Much has been made of the impact of New Jersey borrowing $9.9 billion — something Gov. Phil Murphy and the Legislature are expected to gain the ability to start the process of doing as soon as Thursday, when the Senate is expected to pass such a borrowing bill.
But, while many have been debating the fiscal prudence of the bill — which calls for the state to be able to borrow $2.7 billion for the remainder of this extended budget year (it ends Sept. 30) and $7.2 billion for next budget year (which ends on the traditional June 30) — the actual number may be much lower.
What the state is able to borrow and how much it eventually does may very well be two different totals. At least, that’s the takeaway from Senate President Steve Sweeney’s response to the analysis by the Pew Charitable Trusts Public Sector Retirement Systems Project on the potential benefits and costs to New Jersey of borrowing from the federal Municipal Liquidities Fund.
A total borrowing of as little as $1.4 billion — and as much as $4.5 billion, depending on the ultimate term of the loan — may be a more accurate borrowing total.
This lower number is the amount that Pew feels the state can appropriately handle at the current three-year financing plan. Should the financing plan be extended to five years — as many are calling for — the state could appropriately handle $4.5 billion.
“I am grateful to Pew’s expert team for their excellent work and their willingness to work with us and other states in promoting the fiscal stability of public pension systems,” Sweeney (D-West Deptford) said in a statement late Wednesday.
“This is valuable information that will help guide all of us in making vital decisions on state finances. More detailed analysis like this is needed as the state moves forward on planning the next several budgets. There are numerous factors that are still unknown, including the performance of state revenues, the availability of additional federal funding, future levels of unemployment and the potential economic impact of a second wave of the coronavirus.”
Among these unknowns is how the state will spend its CARES Act money (much of the $2.4 billion it received has yet to be distributed), whether there will be a need for money for New Jersey Transit in the budget (since it got a large CARES Act grant) and how the stock market will impact other revenues (perhaps surprisingly, the market has done well).
Sweeney is one of four members of the committee the Legislature is setting up — one that has to approve all expenditures. He is joined by Sen. Paul Sarlo (D-Wood-Ridge), the chairman of the Senate Budget and Appropriations Committee, Assembly Speaker Craig Coughlin (D-Woodbridge) and Assembly Budget Chair Eliana Pintor Marin (D-Newark).
Three of those four have to agree on any request. All have expressed a desire to be fiscally responsible — and have made it clear they are not interested in giving Murphy a blank check.
They are interested in checking Murphy — something that hasn’t happened since the state of emergency was declared. While it won’t be perfect, it will be nice to see decisions made by negotiation rather than executive order.
That hopefully will start with borrowing. Doing so at levels in accordance with Pew research — money the state can budget without fear of a downgrade — makes sense.
And the hope is that the feds agree to extend the terms to five years. Sweeney said as much.
“As the report notes, the federal repayment schedule for MLF loans should be extended from three years to five years, which Pew has recommended and we support,” he said. “In the absence of an effort by the federal government to respond fully to this crisis, this would be the least they can do.”
Sweeney signaled he’s playing the long game — which would be welcomed by many who feared the state would be saddled with debt for a generation.
“We should want to be as informed as possible in making these critically important decisions that will shape our future,” he said. “Borrowing in the billions to balance the Fiscal Year 2021 budget will have a lasting impact on our ability to provide vital public services and to fund programs important to our quality of life. It’s not a one-year problem that can be cured with one-shot solutions. We have to balance the desire for funds now with the impact of debt in the years ahead.
“I will work with the administration, with my colleagues in the Legislature and with organizations and individuals to gather as much information as possible to make the best decisions for New Jersey and our future.”
That doesn’t sound like someone eager to take on a $9.9 billion loan.