The state Supreme Court cleared the way for New Jersey to borrow up to $9.9 billion without voter approval, giving Gov. Phil Murphy and the Legislature room to maneuver in making up for revenues lost during the COVID-19 pandemic.
Roughly half of that would be through a Federal Reserve program to help cash-strapped states hit by the pandemic and must be paid back in three to five years. The other half of borrowing would come from bonds sold to the private market, and could take decades to pay back.
“This means that when I present my new budget for the 2021 fiscal year in roughly two weeks, our schools can be funded, our residents and communities can be protected, and our state can move forward,” Murphy said at his Wednesday afternoon COVID-19 press briefing in Trenton.
In a 57-page opinion written by Chief Justice Stuart Rabner issued on Aug. 12, the Court rejected a challenge to the law authorizing the borrowing filed by several GOP lawmakers and the state Republican party.
“Laypeople, scientists, and legal scholars alike would agree that COVID-19 is a true disaster with widespread consequences,” Rabner wrote. “The pandemic has caused a health emergency, a broad-based economic one that has devastated many individuals and families, and a fiscal crisis for the State. The present ’emergency caused by disaster’ extends to all three areas.”
Republicans and conservative-leaning groups criticized the Aug. 12 decision.
“The framers did not intend to give the state a blank check whenever an unspecified emergency arises,” state Sen. Michael Testa, R-1st District, told the court last week. Testa represented the plaintiffs challenging the law.
Republicans contended that the justices had opened the door to extensive borrowing.
“The decision affirms that all three branches of government are firmly in the grasp of the Democratic party,” NJGOP Chair Douglas Steinhart said in a remotely held news conference. And it “confirms that state government is now a credit card for Gov. Murphy to max out.”
Regina Egea, a former chief of staff for Gov. Chris Christie, a Republican, and now head of the right-leaning think tank Garden State Initiative, warned via email that the borrowing should only be done as a “last resort” for “one-time expenses.”
“The Supreme Court’s decision permitting borrowing, but limiting it to COVID-related expenses, is similarly a recognition that our government is also dealing with an emergency with few parallels. But this permission to borrow does not mean that we must borrow,” she wrote.
Elsewhere, advocates and legislators acknowledged the need for the borrowing but cited the limits imposed by the court as important boundaries.
Sheila Reynertson, a policy analyst at the left-leaning think tank New Jersey Policy Perspective, agreed in an emailed statement that “borrowing should always be viewed with skepticism.”
“New Jersey is facing unprecedented revenue shortfalls over the next three fiscal years,” she added. “Without federal borrowing to support state and local governments, lawmakers would be forced to slash critical programs and services at the precise time they are needed the most.”
To that end, the court maintained that the state does not have wide authority to issue debt. Instead, the state must show that such an action is closely tied to the emergency.
“The state may not borrow more than the amount certified, and not more than $9.9 billion in total,” Rabner wrote. “In other words, if, at the time the State seeks to borrow money or issue bonds, the Governor or the Treasurer certifies that the shortfall resulting from the pandemic is estimated to be $7 billion, the state cannot borrow more than that amount.”
Top lawmakers in the state Legislature argued for weeks that they would only allow Murphy to borrow what they agree is necessary, and not a penny more. The decision does not appear to require the Legislature to pass another borrowing bill that would meet the new restrictions.
“While not ideal, we must borrow the necessary funds through bonding,” Assembly Speaker Craig Coughlin, D-19th District, said in a statement. “The court’s decision provided reasonable measures to guide borrowing. We will work within those parameters and ensure proper Legislative oversight is included. With this, our economic position will be strengthened for both the present and future.”
Under the ruling COVID-related expenses could include “masks, respirators, and field hospitals, and for direct aid to individuals and families afflicted by the disease,” in addition to “public services like education, police, fire, first aid, child welfare, and prisons — to secure the continued functioning of government.”
Referring to hypothetical spending the justices themselves raised during oral arguments on Aug. 5, “[u]sing $1 billion in borrowed funds to subsidize a new sports arena could hardly be said ‘to respond to the fiscal exigencies caused by the COVID-19 pandemic’ or ‘preserve’ the state’s ‘fiscal integrity,'” Rabner wrote.
Murphy and Democratic legislative leaders have argued that the borrowing is vital to make up for the loss tax revenue stemming from the global pandemic, a slowdown in consumer spending, and the shutdown of thousands of businesses in a bid to halt the spread of the virus.