New Jersey Treasury officials are gauging how to use federal COVID-relief funds to pay back some of the state’s most expensive debt, following guidance from the Biden administration that could specifically prohibit the practice.
Under interim instructions put out last week from the U.S. Treasury, states are barred from using relief money out of the Biden administration’s American Rescue Plan to pay down existing debt, to go toward pension payments or the replenishment of their rainy day funds, or to finance economic subsidies towards businesses eyeing a move to a particular state.
New Jersey is slated to get $6.4 billion under President Joe Biden’s $1.9 trillion relief package, and the new rules could severely curtail how the state will be able to use the money.
Gov. Phil Murphy, State Treasurer Elizabeth Maher Muoio and several budget lawmakers had been hoping that some of the funds could go toward chipping away at the state’s $49 billion credit card bill, starting with the typically older and more expensive, higher-interest debt.
“It’s incumbent upon us to work with this administration … to pay down debt and … make sure that we make these investments strategically … that we plan for the next two or three fiscal years,” Senate Budget Chair Paul Sarlo, D-36th District, said in April.
Muoio noted that the ARP guidance released last week is still just interim guidance, as federal officials embark on a lengthy rulemaking process.
“There were dozens of questions that … states could weigh in on,” she told budget lawmakers during a May 17 hearing. “That’s something we would like to pursue information on from the Treasury – the extent to which some of these funds can be used to potentially retire some of this higher-rate debt.”
Generally speaking, the funds can go toward making up for tax revenue lost during the pandemic, and can provide money for health care and COVID-19 vaccine efforts, unemployment assistance, to pay for essential workers and the rehiring of public workers, and small business aid.
It can also go toward long-standing infrastructure issues such as construction and maintenance or upgrades for water, sewer and internet. And to “address systemic public health and economic challenges that have contributed to the inequal [sic] impact of the pandemic,” reads a Treasury fact sheet.
None of the $6.4 billion in federal funds are scored into Murphy’s proposed $44.8 billion spending plan, which covers expenses for the state between July 1, 2021, and June 30, 2022.
Under the guidance, money also could not go toward the state’s vastly underfunded public worker pension system, which has been the source of a combined 11 credit downgrades by the three main Wall Street rating agencies over the past decade.
And it cannot go toward paying for tax breaks and other economic subsidies meant to lure businesses into a particular state – a complication for New Jersey which is employing a $14.5 billion nearly decade-long economic incentive package.
States have to demonstrate how they paid for any tax cuts from sources outside of the federal aid, “enacting policies to raise other sources of revenue, by cutting spending, or through higher revenue due to economic growth.”
Federal stimulus used toward state tax breaks would need to be repaid to the Treasury.
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