This article has been saved to your Favorites!

NJ $5B Bond Bill Includes Statewide Property Tax Trigger

By James Nani · 2020-06-03 20:18:11 -0400

A New Jersey bill advancing in the Assembly would allow the state to issue $5 billion in bonds to cover shortfalls caused by the COVID-19 pandemic and would trigger property tax increases if the borrowing can't be paid back.

The bill, A.B. 4175, would allow the state to issue up to $5 billion in general obligation bonds and authorize an unrestricted amount of short-term borrowing from sources that include the federal government. Sponsored by Assembly Member Eliana Pintor Marin, D-Newark, the bill was passed on Monday by the Assembly Budget Committee on a 9-4 vote. The bill would create the New Jersey COVID-19 Emergency Bond Act, and it is scheduled for a vote in the Assembly on Thursday. 

If the state didn't have the funds to meet interest, premium or other payments on the bonds, a tax on real and personal property would be assessed and levied annually in every municipality to pay the bonds, the bill said.

The tax would be assessed, levied and collected in the same way and at the same time other real and personal property taxes were made, the bill said. The tax would be paid to county treasurers by Dec. 15 annually and sent to the state treasurer by Dec. 20.

The measure is being advanced as New Jersey faces what Democratic Gov. Phil Murphy's administration has estimated is a $10 billion revenue shortfall caused by actions to prevent the spread of COVID-19, the respiratory illness caused by the novel coronavirus.

Pintor Marin, chairwoman of the Assembly budget committee, said in a statement that the measure is meant to help the state deal with the financial crisis caused by the pandemic, especially as the economy and state finances change quickly. 

"We do not make this decision lightly," she said. "The historic nature of the current pandemic has led to this unprecedented last resort due to the current fiscal crisis."

But Assembly Member Jay Webber, R-Morris, condemned the proposal Wednesday, arguing that using cash from bonds to balance the state budget violated the state constitution and lamented that if the state couldn't repay the bonds, property taxes would increase.

"While it sometimes has been tax-and-spend and other times it's been borrow-and-spend, with this scheme Gov. Murphy and the Assembly Democrats have hit the Trenton trifecta of borrow-and-spend-and-tax all in one punishing package," Webber said.

Last month, Murphy said the nearly $10 billion shortfall will mean hard decisions will be required as the state moves toward its 2021 fiscal year budget deadline, Sept. 30. He called on the federal government to provide aid to states and for the state to consider cuts and borrowing.

Alexandra Altman, a spokeswoman for Murphy's office, said the office doesn't comment on pending legislation. The state treasurer's office pointed to comments state Treasurer Elizabeth Maher Muoio made in written testimony before the Assembly panel on Monday.

Muoio said revenue projections showed the state is facing a $2.7 billion shortfall through June 30 and an additional $7 billion shortfall through the end of 2021 fiscal year in June 2021, for a combined shortfall of about $10 billion.

Muoio told the panel the state had also already clawed back $1.3 billion in appropriations, was delaying or reducing appropriations of $3.2 billion and had withdrawn about $850 million of Murphy's proposed priorities.

"Our intention is to borrow only as much as absolutely necessary," Muoio said. "We understand borrowing is not free, but it is one of several crucial options we need at our disposal."

In written testimony on Monday, Christopher Emigholz, vice president of government affairs for the New Jersey Business and Industry Association, told the Assembly budget committee that short-term borrowing is sometimes needed to avoid tax increases but that the bill was premature.

"A $5 billion bond will cost New Jersey taxpayers at least many hundreds of millions of dollars in additional debt service costs for the next 35 years," Emigholz said. 

The office of Senate President Steve Sweeney, D-West Deptford, didn't immediately respond to requests for comment Wednesday.

--Editing by Joyce Laskowski. 

For a reprint of this article, please contact reprints@law360.com.