New Jersey is inundated with debt, and earlier this year Gov. Phil Murphy and lawmakers invested billions of dollars in a special fund to speed up efforts to pay off some of the state’s many bonds.
But several months later, none of that money was used to help slash New Jersey’s bottom line.
With no outward signs of progress on debt reduction from the Murphy administration, Republicans, currently in the minority in both houses of the Legislature, have begun to sound the alarm bells over management by administration of the new government debt relief account.
In total, $ 2.5 billion was set aside by Murphy and his fellow Democrats who control the legislature in late June to withdraw, or “wipe out”, existing bond debt. Another $ 1.2 billion was allocated to future capital projects that could be funded on a pay-as-you-go basis to reduce future funding costs.
In a recent letter to Treasurer Elizabeth Maher Muoio, Senator Steve Oroho and MP Hal Wirths, both Republicans from Sussex County, asked why the debt relief funds “went unused” for three months.
“In the meantime, the costly government bond debt that could have been repaid continues to accumulate interest charges,” the two lawmakers wrote.
When asked by NJ Spotlight News for a response, Treasury Department officials said work on the new debt relief initiative was well advanced. Consultants have been hired and documents are being drafted, all to advance the goal of reducing the amount the government has to pay each year to service its heavy debt.
“The administration moved quickly to launch a defeasance plan after the Appropriations Act was signed at the end of June,” Treasury spokeswoman Jennifer Sciortino said in an email.
Earlier this year, when the Treasury released the state’s most recent official account of what New Jersey owes all of its bondholders, the state’s grand total of bond debt was slightly over the $ 44 billion.
This sum is almost as large as the last annual state budget. It also places New Jersey fourth among U.S. states in the gross debt-funded tax category, according to the Treasury report.
Last year, Murphy and lawmakers added to that debt burden when they borrowed nearly $ 4 billion without voter approval, as they predicted large revenue losses triggered by the coronavirus pandemic.
No early repayment of COVID-19 bonds
These COVID-19 bonds have been structured to prevent early repayment. This means that, although the projected revenue losses may never materialize in full, New Jersey taxpayers remain responsible for reimbursing all of the principal and interest costs related to the pandemic debt issue in the past. 2030s.
Muoio, the state treasurer, faced a slew of questions and replay over the debt issue during legislative budget hearings earlier this year.
Months later, Democrats were quick to link concerns over last year’s pandemic bonds to the decision to create the $ 3.7 billion “Debt Relief and Debt Prevention Fund” that Murphy signed into law at the end of June.
Plus, with many debt issues still on the New Jersey books – and with plenty of interest likely higher than the roughly 2% the state was billed for COVID-19 debt last year – the Treasury officials predicted that the debt relief fund could generate significant, long-term savings. Those savings could total up to $ 500 million over the next 10 years, officials said.
The law that created the debt relief fund gave a minor role to the joint bicameral and bipartisan budget oversight committee of the Legislature, giving lawmakers a way to keep tabs on any progress made by the administration. in debt reduction or prevention.
But nothing has been presented to committee members since the fund’s inception, said Oroho and Wirths, who both sit on the joint budget committee. They suggested in their recent letter to Muoio that the administration is costing taxpayers money by not acting sooner to pay off the high interest debt.
“Allowing an additional 90 days of avoidable interest expense to continue or miss investment opportunities would be extremely poor money management,” the two lawmakers wrote.
Their concerns echo other criticisms made by Republican lawmakers in recent weeks in response to the Murphy’s administration decision not to use the funds it received from the federal government earlier this year through the ‘American Rescue Plan Act to pay back the money New Jersey had. to borrow from the federal government to maintain unemployment benefits.
These federal dollars have helped the state fund unemployment benefits during a spike in unemployment since the start of the pandemic. This debt was initially offered without interest, but the federal government started charging interest on it last month.
So far, Murphy and lawmakers have allocated about a third of the $ 6.2 billion in COVID-19 aid the state has received from the federal government this year. Murphy’s administration has hosted a series of invitation-only events in recent weeks to give their advice on how to use the federal funds balance, the latest arriving last week. The administration also collects written comments from the public. It can be sent to Murphy’s office via [email protected]
Work with advisors, external legal advisers
Responding to questions about the status of public funds set aside at the end of June for debt relief, Sciortino, spokesman for the Treasury, said they were currently being deposited into the generating cash management fund. New Jersey interests.
The Treasury has been working in recent months with its financial advisers and external legal advisers to identify debt issues that are ripe for defeasance and to begin drafting the required legal documents, she said. The process of getting approval from state authorities who were the official issuers of previous defeasance targeted bond issues is also underway, Sciortino said.
“It will probably take a few months to complete this process and move the funds into escrow,” she said.
A similar update was provided to lawmakers in a response to their letter, Wirths said in an interview. But Wirths – who served as a cabinet member during the tenure of former Governor Chris Christie – said he remained concerned about the lack of urgency and suggested the Murphy administration could act more quickly if it so wished.
“They seem to make things a lot more complicated than it should be,” he said. “It’s frustrating.”