New Jersey is preparing final steps to borrow nearly $4.3 billion to make up for state revenue lost to the pandemic, and cover expenses for responding to the first and second wave of COVID-19 outbreaks.
The costs will total $4.288 billion from a combination of principal and interest with a 12-year maturity, according to a Wednesday statement from State Treasurer Elizabeth Maher Muoio.
Muoio said that the state had gotten a “favorable interest rate” of less than 1.95%.
“We believe the significant oversubscription we witnessed and the favorable interest rate we received is a sign that investors have faith in New Jersey’s fiscal outlook,” Muoio said.
Earlier this month, New Jersey received its second credit downgrade under the administration of Gov. Phil Murphy – by S&P Global from “A-” to “BBB+” – citing the financial hit the state has taken from the pandemic, and the mass infusion of new debt to make up those losses.
“The downgrade reflects our view that New Jersey will continue to have a significant structural deficit that will be difficult to close in the coming years because of decreased revenues as a result of the COVID-19 pandemic, combined with high and increasing debt, pension, and other post-employment benefit liabilities,” David Hitchcock, a credit analyst with S&P, said in the Nov. 6 report.
The added $4.3 billion of new debt – which Murphy and the legislature agreed to in September, was particularly worrying for a state still struggling to pay down other debt, like the unfunded public retirement system liabilities, Hitchcock said.
Fitch however, said that same day that they were confident the state’s finances would fare well, and that eventually statewide and national economic conditions would improve. As a result, they kept their rating of the state unchanged.
Murphy and state Legislature argued that the new debt was vital, in the midst of cratering tax revenue after the governor ordered mass business closures to halt the spread of the virus.
And with a federal COVID-19 relief bill still stalled in Washington D.C., public officials in New Jersey contend that the state is largely on its own.
The pandemic has infected more than 285,000 New Jerseyans and claimed 16,000 lives as the second wave crashes into the state, prompting early restrictions on businesses, and public and private gatherings. Over the spring, Murphy warned that a second wave could eat into another $1 billion of state tax revenue.
Under the bonding plan – which survived a Republican-backed legal challenge this summer – New Jersey was authorized to borrow up to $10 billion.