY23 is expected to be reduced by hundreds of millions of dollars, as opposed to another billion-dollar increase,” Treasury spokeswoman Jennifer Sciortino said.
“Additionally, the newly proposed budget focuses on reducing the state’s debt load by including a number of sizable, pay-as-you-go direct appropriations,” she said. “This is particularly important because it will help minimize debt going forward, while also enabling us to pump money into the economy for critical capital needs.”