New Jersey is awash in debt, and earlier this year Gov. Phil Murphy and lawmakers put billions of dollars in a special fund to accelerate efforts to pay off some of the state’s many bonds.
But several months later, none of that money has been used to help reduce New Jersey’s bottom line.
With no outward signs of progress on debt reduction from the Murphy administration, Republicans, currently in the minority in both houses of the Legislature, have started sounding alarms about the administration’s handling of the state’s new debt-relief account.
In all, $2.5 billion was set aside by Murphy and fellow Democrats who control the Legislature in late June to retire, or “defease,” existing bonded debt. Another $1.2 billion was earmarked for future capital projects that could be funded on a pay-as-you-go basis to reduce future financing costs.
In a recent letter sent to Treasurer Elizabeth Maher Muoio, Sen. Steve Oroho and Assemblyman Hal Wirths, both Republicans from Sussex County, questioned why the debt-relief funds “have sat unused” for three months.
Racking up interest
“In the meantime, expensive bonded state debt that could have been retired continues to rack up interest costs,” the two lawmakers wrote.
Asked by NJ Spotlight News for a response, Department of Treasury officials said work on the new debt-relief initiative is well underway. Consultants have been hired and documents are being drafted, all to advance the goal of reducing how much the state must pay each year to service its hefty debt burden.
“The administration moved quickly to initiate a defeasance plan after the Appropriations Act was signed in late June,” Treasury spokeswoman Jennifer Sciortino said in an email.
That sum is nearly as large as the state’s latest annual budget. It also places New Jersey fourth-highest among U.S. states in the category of gross tax-supported debt, according to Treasury’s report.
Last year, Murphy and lawmakers added to that debt burden when they borrowed nearly $4 billion without voter approval because they projected steep revenue losses triggered by the coronavirus pandemic.
No early repayment of COVID-19 bonds
Those COVID-19 bonds were structured in a way that prevents any early repayment. That means, even though the projected revenue losses never materialized in full, New Jersey taxpayers remain responsible for paying back the full principal and interest costs tied to the pandemic debt issue into the 2030s.
Muoio, the state treasurer, faced a bruising round of questioning and second-guessing of the debt issue during legislative budget hearings earlier this year.
Months later, Democrats were not shy about linking the concerns about last year’s pandemic bonds to the decision to establish the $3.7 billion “Debt Defeasance and Prevention Fund,” which Murphy signed into law in late June.
Moreover, with plenty of debt issues still on New Jersey’s books — and with many likely having higher interest costs than the roughly 2% the state was charged for the COVID-19 debt last year — Treasury officials projected the debt-relief fund could generate significant, long-term savings. Those savings could total as much as $500 million over the next 10 years, the officials said.
The law that established the debt-relief fund set up a minor role for the Legislature’s bicameral and bipartisan Joint Budget Oversight Committee, giving lawmakers a way to keep tabs on any progress made by the administration in debt reduction or prevention.
“Allowing another 90 days’ worth of avoidable interest expenses to continue or investment opportunities to be missed would be extraordinarily poor money management,” the two lawmakers wrote.
Their concerns echo other criticisms aired by Republican lawmakers in recent weeks in response to the Murphy administration’s decision not to use any of the funding it received from the federal government earlier this year through the American Rescue Plan Act to pay down money that New Jersey has had to borrow from the federal government to sustain unemployment benefits.
Those federal dollars have helped the state fund jobless benefits during a surge in unemployment since the onset of the pandemic. That debt was initially offered interest-free, but the federal government started charging interest on it last month.
So far, Murphy and lawmakers have earmarked about a third of the overall $6.2 billion in COVID-19 aid the state has received from the federal government this year. Murphy’s administration has held a series of invite-only events in recent weeks for input on how to use the balance of the federal funds, with the latest coming last week. The administration is also collecting written input from the public. It can be sent to Murphy’s office via email@example.com.
Working with advisers, outside legal counsel
In response to questions about the status of the state funds that were set aside in late June for debt relief, Sciortino, the state Treasury spokeswoman, said they are currently deposited in New Jersey’s interest-generating Cash Management Fund.
Treasury has been working in recent months with its financial advisers and outside legal counsel to identify debt issues that are ripe for defeasance and to begin drafting required legal documents, she said. The process of obtaining approval from state authorities that were the official issuers of prior bond issues that are being targeted for defeasance is also underway, Sciortino said.
“It will likely take a few months to complete this process and transfer funds into escrow,” she said.
A similar update was provided to the lawmakers in a response to their letter, Wirths said in an interview. But Wirths — who served as a cabinet official during former Gov. Chris Christie’s tenure — said he remains concerned about a lack of urgency and suggested the Murphy administration could move more quickly if it wanted to.
“It seems like they’re making it a lot more complicated than it needed to be,” he said. “It’s frustrating.”