New Jersey’s revenue forecasts continue to improve. That makes it even more ironic that Gov. Phil Murphy is still proud of the strong demand from bond-market investors when he set out to pile on the state’s debt last year.
Murphy has said that investor confidence was a sign that New Jersey is financially strong, even though his original reason for borrowing was because the state was financially weak due to his depression-era revenue predictions.
–
As a result, Murphy proudly issued debt the state didn’t need and investors saw an opportunity. The only reason for strong demand from confident investors is if the borrower has good credit, or is a fool to be exploited for profit.
It is no secret that New Jersey is one of the most indebted states in the country. That is one of the reasons credit agencies gave the state a negative financial outlook last year and lowered the state credit rating a couple of weeks before bonds were issued. Bad credit certainly wasn’t the reason investors wanted to buy New Jersey’s debt.
Investors knew what Murphy didn’t: That state revenues would be far more profitable than he predicted and there was a good opportunity to make a profit at taxpayer expense. That turned out to be true and New Jersey’s revenue outlook continues to improve.
It was clear for months before Murphy borrowed the money that revenue was getting better and better. There was no reason to think the revenue trend would suddenly end. It was improving despite a second wave of COVID-19 cases. According to the Office of Legislative Services, it was abundantly clear that Murphy’s low-ball estimates were “significantly off.”
Instead of revenue dropping by up to $30 billion, as Murphy predicted last summer, or $9.9 billion as his administration argued to the state Supreme Court in support of borrowing, or the $4.3 billion eventually certified before issuing bonds, New Jersey actually had a surplus last year. Two tax hikes helped increase the cost of health care by a combined $513 million.
New Jersey is expected to have a massive surplus this year, too — about $6.3 billion, and very likely more. The dirty secret is that the surplus is mostly debt from the bonds. Only $2 billion or so of the currently predicted surplus is from revenue growth. The stunning part is that Murphy’s proposed budget spends $4 billion more than expected revenue, and that deficit is financed by, you guessed it, the surplus that is two-thirds debt!
Even if we wanted to pay this bad deal off early, we can’t. Actually, Murphy didn’t know about the terms of the bond issuance, according to Treasurer Elizabeth Muoio during a Senate budget hearing. Murphy said, and the Select Commission on Emergency COVID-19 Borrowing was notified, that the borrowing was expected to be from the Municipal Liquidity Facility and that they would be paid as quickly as possible to keep from adding long-term debt to one of the most indebted states in the nation per capita.
I don’t think it is Monday morning quarterbacking to criticize Murphy’s knucklehead decision to borrow when revenue is pouring in and the state can’t afford more debt.
That’s like saying Pete Carroll made the right call to pass instead of giving the ball to Marshawn Lynch at the goal line in Super Bowl 48 or saying the Packers made the right decision to kick a field goal while losing to the Buccaneers toward the end of the most recent NFC Championship Game.
We all know those were bad decisions when they were made and we all know those decisions proved to be bad. Borrowing was a bad decision when it happened, and it proved to be bad.
At least some people, such as the nonpartisan Office of Legislative Services, a handful of Democrat lawmakers, can act like honest adults and admit Murphy and his team made a mistake.
Only one other state in the nation borrowed, and not a single other state decided to extend their fiscal year. New Jersey was an outlier because every other state knew what we all know now: those decisions were bad decisions.
However, Murphy and his administration stubbornly refuse to admit their mistake. They lie to everyone when they say it was the right move and they still think it was the right move. Unless Murphy believes that his administration’s revenue projections were correct and that OLS was wrong at the time, and OLS proved to be right, it takes a special brand of obstinate arrogance to defend an obvious lapse in judgment.
Leaders change their minds and admit when they are wrong. Fools never will.
_
Assemblywoman Serena DiMaso (R-13) represents the 13th Legislative District in the N.J. General Assembly.
