New Jersey is paying off nearly $2.5 billion of its oldest debt as part of a state financial maneuver approved by Gov. Phil Murphy and Democratic lawmakers last June.
Under the $46.4 billion state budget, New Jersey set aside $3.7 billion for “debt defeasance,” which is meant to ensure the state does not have to pick up the tab for new interest on its credit card bill.
Of the $3.7 billion, $1.2 billion was set aside so the state could take on new projects without needing to borrow the money.
The major payment comes as New Jersey faces a potential “fiscal cliff” in the near future, where state expenses vastly outpace the level of cash to support those costs. The New Jersey Treasury Department cautioned in January that the pace of tax collection revenues that allowed for such massive spending are expected to slow down this spring.
At $44 billion, New Jersey’s debt load is one of the highest in the nation. On top of that, the state’s public worker pensions are unfunded by about $100 billion according to some estimates, and were the source of a combined 11 credit downgrades between 2010 and 2018, when former Gov. Chris Christie was in office.
“Paying down debt will relieve some of the pressure on taxpayers and free up funding to invest in the things that matter, proving that we can place a premium on fiscal responsibility without sacrificing our values,” reads a Feb. 3 prepared statement from Gov. Phil Murphy.
The debt is spread across four separate bonds, and state treasury officials estimate that the state would save $607.2 million over the next decade from payments on principal and interest.
“At the end of the day, we have substantially reduced our debt load while securing real savings for the taxpayers of this state,” New Jersey State Treasurer Elizabeth Maher Muoio said on Thursday.
State officials have a $6.4 billion infusion of federal COVID-relief funds from the Biden administration, a boom of tax collections from 2021 amid the pandemic reopenings, and $4 billion of new debt that moved ahead in 2020 without voter approval.
Republicans sued unsuccessfully in the state Supreme Court to block the new borrowing, saying it was too soon to tell whether New Jersey would actually need the funds. And with the state flush with cash last year, they were ultimately correct in their assessment.
Murphy has promised not to increase taxes in his second four-year term, and has hinted at further property tax relief in his upcoming budget. Several bills are underway by lawmakers to achieve those same means.
To rein in spending, the new Senate President Nicholas Scutari, D-22nd District, told NJ Spotlight in a January interview that he plans to scrutinize any upcoming budget proposals, especially including the hundreds of millions of dollars in “pork spending” and “Christmas tree items” that only benefit a particular lawmaker’s legislative district.