Less than a year after New Jersey borrowed nearly $4 billion to deal with expected budget losses that never came, Gov. Phil Murphy and lawmakers are now getting ready to set aside roughly the same amount for a new debt-relief initiative.
One of the new wrinkles in a spending bill that debuted and then moved quickly through the Legislature last week is a $3.7 billion appropriation for what is being billed as a new state debt-relief fund.
Murphy, a first-term Democrat facing reelection, is expected to soon sign the budget measure and other associated legislation, including a separate bill that calls for the establishment of the New Jersey Debt Defeasance and Prevention Fund.
Under that legislation, a $2.5 billion portion of the major surplus New Jersey has amassed in recent months will be used to pay down some of the state’s significant bonded debt. Another $1.2 billion portion of the appropriation will be used to underwrite capital projects that otherwise would have been paid for with more long-term bonds, the bill says.
While this budget measure to begin paying down some of the state’s bonded debt is recent, New Jersey long ago solidified its standing among the nation’s most indebted states. In all, the state had more than $44 billion in bonded debt on its books as of the Department of Treasury’s latest official accounting, which was released earlier this year.
That total — which doesn’t count the state’s substantial unfunded pension liability — is nearly the same amount as the $46.4 billion budget that lawmakers sent to Murphy last week for the new fiscal year that begins on July 1.
Bruising questions about debt
The move to pay down state debt also comes just months after state Treasurer Elizabeth Maher Muoio faced a round of bruising questions from lawmakers who wanted to relitigate the Murphy administration’s decision last year to borrow billions more during some of the worst months of the coronavirus pandemic.
The nearly $4 billion in new debt was done by the administration without voter approval to help it prop up a budget due to the administration forecasting steep revenue losses triggered by the health crisis.
Instead, the state’s coffers became flush with cash thanks to historically large tax payments, and Treasury officials have released updated projections that indicate a revenue windfall of more than $5 billion through the end of the 2022 fiscal year.
Many Republican lawmakers who questioned the administration’s forecasts last year, and who also urged majority Democrats to enact belt-tightening measures instead of taking on more debt, have this year criticized the administration for leaving taxpayers with millions of dollars in interest costs that will stretch into the 2030s.
Republicans still upset
And many of those Republicans are still upset after being initially led to believe the administration’s emergency borrowing issue could be paid off early to save on interest costs if the state’s fiscal outlook improved. Those bonds were ultimately structured in a way that prevents any early repayment.
While the COVID-19 bonds cannot be paid off early, other debt on New Jersey’s books with higher interest costs than the state was charged last year can be retired early. Last week, Maher Muoio told NJ Spotlight News the new debt-relief initiative that will be enacted as part of the new budget should generate some significant, long-term savings.
“Early estimates show, over the next 10 years, that’s going to generate debt-service savings of over half a billion dollars,” she said while talking about the debt-defeasance effort.
Meanwhile, Democratic lawmakers who control the Legislature haven’t been shy about linking the new debt-relief initiative to last year’s borrowing, which received a final signoff from a select commission of Democratic lawmakers before the bonds were sold.
The bill that creates the debt-reduction fund mentions last year’s borrowing issue and notes that the $3.7 billion that is appropriated to the fund in the Legislature’s spending bill matches the amount that was borrowed in response to the pandemic last year.
Stronger fiscal outlook
“It is critical for the State to take advantage of its improved fiscal outlook to defease the debt it has incurred,” the bill says.
Assembly Budget Committee Vice Chair John Burzichelli (D-Gloucester) also stressed last week that the debt-relief fund sets aside “an equal amount to what we borrowed.”
“I think we have established a responsible budget here, from top to bottom,” Burzichelli said on NJ PBS’ Reporters Roundtable.
Republicans are not criticizing the majority party for wanting to address the state’s debt problems. But they have raised concerns about oversight and how the $1.2 billion portion of the debt-reduction account that will fund projects on a pay-as-you-go basis will be administered. Those concerns were raised in the context of the budget bill and legislation associated with it being rushed from introduction to final passage, all within a matter of days last week, leaving little time to evaluate any major new wrinkles.
“There’s no meaningful debt repayment, despite a promise from Governor Murphy that the billions he borrowed would be repaid if the money wasn’t needed,” said Sen. Anthony M. Bucco (R-Morris).
“Well, the money’s not needed and the best we get in the budget is a slush fund that might be used to pay back some debt, but there’s no guarantee,” Bucco said.