The realities of unnecessary budget borrowing, as feared and predicted by NJBIA, are now coming home to roost for New Jersey.
The state Treasury Department officially approved borrowing nearly $4.3 billion to balance the FY2021 state budget this past week.
It comes at a time when it is now established that:
- The funding will go toward adding to a surplus and won’t go toward helping residents or businesses impacted by COVID-19.
- Already debt-laden New Jersey will now face annual debt service payments on bonds over $500 million a year for 10 years for this borrowing, according to Fitch Ratings
- S&P Global Ratings has lowered its credit rating for New Jersey from A- to BBB+ as a result of the borrowing.
- The debt was sold at market rates, without the flexibility of early retirement.
- The state will make interest-only payments in 2021 and 2022.
NJBIA Vice President of Government Affairs Christopher Emigholz, who lobbied strongly against needless and excessive borrowing during the budget season, said the fallout from the big borrow was as disappointing as it was foreseeable.
“We have not been outright opposed to borrowing when it is necessary, but our concern all along were this borrowing would be done in a less responsible way –– hurting New Jersey’s future taxpayers,” Emigholz said.
“It’s disappointing that the bonds will not be as flexible as we were told and hoped for. If New Jersey is fortunate enough to receive another round of federal relief that the state could use to pay down this debt, we will now be restricted from doing so.
“It is also discouraging that the first payment on the debt will not be made until 2023 even though money was put aside in the recently passed FY2021 budget for that.”
Emigholz repeatedly testified in late summer that the proposed borrowing was unnecessary because New Jersey’s shortfall was not as dire as forecasted by the Murphy administration, which was underscored by the State’s non-partisan Office of Legislative Services’ projection of at least $1.4 billion more in revenue than estimated by the Treasury Department.
In a statement, Treasurer Elizabeth Maher Muoio said the borrowing rate is believed to be below 1.95% and contended the “favorable interest rate we received is a sign that investors have faith in New Jersey’s fiscal outlook.”
In an ironic comparison, California stands to record a budget bonanza with its fiscal response to the pandemic. With an over-correction built on one-time spending delays, an appropriate tapping of its rainy day funds, and stronger –than expected state tax revenues, it was reported this week the Golden State will be armed with an estimated $26 billion, one-time windfall for its Legislature to allocate in its next fiscal year.
“California’s budgetary response was, surprisingly enough, more responsible than New Jersey’s and more aligned to some of NJBIA’s recommendations for our state,” Emigholz said. “The fact is, the typically, ultra-progressive California has put itself on much stronger fiscal footing than New Jersey in this crisis by utilizing its rainy day funds for an actual rainy day and putting a hold on spending, all without saddling itself with any more debt.
“There is definitely a lesson to be learned here.”