New Jersey should issue $2.7 billion of general obligation bonds to help finance a backlog of capital projects at its public universities and colleges, according to a report released late Tuesday.

Gov. Chris Christie responded that now is not the time for such a large amount of new debt.

The New Jersey Higher Education Task Force, headed by former Gov. Tom Kean, compiled the report. Both men are Republicans.

Along with the state-level borrowing and increased state funding for operating needs, the task force believes part of the University of Medicine and Dentistry of New Jersey should merge with the state’s largest public higher educational facility, Rutgers University. The move to combine the two institutions has been an ongoing initiative for the past several years.

The task force recommends that the state pass a $2.7 billion borrowing measure that has sat in the Legislature for five years. AB 1655 would allow the state to sell $2.7 billion of GO bonds for public and private universities and local colleges.

Lawmakers last approved GO borrowing for higher education in 1988. While it has provided state aid to higher education — with that funding stream declining over the years — New Jersey has not provided capital spending for higher education since 1999. This has forced the public universities to issue debt on their own to finance infrastructure developments.

“Maintaining the ability of New Jersey’s colleges and universities to borrow in the marketplace requires a strong partnership with the state,” the report reads. “Greater capital support would reduce the debt burdens carried by the institutions, shoring up their finances and strengthening their position in the bond markets when they do need to borrow to build facilities.”

The second GO borrowing recommendation involves the state issuing debt “as soon as possible” to create a permanent revolving bond fund for New Jersey’s 12 public universities and its private institutions, similar to a debt-financed revolving fund for county colleges known as Chapter 12. The report does not specify a potential borrowing size.

Christie Tuesday said during a press conference on the task force recommendations that a revolving-fund bond issuance would be “much smaller” than the $2.7 billion bond initiative. Higher educational facilities and the state would split annual debt-service costs evenly, under the plan.

In addition, the debt ceiling for the Chapter 12 bond fund should be raised above its current $265 million limit, according to the report.

If passed, the $2.7 billion borrowing initiative would require voter approval. Christie said the state is unable to take on such a large borrowing at this time. He prefers moving forward with the smaller revolving-debt fund initiative to help colleges and universities maintain facilities. New Jersey has $32.8 billion of outstanding GO and appropriation debt.

“At some point we probably need to examine [a higher education bond issue], but now is not the point to do that,” Christie said during Tuesday’s press conference. “So of the two recommendations, the one that I would look the hardest at — because I think it’s the one that we probably can most likely afford — would be the revolving-fund capital portion of it. That would be significantly less expensive both in a short-term budgetary perspective and a long-term debt perspective.”

Other states like Connecticut and North Carolina have taken on debt to help build their public university systems, according to John Nelson, managing director at Moody’s Investors Service. Florida uses dedicated revenues to finance capital projects at its colleges and universities. New Jersey’s highly leveraged schools have had to pass the cost on to its student base through tuition increases.

“The cost of that is that now the public universities in New Jersey are among the highest priced in the country,” Nelson said. “And that’s not the favored position to have if you are concerned about long-term economic development in the state.”

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Corrected January 7, 2011 at 9:00AM: John Nelson is managing director at Moody’s Investors Service.