Gov. Phil Murphy on Thursday received authority to borrow money on behalf of the State of New Jersey that no other New Jersey governor in history has had, and now NJBIA requests that the policymakers determining the scope of the bonding exercise the fiscal restraint that the Association and a wide range of business groups called for earlier this week.
NJBIA calls on the Governor and members of the newly created four-legislator panel to consider the already beleaguered New Jersey taxpayer when proceeding on any new bonding. Both the Governor and these four legislators now have the authority to put the brakes on any irresponsible bonding that is unnecessary.
- It is important that these policymakers wait as long as possible to ascertain what is truly needed and only borrow that limited amount in as short-of-term as possible.
- It is also critical to ensure that the bonding structure is favorable to future taxpayers.
- The borrowing must also be part of a comprehensive plan that shows what cuts and structural reforms will be made to afford this debt service and how it would be handled to smooth state finances over the multiple years of this COVID-19 fiscal crisis.
The Senate and Assembly on Thursday gave final approval to A-4175, the COVID-19 Emergency Bond Act, which grants the state authority to borrow up to $9.9 billion and to use it for operating expenses. Murphy signed the bill into law soon after receiving it. Senate and Assembly Republicans and the State Republican Party already announced they filed suit as soon as the bill was signed to challenge the law’s constitutionality in court that bond revenues cannot be used as revenue to balance the state budget.
Days before the vote, NJBIA Vice President for Government Affairs Chris Emigholz told the Senate Budget and Appropriations Committee that A-4175 would add hundreds of millions of dollars in debt service to New Jersey’s annual spending requirements without knowing how much money the state needs to borrow in the first place.
“It is premature to issue any long-term bonds until we fully know how much budget support may come from the federal government and what the annual tax revenues from July 15 look like,” Emigholz said in his prepared testimony. “On top of that, New Jersey’s three-month state budget is already set with a surplus, so there is no need for any borrowing before October 1.”
The 100-plus-member New Jersey Business Coalition led by NJBIA weighed in as well, saying New Jersey was already at a fiscal cliff due to excessive borrowing before the COVID-19 crisis.
“There is no doubt that New Jersey will require additional resources during this COVID-19 crisis,” the coalition said in a written statement. “To address this, we need a comprehensive fiscal strategy that includes all tools at our disposal. Absent that, any plan for borrowing now is premature.”
The fiscal cliff refers to NJBIA’s analysis of audited state revenues, expenses and debt, which shows that state expenses have significantly outpaced state revenues, and state debt has ballooned by 382% over 10 years. In other words, NJBIA and other business groups were already issuing warnings about New Jersey’s ballooning debt before the pandemic hit.
“New Jersey’s Financial Cliff,” released in 2019, relied on data found in the state’s Comprehensive Annual Financial Reports (CAFR) from 2007-2017. As late as 2009, the state’s total debt was actually below state expenses, if federal funding is included. In 2010, debt nudged ahead annual expenses for the first time. By 2017, state debt was nearly three times larger than annual expenses at $206 billion. Now, the state is on the verge of being authorized to bond nearly $10 billion more, and New Jersey taxpayers could be paying debt service on that money for the next 35 years.
NJBIA is not opposed to all borrowing. After all, the pandemic is described as unprecedented, so unprecedented legislative initiatives should not be ruled out.
In his testimony, Emigholz advocated for a different approach. Because the budget is balanced for the next two-and-a-half months, the state should focus on short-term bonds to help with cash flow and look to the Federal Reserve’s Municipal Liquidity Facility for the time being.
Additional borrowing may be needed later on, but by waiting, the Legislature could have shortened the term of the bonds to something considerably less than 35 years and authorized less borrowing, making the state’s long-term financial condition less dire.
“In a crisis such as (the pandemic), NJBIA believes that borrowing can potentially be a useful and important fiscal tool, but it is irresponsible for our state and to our taxpayers now and into the future to pursue it without the proper limits and conditions,” Emigholz stated in his committee testimony.
If policymakers heed this advice, the borrowing can be a necessary tool as part of a broader economic recovery plan. But if done wrong, our state will be going over the fiscal cliff.