The state of New Jersey’s bonded debt is about to be retired in a major way by Gov. Phil Murphy’s administration, this time to the tune of almost $1 billion.
The state Economic Development Authority’s school building bonds are set to be “defeased” in February, according to the Department of Treasury.
For this year’s debt reduction effort, Murphy and legislators have set aside billions of dollars in a special account outside of the state budget designed to deal with New Jersey’s massive debt.
About $2 billion in bonded debt was repaid from the same account the year before. Over the next decade, Treasury officials predict that taxpayers will save more than $600 million thanks to this initiative.
Treasury spokesperson Danielle Currie said that the board of the Economic Development Authority must approve the proposed proposal to repay another $1 billion in existing bonded debt.
Without final permission from the authority’s board, she did not reveal any estimates of the potential savings to taxpayers from the new debt retirement exercise.
Bonded debt reached a record level of $48.2 billion during the 2021 fiscal year, according to the conclusions of the state’s most recent comprehensive financial audit, which was released earlier this year.
However, earlier this year, almost $2 billion in bonds were retired using the debt defeasance and prevention account, so that sum was not included in the tally.
Treasury accomplished this by accumulating $2.2 billion in U.S. Treasury securities in an irrevocable escrow account for the express purpose of retiring outstanding bond issues. According to Treasury representatives, this included both general obligation bonds and bonds for the development of educational infrastructure.
Despite the continued COVID-19 outbreak, state tax receipts spiked in late June, allowing Murphy and lawmakers to put more over $5 billion back into the debt defeasance and prevention pool.
To pay for a wide variety of capital projects on a pay-as-you-go basis, Murphy and his fellow Democrats in the Legislature quickly appropriated a portion of these money.
As a result, the state of New Jersey was unable to secure financing for a number of necessary projects, including the building of new schools and the improvement of transportation networks.
Administration of Means
The remaining balance of the fund is almost $3 billion, but there has been little public discussion on what should be done with this money in recent months.
In accordance with state law, the Joint Budget Oversight Committee (JBOC) of the legislature must be provided with a report “describing the manner in which debt retirement and defeasance has been accomplished” before the Treasury may use funds from the debt-relief account to retire or “defease” existing bonded debt.
This same law also lays out a procedure for allocating existing monies to future capital projects such that no additional debt is issued. According to the law, the procedure begins with the treasurer submitting “a list of proposed capital projects” to the oversight committee for review and approval.
For its part in the cost of replacing the Portal Bridge, a critical North Jersey rail crossing that is frequently the source of train delays and other major commuting issues, the state issued about $600 million in additional debt in October.
The debt will be repaid over the next 30 years using money from New Jersey’s Transportation Trust Fund, per terms issued by the Department of the Treasury.
Officials from the Treasury Department explained that the financing arrangement for the long-planned replacement of an existing, 110-year-old rail bridge that is used by both New Jersey Transit and Amtrak did not require the use of resources from the debt defeasance and prevention fund because it had received federal approval prior to the establishment of the fund.
However, in recent weeks, the state has also been planning to issue an estimated $750 million in extra new debt for the Transportation Trust Fund, which provides funding for road, bridge, and rail projects across the state. Revenues from sources such as state gas taxes are used to back the trust fund as required by the constitution.
When questioned why the state was issuing additional debt for the Transportation Trust Fund rather of using monies set aside earlier this year for both debt defeasance and prevention, Treasury officials deflected comment to the governor’s office. On Friday, there was no quick response from the governor’s office.
Worries About Disclosiveness
To adopt a list of new capital projects to be funded with a total of $435 million from the debt defeasance and prevention account, the bicameral and nonpartisan JBOC met via telephone last year. Among them were an extension of the medical school at Rowan University and a wind port in Salem County.
But Republicans on the panel didn’t vote because they were concerned about a lack of transparency, specifically, why Murphy and the majority Democrats prioritised particular projects on the list.
That echoed broader worries about the state budgeting process that have been voiced in recent years, such as after millions of dollars in new spending was added to the final appropriations package by majority Democrats, with no time for public examination.
Sen. Michael Testa (R-Cumberland) filed a package of legislation last week to de-appropriate and transfer about $675 million in allocated funds. Instead of the more discretionary appropriation mechanism employed by Democratic legislative leaders, Testa argued that the money should be used to subsidise a competitive grant procedure.