New Jersey kick started its new debt reduction fund yesterday as state officials prepare to retire or defease roughly $650 million of bonds backed by state appropriation.
The New Jersey Economic Development Authority approved paying down debt from six different programs to help decrease the state's debt service costs by more than $130 million for fiscal 2009, which began July 1.
Officials will use revenue from a newly formed debt reduction fund included in New Jersey's current operating budget, which Gov. Jon Corzine signed into law in early July. The $650 million fund comes from surplus revenue that the governor proposed using to help decrease New Jersey's $32 billion of outstanding debt instead of letting the funds flow back into the general fund or a rainy-day fund. The debt reduction program is projected to lower debt service costs by roughly $130 million annually for the next five years.
"In this year's budget, we were able to make an unprecedented statement of fiscal responsibility," Corzine said in a press release. "This is the first time resources have ever been set aside in this manner to help reduce the state's debt. This is just one part of our ongoing efforts to help reverse the state's deep-seated fiscal problems and restore long term stability to New Jersey's finances."
Officials will begin paying down EDA bonds within the next 60 days, according to Treasury spokesman Tom Vincz. The potential candidates include Business Employment Incentive Program bonds, Series 2003, Series 2004, and Series 2005, which total $201.8 million as of June 30, according to the state's most recent debt report.
The state also plans to retire or defease portions or all of Series 2004 Designated Industries Economic Growth and Development Program bonds for $28.6 million, Series 1999, and Series 2002 Department of Human Services Pooled Financing Program bonds for $26.1 million, Series 1996 Liberty State Park Project bonds for $12.7 million, and Series 1995 Green Lights Energy Conservation Project for $855,000.
In addition, the EDA authorized the defeasance of some of the state's school construction bonds, which have a total of $5.79 billion of combined debt outstanding. Vincz said the state will decide which school construction series in particular that will be retired closer to the transaction date.
"That will not be determined until we're ready to go to market with the defeasance," Vincz said.
Along with the EDA bonds mentioned above, the state also plans to retire a portion of state contract bonds issued through the New Jersey Sports and Exposition Authority, which total $586 million, and state building revenue bonds issued through the New Jersey Building Authority, which total $585 million. The two authorities could approve defeasing those bonds at their upcoming board meetings. The NJSEA board will meet tomorrow while the NJBA's next meeting is set for Aug. 19.
While officials have various outstanding state-appropriation bonds to choose from, Vincz said the state picked the above candidates first as those bonds would offer the state the necessary savings in order to reach the annual goal of at least $130 million of total savings.
"There was a review of the portfolio and decisions were made based on the different characteristics of this outstanding debt in so far as when the debt can be retired and what was callable," Vincz said.
"And the determination was made in order to achieve the savings that are in the budget that these candidates would be ideal candidates in which to proceed with the defeasance and/or retirement," he said. "So, it's basically linked to the target of $130 million plus per year of savings for the next five fiscal years."
New Jersey's $32 billion of outstanding debt consists of $2.8 billion of general obligation bonds, $9.1 billion of revenue bonds, and $20 billion of debt sold through authorities, agencies, and corporations and backed by state appropriation.