Murphy vetoes New Jersey local borrowing bill on debt concerns
New Jersey Gov. Phil Murphy has requested changes to a municipal bonding bill that would have empowered local governments to borrow for offsetting revenue losses from the COVID-19 pandemic.
Murphy said in a conditional veto that he wants to limit the period municipalities have to pay back the general obligation bonds to five years from the proposed 10 years unless they can prove that the shorter time frame “would present a significant financial hardship.”
"My recommendations amend local borrowing laws to enable counties and towns to issue five-year special emergency notes for a broad swath of COVID-19 related costs," he said. "In addition, and to meet ongoing operational needs, I am recommending that the special emergency mechanism be expanded to permit adoption of a special emergency to address certified COVID-19 related deficits in operations.
The Democratic governor also stressed that he wants the altered measure to enhance the state's existing borrowing mechanisms available through the Local Finance Board rather than authorizing expanded borrowing.
"I commend the bill’s sponsors for their efforts to provide local governments with an essential tool to help them maintain fiscal solvency during and in the aftermath of the COVID-19 pandemic," Murphy said in his veto message. "However, the better pathway to accomplish this result is to build upon the well-established local budgetary and debt structures in facilitating this critical relief, rather than to create a new, additional financing mechanism for this singular purpose."
The local borrowing measure, which the Democratic-controlled state Senate approved in a 25-15 party-line vote last Thursday, would have permitted municipalities to issue GO bonds for up to 30% of their annual budget without approval currently required by the Local Finance Board. The GO bonds would not have required voter approval.
Murphy said in his veto message he wants to maintain "existing safeuards" under the state's existing munipial borrowing framework "to help ensure that local borrowing is conducted efficiently and responsibly."
Fitch Ratings analyst Kevin Dolan said a revised municipal borrowing bill becoming law by the end of 2020 is crucial to help localities combat near-term revenue challenges driven by COVID-19 forcing many business closings since March. Dolan said if the delay only lasts a couple months then municipalities have other short-term borrowing tools they can turn to such as tax anticipation notes.
“As long as the delay doesn’t go into next year there are other near-term options to borrow they can turn to,” Dolan said.
The New Jersey League of Municiaplities did not immediately respond to requests for comment on Murphy’s veto. The agency has lobbied hard for the bill to become law citing steep declines in revenues local governments are grappling with from losses in parking and permitting fees as well as court fines.
Regina Wilder, a spokeswoman for Assembly Speaker Craig Coughlin, D-Fords, said lawmakers are committed to sending a revised bill to Murphy as soon as possible given the steep fiscal headwinds facing the state’s local governments. The Democratic-controlled Assembly first passed the bill in May.
“The Assembly Democratic caucus has already begun robust discussions regarding the conditional veto and the best next steps,” Wilder said. “It would be premature to provide an estimated time for a resolution, however, something will get done as quickly as possible as many municipalities will need new tools to weather current and expected tax collection volatility."
Murphy vetoed the local government bonding measure two weeks after signing another bonding bill permitting the state to borrow up to $9.9 billion using either general obligation bonds or short-term debt through the Federal Reserve’s Municipal Liquidity Facility program. The New Jersey Supreme Court is scheduled to hear a legal challenge to the borrowing Wednesday after the state’s Republican State Committee filed a lawsuit arguing GO bonds cannot be issued to sustain operating costs without voter approval under the state’s constitution.