New Jersey Gov. Jon Corzine said the cuts necessary to balance the budget during the economic downturn will put the state in a good position to begin reducing its overall debt load when the economy starts growing again.
Corzine, in an interview with The Bond Buyer last week, said he believes New Jersey - which has $32 billion of outstanding debt - will again focus on decreasing debt once revenues begin to grow again.
"Actually, I think we're putting ourselves into a mode that, because of our requirement to balance our budget, we're going to shrink spending dramatically," Corzine said. "When revenues restart we will be able to - if we're disciplined, if we're disciplined - use some percentage in the growth in revenues then to fund debt repayment. I think this is a crisis that creates an opportunity if you're disciplined about how you do it."
Corzine said the federal government could help boost muni market liquidity by buying the debt of housing finance agencies and other issuers.
"I would certainly hope that they would consider using the Federal Reserve's balance sheet to buy taxable municipal and state-sponsored programs," he said. "Our [Housing Finance Authority] markets are moribund because the rates are so high that it doesn't make it economically attractive for anybody to use those vehicles. So, there's lots of room to stimulate the economy and restart the tax-exempt market."
The governor said the various new borrowing options for municipal issuers included in the federal stimulus plan, which President Obama signed into law last month, should help broaden the investor base and enable governments to access capital for projects.
"I think they did a good thing by doing this taxable option and tax credit that looks relatively attractive by comparison to just issuing standard tax-exempt bonds, just based on what I know," Corzine said. "I don't follow the markets day to day, but [the muni market is] a very expensive way to get financing now by any historical standards relative to the taxable marketplace."
Corzine, along with five other Democratic governors, formed a group known as the "Gang of Six" that helped advise the Obama administration on the stimulus plan and met regularly with the key goal of retaining education spending within the bill.
The gang of six is made up of Corzine, New York Gov. David Paterson, Massachusetts Gov. Deval Patrick, Ohio Gov. Ted Strickland, Wisconsin Gov. Jim Doyle, and Michigan Gov. Jennifer Granholm. The team also worked with the National Governors Association to offer input on the $787 billion stimulus plan.
Corzine described the recovery package as "a bridge over troubled water" for New Jersey, with nearly $1 billion for cutting the Garden State's $3.6 billion budget gap for fiscal 2009. Along with those funds, the state depleted its $650 million debt defeasance fund in order to balance the budget and support foreclosure prevention programs and other initiatives.
The stimulus bill is providing funding to help many states close deficits in their current budgets and in those for fiscal 2010.
Regarding the other ways in which the federal government can aid the municipal market, Corzine said he believes the Obama administration is aware of the difficulties in the municipal market and the need to address further bonding issues that states and local governments are facing.
"I had a discussion with [Treasury Secretary Timothy Geithner at the NGA] and it sounded like he understood the challenges that were existing there," the governor said. "I think they also understand that not all of those had been met and that they need to revitalize and bring to the forefront more of those efforts. I think they've been so focused on the stabilization of the financial system that given the authorities that are in place today, I think that they don't yet have the authorities to do some of the things that they'd like to do."