N.J. needs $2B loan to pay its bills
By ADRIENNE LU
Friday, August 24, 2007
Like a cash-strapped shopaholic reaching for a credit card before payday, New Jersey is planning to borrow $2 billion to cover expenses over the next few months – including those record-high property tax rebates.
But given the state’s financial situation, some wonder if it’s a wise move.
The state already owes an estimated $29.7 billion to creditors. Debt service alone is costing taxpayers upward of $2.5 billion a year. And employee pension funds are at least $25 billion behind where they should be to cover projected future costs.
Overall, money is so tight that Governor Corzine is looking at selling or leasing state assets, such as toll roads and the lottery, to raise revenues.
Like many states at the beginning of a fiscal year, New Jersey is short on cash to pay its bills. But New Jersey has a $2.2 billion expense coming up this year that is unusual: property tax rebate checks.
The checks – which average $1,200 for most homeowners – are timed to be in mailboxes this fall before the upcoming legislative elections.
Last year a much smaller loan cost taxpayers $43.2 million in interest and fees.
The fact that the state is borrowing money upfront to cover the costs of the property tax rebates is further evidence that the program is not sustainable, said Senate Minority Leader Leonard Lance.
“I think it’s an indication of a much more serious matter next year, when we will not be able to pay for the program because we don’t have enough revenue,” said Lance, a Hunterdon County Republican.
This year’s rebates will be paid for with revenues from last year’s 1-cent sales tax hike.
However, a new source of funding has yet to be determined for next year, if the rebates are to be repeated.
Early next month, the state plans to issue tax and revenue anticipation notes, which essentially serve as short-term loans, providing cash to the state until projected revenues flow in.
New Jersey first issued such notes in 1991, when the property tax rebate program cost $710 million. Since then, the program has nearly tripled, reaching record heights.
Tom Vincz, a spokesman for the state treasurer, described the short-term loan as a “routine issuance to meet cash flow needs for the fiscal year.”
How much it will cost in interest and fees to borrow the money is yet to be determined.
Last year, the state borrowed $1.75 billion. Interest came to $43 million, and the state paid $200,000 in fees, Vincz said.
Mark Tenenhaus, a senior analyst at Moody’s, which provides credit ratings, research and financial information to capital markets, said almost every state relies on such notes to smooth out the cash flow.
“It’s an accepted form of business with all entities, be they governmental or corporate,” Tenenhaus said.
“It’s prudent governmental policy.”
Routine or not, some question the idea of borrowing money rather than cutting spending at a time when the state is, for all practical purposes, looking between the sofa cushions for spare change.
“It seems like a contagious disease down there, let’s borrow money,” said Sen. Anthony R. Bucco, R-Morris.