New Jersey Could Allow Local Governments to Borrow to Avoid Budget Cuts

The coronavirus is expected to impact county budgets nationwide by more than $200 billion.

The coronavirus is expected to impact county budgets nationwide by more than $200 billion. Shutterstock

 

Connecting state and local government leaders

Lawmakers this week approved legislation that would allow county and municipal governments to issue "coronavirus relief bonds" they would then pay back over 10 years.

Local leaders in New Jersey could issue "coronavirus relief bonds" to help offset shrinking tax revenues under a bill passed this week by state lawmakers.

The legislation, passed 24-16 by the state Senate on Thursday, would allow counties and municipalities to borrow up to 30% of the previous year’s budget with a repayment period of up to a decade, backed by local property tax revenue. Localities could also seek permission from the state to borrow higher amounts with longer repayment periods.

The Assembly approved the bill 57-20 in May.

Supporters said the proposal is necessary to shore up declining tax revenue at the county and city levels and to replenish emergency funds that had been depleted as local health departments scrambled to respond to the Covid-19 pandemic. The borrowed money, they said, would help prevent deep cuts to services or government layoffs. 

“The economic strain of the pandemic is at a breaking point for many local and county governments,” Sen. Vin Gopal, a Democrat from Monmouth and one of the bill’s lead sponsors, said in a statement. “Without the ability to find additional funding, local governments will not be able to sustain the programs that people rely on in their day-to-day lives. The longer this pandemic continues the more tools we will need in our toolbox to get through it. This legislation will be one of those tools.”

Local governments across the country have reported declining revenue in the wake of the coronavirus pandemic. Nationwide, county leaders expect that those losses, coupled with increased public health spending, could lead to a budget impact of at least $202 billion through the 2021 fiscal year. Additionally, state and local governments have lost 1.5 million jobs since February, according to an analysis of federal labor data. 

New Jersey Gov. Phil Murphy earlier this month signed legislation that would allow the state to borrow nearly $10 billion to address its own budget shortfall, a move he said was necessary to prevent sweeping layoffs of public workers and widespread cuts to community programs. 

Republicans in both legislative chambers overwhelmingly opposed both measures and have filed a lawsuit to block the state borrowing plan. The suit, which will be heard before the state Supreme Court, argues the state constitution does not allow borrowed money to be considered revenue, a precedent established in at least one previous court ruling.

Legislative critics say the local borrowing measure allows local governments to borrow too much money without state oversight.

The local borrowing plan, supported by the New Jersey League of Municipalities, is now before Murphy.

Kate Elizabeth Queram is a staff correspondent with Route Fifty and is based in Washington, D.C.

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