Murphy retiring some $2 billion in state debt will save taxpayers over $600 million

JOHN REITMEYER, BUDGET/FINANCE WRITER | FEBRUARY 4, 2022

NJ Spotlight News

Gov. Phil Murphy delivers his inauguration address.

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New Jersey’s significant debt burden has gotten a little lighter, at least on paper.

Gov. Phil Murphy’s administration announced Thursday that a final transaction needed to retire, or “defease,” more than $2 billion in bonded debt was completed earlier in the week by the Department of Treasury.

The result of the debt-relief effort is expected to save New Jersey taxpayers a combined $607 million over 10 years by reducing long-term interest costs, according to Treasury officials.

The push to retire some of the state’s debt — New Jersey had more than $40 billion in bonded debt as of last year — comes a little over a year after Murphy convinced lawmakers to borrow nearly $4 billion without voter approval. That $4 billion was needed to offset revenue losses that Murphy said were coming due to the pandemic. Those losses never materialized in full.

Instead, tax collections surged to record highs amid the health crisis, giving the state a huge surplus. As a result, Murphy, a Democrat, faced heavy criticism from Republicans who said he saddled taxpayers with what they suggested were unnecessary long-term payments associated with the pandemic bonds.

Relieving taxpayer pressure

But Murphy, on Thursday, praised his administration for taking action to “relieve some of the pressure on taxpayers.”

“This is about making New Jersey more affordable for this generation and beyond,” Murphy said in a statement.

New Jersey consistently ranks among the nation’s most indebted states and was carrying more than $44 billion in bonded debt as of the latest official accounting by Treasury last year. That sum is nearly equal to the state’s $46.4 billion annual budget, and it does not include additional financial obligations the state has on its books related to a significant unfunded pension liability.

Despite running up a budget surplus totaling more than $10 billion last year, the Murphy administration was unable to pay off the bonds that were sold in response to the pandemic due to how Treasury structured the debt issue.

The state made interest-only payments during the first two years of a 12-year repayment schedule and remains on the hook for annual principal and interest payments totaling $461.8 million through the end of the 2032 fiscal year, according to Treasury.

Savings for taxpayers

Last year, after the handling of the pandemic debt was hotly debated during budget hearings, Treasury officials told lawmakers that even though the pandemic debt cannot be retired early, savings for taxpayers could likely be generated by retiring other state bond issues with higher interest costs than what the state was charged when issuing the pandemic debt in 2020.

Several months later, Murphy and fellow Democrats who control the Legislature decided to use some of the state’s massive budget surplus to establish a $3.7 billion debt-relief fund.

In all, a $2.5 billion sum was earmarked for paying off existing bonded debt, and another $1.2 billion was set aside for funding capital projects on a pay-as-you-go basis instead of borrowing.

Several months ago, Treasury officials held a formal meeting to provide approval for a list of bond issues that could generate savings for taxpayers through defeasement. Approvals were also obtained from outside state agencies, such as the New Jersey Building Authority and the New Jersey Economic Development Authority.

Between Nov. 15 and Feb. 1, the state purchased a total of $2.2 billion in U.S. Treasury securities that have been placed in an irrevocable escrow account for the purposes of paying off the identified bond issues, according to Treasury officials. They include general-obligation bonds and bonds related to school-facilities construction, among others, the officials said.

“All bonds defeased through this process have been effectively removed from the State’s balance sheet at the time the U.S. Treasury securities were placed into escrow,” Treasury officials said in a news release Thursday.

Capital projects

Meanwhile, the same debt-relief fund used to underwrite the defeasement transactions was also tapped several months ago for an estimated $435 million in pay-as-you-go spending on several capital projects. They include a wind port in Salem County and the expansion of a medical school at Rowan University, according to a list provided to lawmakers in late November.

In addition to the $607 million freed up through defeasement, Treasury officials have projected significant savings by avoiding long-term costs associated with issuing new debt once the full $1.2 billion earmarked for debt avoidance is eventually spent down.

Still, last year, some of the same Republicans who faulted Murphy for issuing the pandemic debt in the first place also questioned why the money set aside for debt relief in late June was not being deployed more urgently.

On Thursday, Senate Republicans sent Treasurer Elizabeth Maher Muoio a letter that accused her department of not disclosing information about the defeasement effort in a timely manner. In addition, the Republican senators said in the letter — a copy of which was obtained by NJ Spotlight News — that Treasury should be providing more information about the status of current state tax collections, which were running well ahead of last year’s totals as of the end of December.

“We are asking that you disclose additional information to the financial marketplace and the public and commit to improving disclosures in the future,” the GOP senators said in the letter.

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published this page in News and Politics 2022-02-04 03:37:10 -0800