Christopher Emigholz, NJBIA Vice President of Government Affairs
Responsible, short-term borrowing may be appropriate to assist in needed revenue collections and to avoid painful tax increases to balance New Jersey’s FY2021 budget, the New Jersey Business & Industry Association testified today.
However, NJBIA Vice President of Government Affairs Christopher Emigholz cautioned the Assembly Budget Committee that the authorization of $5 billion in borrowing proposed in the New Jersey COVID-19 Emergency Bond Act may be premature without knowing what support might be coming from the federal government.
He added there should be limitations placed on the length and amount borrowed relating to bill A-4175, and that spending cuts and structural reforms should be made before relying on more borrowing than necessary.
“Borrowing should never be a first option, but instead only pursued after serious and permanent spending cuts are found that include structural reforms,” Emigholz said.“Borrowing definitely has a place in government fiscal policy, but NJBIA and taxpayers have many concerns about its improper and/or excessive use.”
Emigholz offered the committee several recommendations to borrow responsibly during this unprecedented time. Most notably, he said, policymakers should wait to borrow anything beyond short-term notes for cash flow until the scope of the state’s needs are fully understood. It may be more appropriate to rely on the Federal Reserve’s Municipal Liquidity Facility program’s shorter-term bonds, he said, instead of the 35-year bonds contemplated in A-4175.
“It is premature to issue $5 billion of General Obligation bonds with a 35-year maturity until we fully know how much budget support may come from the federal government and what the annual tax revenues coming July 15 look like,” Emigholz said.
“A $5 billion bond will cost New Jersey taxpayers at least many hundreds of millions of dollars in additional debt service costs for the next 35 years. New Jersey already is already one of the most indebted states in the nation, and this will just mean more of our budget will go towards paying debt instead of programs that benefit our residents.
“It should also be pointed out that the state is digging a deeper revenue hole because so many of our businesses that create tax revenue are still closed. We look forward to a reopening plan for business so that revenues will improve and the need for borrowing lessens.”
If New Jersey borrows for the short-term during this crisis in a responsible fashion, Emigholz said, it can prevent a further contraction of government programs that may do more harm to a devastated economy.
“The natural growth of the economy after this crisis passes may be enough to cover some of the future costs of borrowing, while spending cuts alone may not be enough to immediately balance the state budget,” he said.