On Tuesday, July 14 the Senate Budget & Appropriations Committee with vote on S-2697 (Sweeney/Sarlo), otherwise known as the “New Jersey COVID-19 Emergency Bond Act,” which authorizes issuance of State bonds totaling up to $9.9 billion. Since 2008, New Jersey’s Constitution has required voter approval to borrow money for the state budget, but also includes language that relaxes some restrictions on the issuance of debt during times of emergency. Governor Murphy, who initially proposed the borrowing plan in May, has indicated he will sign the bill into law once passed by the Legislature later this week.

If passed, what will the New Jersey COVID-19 Emergency Bond Act do?

This measure will allow state government to borrow upwards of $9.9 billion to help offset revenue lost by the COVID-19 pandemic. The borrowed money will primarily be used for operating expenses unrelated to the pandemic but will require legislative approval, which will be considered by the newly created “Select Commission on Emergency COVID-19 Borrowing” before the Governor can finalize any borrowing.

What are the ramifications of borrowing so much money?

New Jersey is already one of the most indebted states in the country, with the fourth highest debt ranking in the nation. Should the $9.9 billion in borrowing be approved, it will come with extraordinarily high levels of interest that would take decades to pay off – all on the backs of the residents and businesses in New Jersey. It is also quite likely that this level of borrowing will cause New Jersey to receive a downgrade in credit rating and overall fiscal outlook. Tax increases are likely to pay off the debt incurred, which the Governor stated publicly last week.

How will the borrowing plan impact New Jersey businesses?

Borrowing a tremendous amount of money as proposed in S-2697 (Sweeney/Sarlo) will undoubtedly lead to tax increases on the New Jersey business community to pay off the debt. The Governor has already publicly stated that increases on taxes, fees and tolls are in consideration. Some options of tax increases that are likely to be considered are:

• An increase in the gross income tax (GIT) (otherwise known as the “millionaire’s tax”), which the CCSNJ has long argued is actually a tax on small businesses that file their business taxes through their GIT. By doing so, small business owners are considered “millionaires” although their “income” is a combination of their income and their businesses income.
• An increase in the sales tax. The sales tax is one of the most important, and most impacted, revenue generators because the pandemic forced most businesses to close their doors. The Governor tried to increase the sales tax in 2019 , which was not supported by the Legislature at the time.
• Pausing the temporary surcharge decrease or proposing an increase in the corporation business tax (CBT). In 2018 a CBT surcharge, which was set to phase-out next fiscal year, was put in place. This surcharge could be extended, made permanent, or possibly increased on businesses that have more than $1 million in profit.
• Increased property taxes via a property tax surcharge on homeowners and businesses alike is something that could be a broad-based revenue generator.

What are the other options to borrowing?

There are several options to consider outside of borrowing. The CCSNJ fully understands that it is highly likely some borrowing will have to occur given the severity of the state’s economic crisis. However, to date no one has seen clear numbers from the New Jersey Department of Treasury to know precisely how much (or little) should be borrowed. Additionally, if borrowing occurs it should be done on a short-term basis, not spread over many years adding enormous amounts of debt service to the state’s bottom line. Giving state government a blank check of $9.9 billion in borrowing is the opposite of fiscal responsibility and should not be supported by the residents and businesses of New Jersey. There are many revenue raisers that can be and should be explored outside of tax increases. Although we are pleased to see Governor Murphy call for state departmental cuts upwards of 15 percent per department as well as the ratification of a deal with the Communications Workers of America (CWA-NJ) to save state worker money, much more can be done to in the form of frozen wages, increases, furloughs or the like. In times of crisis such as the one we are currently faced with, every option must be seriously considered that will not only help immediately, but also do the least long-term harm to New Jersey’s fiscal situation.

When is this measure being considered?

On Tuesday, July 14 the Senate Budget & Appropriations Committee will vote on the borrowing measure. Then, on Thursday, July 16 both the full Senate and full General Assembly will vote sending the legislation to Governor Murphy to sign into law.

What can you do?

Contact your legislators and tell them borrowing is not the solution to New Jersey recovering from the COVID-19 pandemic. Click here to send an email to your legislators today.

Senate Budget & Appropriations Committee

Senator Paul Sarlo, Chair

Senator Sandra Cunningham, Vice-Chair

Senator Dawn Addiego

Senator Nilsa Cruz-Perez

Senator Patrick Diegnan

Senator Linda Greenstein

Senator Declan O'Scanlon

Senator Steven Oroho

Senator Teresa Ruiz

Senator Troy Singleton

Senator Michael Testa

Senator Sam Thompson

 Please reach out to Hilary Chebra, Manager, Government Affairs, at hchebra@chambersnj.com if you have any questions.