New Jersey will cut its debt service costs in fiscal 2010 by $144.8 million as the state in early June plans to refinance up to $350 million of general obligation debt in a plan approved yesterday.
Spreading principal and interest payments over a longer period of time will cost the state $19.8 million from fiscal 2010 through fiscal 2023, yet offer budget relief in the next fiscal year, which begins July 1. Officials estimate net present-value savings to be $8 million over the life of the bonds.
"In fiscal 2010 the taxpayers will be paying $144 million less, however they will pay more in the following years through 2023," Nancy Feldman, the state's public finance director, said before the Legislature's Joint Budget Committee.
That panel approved the refinancing plan in a vote of 4 to 2. Republican members questioned pushing out maturities to gain the $144.8 million relief in debt service costs in fiscal 2010.
"We're deferring it, we're not saving it," said Assemblyman Joseph Malone, R-Burlington, during the meeting. "And the issue is, we're extending it a number of years."
The state has more than $32 billion of total outstanding debt. It expects to save a total of nearly $446 million in debt service savings in fiscal 2010 by restructuring debt.
New Jersey expects to issue the refinancing transaction via competitive bid, although officials may sell the bonds through negotiation if that is more cost effective. Refinancing candidates include Series 1999, 2000, 2002, 2004, and 2007 as well as Series 1999F, Series 2002J, and Series 2003K, according to Treasury Department documents.
While principal and interest costs for GO debt will drop to $7.2 million from $152 million in fiscal 2010, they will increase to $11.1 million in fiscal 2011 and fiscal 2012, and jump to $56.8 million in fiscal 2013.
The immediate relief will help the state offset declining revenues as the Treasury Department anticipates a nearly $9 billion deficit for fiscal 2010. Treasurer David Rousseau yesterday announced that he projects the state to bring in $27.3 billion of base revenue next year, which is below the $28 billion of revenue it collected in fiscal 2005.
Officials anticipate total fiscal 2010 revenues to be $28.8 billion, with the state spending $28.61 billion next year. That amount is comparable to fiscal 2006 expenditures when the state spent $28.78 billion.
"In fiscal 2010, we face the most daunting challenge of any budget in the state's history," Rousseau said before the Assembly Budget Committee. "Our revenues reflect the harsh realities of a national economy in turmoil. Conversely, our spending needs have never been more acute as we seek to counter the effects of the downturn of the economy on our citizens."
Sluggish income tax receipts account for a large portion of the drop in revenue. New Jersey collected $1.2 billion less in personal income tax revenue in April compared to the same month in 2008. Rousseau said the state now expects to gain $9.38 billion in base income tax revenue in fiscal 2010, $1.9 billion less than what the state anticipates collecting in fiscal 2009.
To address the $9 billion deficit for fiscal 2010, which is up from the $7.2 billion shortfall that Rousseau announced in March, the government proposes a one-year suspension of the property tax relief program for all non-seniors. That initiative would give the state coffers roughly $1.17 billion. In addition, Gov. Jon Corzine proposed tax increases for higher-income earners to generate an additional $400 million for the state.
The administration is also looking to postpone a $380 million June payment in school aid to July. Lawmakers are now working on a bill that would allow school districts to borrow in June if the proposed deferment prohibits school districts from paying June bills.
Before Rousseau's testimony, David Rosen, the budget and finance officer for the Office of Legislative Services, gave his revenue estimates for fiscal 2009 and fiscal 2010.
"This is certainly the worst revenue report that I've ever given to this Legislature and it's one, frankly, that I'd never imagined that I'd be presenting," Rosen said to the committee.
The OLS estimates that New Jersey will not see its peak fiscal 2008 revenues of $32.6 billion for another six years if revenues grow at an historic rate of 5% to 6%.
"If you assume that we have a typical recovery in revenues, it will take us until 2014 to get us back to the revenues that we had in 2008," Rosen said. "It will take us fully six years to take us back to where we were in terms of the revenue stream."