Republican Gubernatorial candidate Jack Ciattarelli threatened to sue Gov. Phil Murphy over a borrowing plan the latter is pushing through the legislature.
“It’s unconstitutional to borrow money to balance our state budget,” Ciattarelli told the New Jersey Globe. “It’s that simple, and on behalf of New Jersey, we’re not going to sit here and let Murphy plunge New Jersey deeper into debt.”
New Jersey faces a budget deficit of roughly $10 billion through the end of the next fiscal year after months of virus-fueled lockdowns that have seen most businesses put through extended closures.
To bridge that gap, Murphy is proposing a plan that would allow the state government to bond for budget financing purposes in the 2020 and 2021 fiscal years.
Though an Assembly vote on the measure has been scheduled for early June, details about Murphy’s plan remain scant.
Treasurer Elizabeth Muoio last month issued a bond disclosure that said the bill would allow New Jersey to borrow up to $5 billion, but no amounts were listed on the draft legislation.
“Decisions are always easier when transparency is available for all to consider. That has not been the case with Murphy’s bonding proposal,” said Ciattarelli, a former assemblyman. “Again, we don’t know how the bonds are going to be repaid, what taxes would be increased to repay them, what the money would be spent on.”
Further complicating matters is an opinion issued earlier this month by the non-partisan Office of Legislative Services that warned portions of Murphy’s plan could fail to pass constitutional muster.
Borrowing that deals with expenditures directly related to the COVID-19 crisis would be allowed, OLS said, but a 2005 OLS opinion bars bonding to balance the state budget.
“Not only is borrowing to balance the budget unconstitutional, in essence, Murphy is borrowing to make pension payments, and that too is unconstitutional,” Ciattarelli said.
The state’s pensions have ballooned over preceding decades, and while Murphy administration made a record $3.2 billion contributions last year, the trust is still underfunded.
Murphy’s administration was aiming to put $3.8 billion into the pension this year and has, so far, kept course amid the pandemic, but treasury officials last week said they wanted to delay a $950 million payment due later this year.
Though Ciattarelli hammered the governor over a $700 million pension payment made at the end of the first quarter that the Republican said should have been delayed, the two appeared to agree on delaying further payments.
“The pension trust has a long-term insolvency problem, not a near term insolvency problem,” Ciattarelli said. “We’ve got a situation right now where we need to fill a $9 billion hole in our 2020 and 2021 state budgets. Delaying pension payments is one way to achieve that goal, achieve the goal of filling those fiscal holes.”
But delaying those payments would create other problems for New Jersey.
Last month, Fitch, a Wall Street credit ratings agency, dropped New Jersey to an A minus rating, marking the first downgrade of Murphy’s tenure.
Fitch and other raters already concerned about New Jersey’s debt and ability to weather a COVID-19-fuelled recession, could further downgrade the state’s credit if pension payments come to a full stop, though Ciattarelli said the looming eyes of ratings agencies were just another reason to ditch the borrowing plan.
“That too is part of the reason why we shouldn’t turn to borrowing first to address the budget gaps,” he said. “The other thing we haven’t heard with regard to this proposal is the total amount of the debt service over the 10, 20 or 30-year life of the bonds.”
The candidate more than once referenced New Jersey’s response to the great recession while urging Murphy to pursue budget cuts instead of attempting to maintain the spending plan he introduced in February.
Former Gov. Chris Christie cut the state’s 2011 budget by about $6 billion over the previous year, though New Jersey’s post-recession growth lagged behind the national average in the years following the crisis.
Murphy’s administration has already explored some cuts, including $5 billion in reductions to planned spending and $3.2 billion in cuts or delays to first-quarter appropriations.
In part, officials are hoping that additional federal aid will soften New Jersey’s fiscal tumble, but Murphy and Muoio have both referred to borrowing as the other part of the equation that’ll get the state through the recession.
“Let’s get our expenditures under control. This is the opportunity to hit the reset button,” Ciattarelli said. “If the governor intends on going ahead with this irresponsible borrowing scheme, I will in fact file a complaint, and I look forward to seeing him in court.”