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NJ Senate Republicans come out against Murphy’s $14B borrowing plan

New Jersey Republican senators rejected a plan from Gov. Phil Murphy to borrow up to $14 billion to fill massive holes left in the state budget by the COVID-19 pandemic, throwing the measure into further uncertainty as it meets skepticism from top Senate leadership on both sides of the aisle.

All 15 state GOP Senators, in a June 10 letter to Murphy, said they would not approve the measure should it begin moving through the upper house.

The state Senate has 40 members, and a bill needs 21 yes-votes to pass.

The state Assembly approved the measure last week along party lines, with support from the Democratic majority, to grant the state the authority to actually borrow that money. That was after it garnered the support of Assembly Speaker Craig Coughlin, D-19th District, the top elected official in the lower house.

Senate President Stephen Sweeney, D-3rd District, has been widely skeptical that the state needs to borrow the whole amount, or that it has to make a mad dash to borrow the money.

“This proposal is premature, excessive, and unconstitutional,” the three-page letter reads. “We are extremely concerned that the measure is being advanced prior to any reasonable effort to implement fiscal restraints of the magnitude required by the situation.”

Murphy unveiled the proposal in May, which calls for selling between $5 billion and $9 billion of bonds to the Federal Reserve, and up to $5 billion in general obligation bonds.

The Federal Reserve program calls for buying half a trillion dollars in bonds from cash-strapped state and local governments as the global pandemic and government response to it shut down most businesses, shattering commerce and cratering tax revenue.

Assembly Speaker Craig Coughlin and Senate President Steve Sweeney at Gov. Phil Murphy’s Fiscal Year 2021 Budget Address in Trenton on Feb. 25, 2020.

Assembly Speaker Craig Coughlin has come out in support of the governor’s borrowing plan, while Senate President Steve Sweeney remains skeptical. – AARON HOUSTON

Murphy’s plan also lets the state sell up to $5 billion in general obligation bonds in the public and private markets, which the state has 35 years to repay.

Without that money, the state could resort to deep cuts to services like property tax relief, Medicaid funding, and “historic lay-offs” for teachers, and public safety services like police officers and firefighters, Murphy warned.

Assembly Republicans were staunchly opposed to the measure, and warned they would file legal action against the law should it be signed, or at least support a lawsuit from some other party.

Legal questions have mounted over whether Murphy overstepped his constitutional authority by avoiding voter approval, which he argues is allowed because of wartime powers granted to him by the state’s constitution.

Sweeney, an oft-times political foe of Murphy, and one of the most powerful elected officials in the state Legislature, was skeptical of how much the state would have to borrow, and how soon the state would need the money.

“We’re going to have to borrow something, without question,” Sweeney said at a June 9 webinar jointly hosted by the New Jersey Chamber of Commerce and the New Jersey Business & Industry Association.

But he, and Senate Republicans, cautioned that an array of cost-cutting measures were at their disposal before they should resort to borrowing.

Alternate routes

One plan calls for partially furloughing up to 100,000 state and local workers, so that the state’s unemployment system could cover some of their income, and their employer would still pay for health and retirement benefits. That could save the state $750 million over the next three months, Sweeney said.

Another proposal sponsored by Sweeney and backed by his oft-times political enemy the New Jersey Education Association, the state’s largest teacher’s union, calls for overhauling teacher health care plans. Sweeney said that could save more than $1 billion a year for teachers, as well as for state and local governments.

The Murphy administration proposed cutting or delaying $5.3 billion in expenses through Sept. 30, which is the end of the three-month extension of the state’s current budget year.

New Jersey is seeing a revenue shortfall of $10 billion through June 2021, and on top of that, could likely shell out billions of dollars more to finance its response to the COVID-19 pandemic, Murphy officials warned.

State Treasurer Elizabeth Maher Muoio, when pressed by lawmakers on June 1, warned that if the state doesn’t have that borrowing authority by Oct. 1, then “we would essentially be faced with shutting down” that day, she added.

New Jersey State Treasurer Elizabeth Maher-Muoio waits to speak during Gov. Phil Murphy’s May 22, 2020 COVID-19 press conference at War Memorial in Trenton.

New Jersey State Treasurer Elizabeth Maher-Muoio waits to speak during Gov. Phil Murphy’s May 22, 2020 COVID-19 press conference at War Memorial in Trenton. – THOMAS COSTELLO, GANNETT

Muoio said that treasury officials would need “five to six weeks” to prepare the state’s application and then submit it to the Federal Reserve, followed by a two-week approval process before the state can go to the market. And legal challenges could add months to that timeline.

But Republicans, in their letter, said that the borrowing proposal should not be pushed forward in any form before the July 15 federal and state income and corporate business tax filing deadlines.

That data would offer a “substantially improved picture of the state’s fiscal situation and actual need, well in advance of the Sept. 30 budget deadline.

“Your administration’s premature rush to bond billions absent this critical information and prior to implementing responsible fiscal restraints leads to the inevitable conclusion that borrowing is being pursued as a matter of preference rather than a last resort after all other options have been exhausted,” the letter reads.

Sweeney, meanwhile, has noted that the Federal Reserve program runs until December, giving the state ample time to get in fiscal ducks in order before it actually goes out to bond.

“That money’s not going to disappear. It’s available until the end of December,” he said on Tuesday. “I want to know where we’re at” with state finances.

Daniel J. Munoz
Daniel Munoz covers politics and state government for NJBIZ. You can contact him at dmunoz@njbiz.com.

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