Public Spending, Economic Opportunity for All
City Journal: New Jersey’s Borrowing Addiction
By Steven Malanga
In 2004, with New Jersey facing a revenue shortfall, then-governor Jim McGreevey’s administration borrowed—in defiance of the state’s constitution—some $2 billion in order to boost spending by a hefty 17 percent. Though the state supreme court ruled the move unconstitutional, it allowed the debt to remain because the state had already budgeted the money. It was one of a series of court decisions that prompted voters in 2008 to approve, overwhelmingly, a referendum that tightened borrowing restrictions.
Trenton is now planning to defy the will of the voters. The Democratic-controlled state legislature has approved an unprecedented plan backed by Governor Phil Murphy to borrow $10 billion to close a projected deficit. Despite the squeeze on state budgets caused by the Covid-19 lockdowns, only three other states—California, Illinois, and New York—have announced similar borrowing plans (most other states are announcing significant budget cuts). Relative to the size of its budget, New Jersey’s borrowing is by far the largest. Jersey plans to cover most of the cost of its deficit with debt by tapping a last-resort Federal Reserve lending program.
New Jersey is already the nation’s most fiscally unsound state, according to the Institute for Truth in Accounting. It bears some $234 billion in debt, including about $100 billion in unfunded pension liabilities. A recent Pew study estimated that, between 2003 and 2017, the state spent $1 for every 91 cents in revenue it collected.
Read the full op-ed here.