With a legal challenge looming, lawmakers sent Gov. Phil Murphy a bill he plans to approve that will let him to borrow up to $9.9 billion to make up for tumbling tax revenue that evaporated as a result of the COVID-19 pandemic and ensuing economic collapse.

Thursday’s bill, approved in a 22-15 vote during a Senate voting session, only gives the Murphy administration the power to borrow up to that amount under a Federal Reserve bond program and via the private market, but Murphy has indicated it’s “too early to tell” how the money would be spent. The Assembly approved the measure in a 46-26 vote, after two hours of back and forth debate.

“I think you should assume that it’ll be spent both in priorities and obligations that we speak about all the time, education, health care, front line workforce,” and “meet[ing] our obligations on pensions and other fronts,” Murphy said at a COVID-19 press briefing Wednesday in Trenton.

Murphy would have the authority to borrow up to $2.7 billion before Sept. 30, the end of the three-month extension for the current budget, and up to $7.2 billion between Oct. 1 and June 30, 2021. That comes out to roughly a quarter of the $41 billion spending plan that the governor proposed in February—money Murphy says the state no longer has because of the pandemic.

His proposal calls for cutting or delaying $5.3 billion through Sept. 30.

Murphy will have to present a new spending plan by Aug. 25, which will see a budget crater as big as $7.2 billion.

“[T]he new agreement makes it increasingly likely, in our view, that new legislative action will lead to a borrowing of near that amount, either to avoid budget cuts, or to eliminate the need for the September cash deferrals,” Wall Street rating agency S&P Global said in a Thursday report.

A four-member special legislative committee, consisting of Senate Budget Chair Paul Sarlo, D-36th District; Senate President Stephen Sweeney, D-3rd District; Assembly Speaker Craig Coughlin, D-19th District; and Assembly Budget Chair Eliana Pintor-Marin, D-29th District, would have to approve any spending the governor wants to pursue via the borrowing.

Republicans have promised to challenge the bonding proposal in court – which could drag the process on for months – arguing that it’s unconstitutional because it sidesteps the voter approval legally required for whenever the state borrows money. The bill utilizes wartime powers granted to the governor to allow for the bypass.

They also pointed to a report from the non-partisan Office of Legislative Services, which indicates that the state can’t bond money to pay for general operating expenses. Republicans also warned that the borrowing plan would leave New Jersey and its taxpayers on the hook for decades.

“We still don’t know or have an accurate figure of how much of an increase in taxes we will see in income taxes that were paid yesterday through the extended [July 15] filing deadline,” Sen. Tony Bucco, R-25th District, said during the Thursday Senate voting session.

And, sales tax figures months down the road as the state’s economy slowly reopens, Bucco said, could paint a better picture of New Jersey’s fiscal situation. Those numbers are coming in above what the administration initially projected.

“[W]hat’s your plan B, folks out there? What else do you think we should be doing? It’s just ridiculous the absence of viable alternative public policy from folks who are whining about this,” Murphy responded on Wednesday.

Sarlo assured that the bonds would not be paid back via tax increases on New Jersey residents.

Still, the bill allows the state to raise property and sales taxes if it can’t make the payments.

“At the end of the day, we will decide and we’ll be able to control the appropriations side of this, to ensure that we’re only borrowing dollars” that are necessary, Sarlo said.

A June OLS report estimates that for every $1 billion that’s borrowed, assuming a 20-year repayment plan for the general obligation bonds and interest rates between 4 percent and 6 percent, the interest would come out to between $462 million and $730 million.

That would mean annual payments as high as $86 million a year, or as low as $73 million a year, OLS suggested.

Under the Federal Reserve program, the state would be able to repay those specific bonds during a three-year term at 3.8 percent, or the Murphy-backed five-year term at 2.6 percent, according to a July 14 report from the non-partisan Pew Charitable Trusts.

The state would be able to borrow up to $4.5 billion from the Federal Reserve program if it takes the five-year route, Pew noted.

“This analysis indicates that borrowing could be used to address a portion of the projected FY 2021 budget deficit, helping the state meet scheduled pension payments, preserve essential services, and potentially replenish depleted reserve funds,” reads the Pew report.

“This could obviate the need for drastic cuts to core government services – and the resulting negative impact on social programs and the economy – at a time when they are most needed.”