Gov. Phil Murphy said he wants to borrow up to $9 billion to plug growing holes left in the state’s budget by the COVID-19 pandemic, as uncertainty grows as to whether the state can get enough federal aid.
“This is something … we need to have as a tool in our tool kit, particularly with uncertainty at the Congressional or national level,” Murphy said Thursday afternoon at a press conference in Trenton. “The fact of the matter is we are going to have serious cash flow issues.”
Murphy and governors around the country have ordered mass business closures and issued stay-at-home orders to halt the spread of the virus. That move has driven commerce to a halt, stoked unemployment, and decimated state and local tax revenue.
The Federal Reserve unveiled plans earlier this month to buy up to half a trillion dollars in bonds from state and local governments to shore up their finances. The state would not necessarily borrow $9 billion, Murphy said, but that would be the most available under the Federal Reserve’s plans.
Bloomberg News first reported on Wednesday evening that the Murphy administration floated the plan to take part in that borrowing arrangement with the nation’s central bank.
Under New Jersey’s Constitution, the state is fairly limited in its ability to use borrowing as a means to cover its annual budget. But it does include a carveout for “purposes of war, or to repel invasion, or to suppress insurrection or to meet an emergency caused by disaster or act of God.”
The proposal – known as the “New Jersey COVID-19 Emergency Bond Act” – would trigger those wartime powers, according to draft legislation obtained to NJBIZ.
Those bonds would be backed by the state’s property and sales tax – the latter of which could be raised – according to draft legislation.
“It is necessary for the State to take action to ensure the continued viability of the State’s financial condition and to assist the State’s population in dealing with the financial and economic problems resulting from the COVID-19 pandemic thru the issuance of general obligations bonds pursuant to this act to provide financial resources for the State budget,” the draft reads.
Legislative leadership – Senate President Stephen Sweeney, D-3rd District and Assembly Speaker Craig Coughlin, D-19th District – both showed some degree of support for it, but Sweeney was far more skeptical of the proposal.
“I’m not prepared to look at borrowing or writing a blank check without knowing where we stand,” Sweeney told Bloomberg this week.
Coughlin on the other hand, contended that “funds must be specifically dedicated to assisting our residents, businesses, municipalities and schools.’
“We must simultaneously achieve budget savings during this most challenging period in our time,” he said in a Friday statement.
Murphy’s budget clocks in at $40.9 billion of spending, supported by over $42 billion in tax revenue, though a bill he signed this week requires a new budget address by Aug. 25.
The Federal Reserve’s lending program caps the borrowing a state can do at 20 percent of its annual revenue as of the 2017 fiscal year.
Should federal aid from Congress fall through, or fall short of the billions of dollars Murphy said is needed for New Jersey, and if the state cannot borrow enough money, then “folks should assume we’re going to have to gut programs.”
“And that will affect everybody in this entire state. There’s just no other way around it, and I hope it doesn’t come to that,” the governor said.
Moody’s Investors Services revised the state’s A3 rating from stable to negative this week, signaling it could spell a credit downgrade if federal aid does not pan out and the state has to borrow money, combined with its “significantly reduced liquidity level.”
As of Sunday afternoon, a total of 85,301 New Jerseyans had been infected with COVID-19, including 3,915 deaths and 7,495 hospitalizations.
Earlier this week, Murphy approved a bill that would extend the state budget from June 30 to Sept. 30, so that New Jerseyans have an extra three months to file state income and business taxes. That would buy more time for lawmakers and the Murphy administration to fully gauge the impact that the COVID-19 outbreak will have on next year’s budget, which will now run from Oct. 1 to June 30, 2021.
It could also buy more time for the governor’s office and the state’s congressional delegation to win over more federal dollars.
Both New Jersey and New York’s congressional Democrat and Republican representatives are seeking a combined $40 billion to be included in the next federal COVID-19 relief, to split between the two states.
The current Coronavirus Aid, Relief and Economic Security Act, a $2.2 trillion relief measure signed into law on March 27, includes just $3.3 billion for New Jersey, most of which must go toward the state’s COVID-19 response.
“The governor stated from the very beginning that New Jersey is being shortchanged and needs a lot more money in order to be able to meet its needs and to be able to take care of the coronavirus issue,” U.S. Rep. Bonnie Watson Coleman, D-12th District, said in a Thursday afternoon press call with the state’s House Democrats.
The Economic Policy Institute is urging Congress to allocate another $500 billion in federal aid to state and local governments, on top of the $150 billion already outlined in the CARES Act.
Federal lawmakers are also making another go ensuring that the upcoming federal stimulus package includes removal of the $10,000 limit on state and local property tax deductions, which opponents argue has been painful for higher tax states such as New Jersey.
“It’s essential that we eliminate the SALT cap and get dollars in people’s pockets. We just can’t afford to not have our people here in our state have more resources,” U.S. Rep. Josh Gottheimer, D-5th District, added at the Thursday press conference.
This article was updated at 6:32 a.m. EST on April 20, 2020 to include details of the New Jersey COVID-19 Emergency Bond Act.