Lawmakers vote along party lines to permit at least $5 billion in new debt to deal with economic fallout of pandemic
Legislation that would give Gov. Phil Murphy’s administration the authority to borrow billions of dollars to help offset projected revenue losses brought on by the ongoing pandemic cleared the Assembly Thursday in a party-line vote.
Despite the victory for Murphy, the future of the borrowing proposal remains in question. The legislation that passed the Assembly has yet to be introduced in the Senate, whose powerful leader, Senate President Steve Sweeney (D-Gloucester), has raised several concerns, including how the proposed borrowing could impact state taxes that many residents already consider too high.
The issue of taxes was also a hot topic in the Assembly even as the bill — which would permit at least $5 billion in new state debt to be issued — advanced by a 51-28 margin.
During the debate, Republicans seized on bill language that allows for sales-tax increases and new statewide property-tax assessments to occur to ensure the emergency borrowing is eventually paid off. The GOP is also threatening to sue if the measure advances further, arguing it violates tight restrictions on debt and spending that are written into the state Constitution.
While majority Democrats largely sidestepped the constitutional issues, they argued the extraordinary nature of the COVID-19 pandemic and its still-unfolding impact on state revenues make it necessary to use borrowing as a fiscal tool.
‘Unprecedented times, unprecedented step’
“It is anything but business as usual,” said Assemblyman John Burzichelli (D-Gloucester). “These are unprecedented times (and) this is an unprecedented step.”
It’s unclear exactly how much debt would be issued if the measure clears the Senate and is signed into law; the possible extent of the debt is one of the top concerns that has been raised by Republicans.
As currently drafted, the bill allows for up to $5 billion in state general-obligation bonds to be issued — without voter approval — in response to the pandemic. To allow for that, the measure cites language in the state Constitution that allows for tight restrictions on spending and debt to be eased during times of war or major emergency.
In addition, the bill allows the Murphy administration to borrow money through a Federal Reserve lending program that has been set up to help governments struggling to absorb pandemic-related revenue losses. Under the Fed’s rules, New Jersey could borrow up to $9 billion, with payoff required within three years.
But the legislation also allows for refinancing issues, and those bonds could have maturities lasting up to 35 years. Treasury officials have said the debt-service costs for these could run to about $50 million annually for every $1 billion borrowed.
Dramatic drop in revenues projected
The borrowing legislation has advanced in the Assembly as the state Department of Treasury has been revising its revenue projections dramatically downward in response to the pandemic, which has brought on strict social-distancing measures that continue to limit economic activity across the state.
The pandemic has also fueled a huge surge in new claims for state unemployment benefits. More than 1 million New Jersey residents have applied for assistance since the middle of March, according to the latest figures from the state Department of Labor and Workforce Development.
Earlier this year, the Murphy administration had upgraded revenue projections for the current fiscal year by about $1 billion and also forecast that tax collections would increase even more in the next fiscal year.
But that was before the pandemic took hold in March, and revised forecasts released by the administration on May 22 introduced a series of cuts, deferrals and other budget adjustments, all to manage a nearly $3 billion gap for the current fiscal year.
Those actions should keep spending in balance — something that is required by the state Constitution — only through the end of September, according to Treasury.
Much rosier picture just a few months ago
Before the pandemic hit, Murphy was hoping to enact a budget of over $40 billion for FY2021. His administration’s revised projections now forecast only about $34 billion in tax revenues will be available through the end of next June, assuming the state starts to recover from the pandemic. The governor has been urging lawmakers to back the borrowing proposal as a way to help fill the hole.
Assembly Budget Committee Chair Eliana Pintor-Marin (D-Essex) argued during Thursday’s debate that the state cannot manage the revenue losses only by making budget cuts, without causing a major disruption.
“The impact of this crisis on New Jersey residents means the demand for our critical services has never been greater,” Pintor-Marin said.
Assembly Majority Leader Lou Greenwald (D-Camden) took issue with the Republicans who raised concerns about the language in the bill that allows for a sales-tax increase and statewide assessments on property to ensure the general-obligation debt is paid back. He said such language is standard and has been written into many other general-obligation borrowing measures that have won Republican support in the past.
“To sit here today and say you’re opposed to this borrowing without offering a viable solution or to insinuate a tax increase of any kind is not only hypocritical given recent history, but it’s also irresponsible,” Greenwald said.
But several Republicans countered that there are big differences between the emergency borrowing proposal and the previous bond issues cited by Greenwald. They cited the potential amount of borrowing now up for consideration and the lack of information from the administration on how the new borrowing would be paid off as particular concerns.
Webber: A ‘reckless’ move
“Not only is it reckless for a Legislature to turn over that much authority to an executive, but you’re going to take money from future generations to pay for ordinary expenses today,” said Assemblyman Jay Webber (R-Morris.)
“There’s no question in our minds that that is going to lead to a statewide property tax to pay for that,” he said. “Essentially you’re authorizing the governor to take out a mortgage on every home in this state to pay for operating expenses today.”
Webber also said the borrowing proposal, as currently drafted, would violate a 2004 state Supreme Court case that he participated in as a lawyer that disqualified using bond proceeds as general revenue to balance a future state budget, even in an emergency.
“The Supreme Court of this state has spoken and the Constitution is pretty clear on that,” Webber said. “Everyone in this chamber . . . raised their right hand and took an oath in January to support the Constitution of the state of New Jersey.”
Murphy, a first-term Democrat, has defended the borrowing proposal as constitutional, and last month NJ Spotlight reported the administration hired experienced bond attorneys to help draft it.
During his daily media briefing Thursday, the governor said the suggestion that the borrowing proposal could ultimately lead to a statewide property-tax increase is “kind of laughable.
“It’s the opposite,” Murphy said, pointing to the possibility that there could be massive public-worker layoffs, including at the local level, without the bond sales.
“This is the one weapon we have at our disposal to prevent that from happening,” he said.