New Jersey Can’t Borrow Its Way Off This Fiscal Cliff
Statement by Ralph Albert Thomas, CPA (DC), CGMA, CEO and Executive Director
New Jersey Society of Certified Public Accountants
We are deeply concerned that the proposed $9.9 billion borrowing plan announced by Governor Murphy and currently moving through the Legislature will have far-reaching consequences, affecting New Jersey’s ability to grow and attract business.
There is no doubt that New Jersey will require additional resources during this COVID-19 crisis. To address this, we need a comprehensive fiscal strategy that includes all tools at our disposal. Absent that, any plan for borrowing now is premature.
Our members serve tens of thousands of businesses and individuals. They are on the front lines of the state’s economy, in the trenches with the people who make the thousands of decisions every day, big and small, that shape New Jersey’s economic climate. Our members are, by and large, practical and realistic. They know that the state can’t borrow or tax its way off this fiscal cliff.
New Jersey’s debt per capita is already sixth highest in the nation. Further borrowing now will only exacerbate our role as a state lacking affordability and regional competitiveness, let alone the half a billion dollars of new financial strain this will place on New Jersey residents annually for generations to come. The very fact that the legislation allows for borrowing up to almost $10 billion when the projected shortfall for the 2021 fiscal year is closer to $6 billion is alarming and cause for concern.
Language in the legislation allows for sales tax increases and a statewide property-tax assessment if general obligation bonds are issued and cannot be repaid with general budget revenues. It also allows for refinancing issues that would stretch out repayment for several decades. This could all happen without voter approval.
Pursuing borrowing of this magnitude could also result in another credit-rating downgrade for New Jersey, which would make it more costly to borrow money and those interest costs would ultimately be passed along to taxpayers.
The state has numerous fiscal tools at its disposal right now, including the recently enacted, three-month budget that will carry New Jersey to Oct. 1, 2020. There are also currently unutilized federal CARES ACT funds already available to us, as well as the possibility of further aid from the federal government.
There certainly are scenarios where borrowing can and should be part of a comprehensive fiscal strategy. This comprehensive strategy should also include considerations regarding spending cuts and reforms. In this scenario and given New Jersey’s challenged fiscal history, any discussion of borrowing should only focus on short-term needs, versus the long-term debt under consideration today.
Should this borrowing plan withstand a legal challenge, our policymakers must exercise restraint in how they proceed with any plan for borrowing. The proposed legislative oversight panel must ensure that any contemplated borrowing only occur as part of a more comprehensive fiscal strategy.