New Jersey officials estimate the state will collect $533 million more this year than anticipated in the fiscal 2008 budget, a windfall they propose allocating into a new debt reduction fund that could save an average of $100 million annually in debt service costs.
State Treasurer David Rousseau yesterday presented his debt reduction proposal before the Senate Budget and Appropriations Committee, an initiative that Gov. Jon Corzine's administration expects to file to the Legislature in June with a plan to begin refunding and defeasing debt by Sept. 1, according to Rousseau.
The new strategy would require that any and all surplus revenue for each fiscal year be placed in a long-term obligation and capital expenditure fund to help pay down items such as debt and pension obligations and support infrastructure projects. Within that fund would be a debt reduction fund to help pay down the state's $32 billion of outstanding debt and reduce annual debt service payments for the state.
After the treasurer's testimony, Corzine fielded questions from reporters regarding the use of the surplus revenues.
"I am pleased that we are going to be paying down debt. At least we believe that we should be paying down debt," the governor said. "I think I have put my neck out on the line pretty strongly about that subject matter. Here is a pretty good first down payment on that. It is doing exactly what I would like to see. If you pay down debt, then you don't have to pay principal and interest payments that crowd out other things. Am I pleased that we have this windfall that allows us to pay down debt? Absolutely."
The $533 million comes from income and corporate taxes, which yielded more than anticipated when the budget was prepared. The added tax receipts give, after appropriations, an extra $350 million on top of its current fund balance of $334 million, bringing the total funds for paying down long-term obligations to $684 million. That amount would generate an estimated savings in debt service costs of $130 million in fiscal 2009 and may lower annual debt service payments thereafter by $100 million if lawmakers approve the initiative, Rousseau said.
"We are proposing that $650 million be placed into a debt-reduction account. We will ask the Legislature to adopt legislation ... that would establish the account and make the initial deposit into the account," Rousseau said to the committee members. "We would also have, as we originally proposed, $34 million in capital projects being supported by this fund."
The treasurer's announcement adds detail to the governor's long-standing initiative to reign in New Jersey's debt service costs, as debt service payments account for 8% of the state's budget.
"We are reaffirming the commitment that every dollar of unexpected surplus built up this year be used to pay down the state's debt," Rousseau said. "As you have heard the governor say repeatedly, debt service is crowding out New Jersey's ability to fund critical priorities in the budget. This use of surplus revenues is critically important to relieve the onerous conditions that prevent the governor and the Legislature from funding vital programs and services."
The resulting cut in debt service costs for fiscal 2009 would also help the state address an anticipated revenue shortfall for that year. As Rousseau offered the good news of surplus funds for the current year, at the same time he released a revised, lower revenue estimate for fiscal 2009 that is $159 million less than previous projections. The state now anticipates income tax collections to total $12.76 billion, $166 million less than earlier estimates, and sales-tax receipts to total $8.55 billion, down $154 million. Conversely, New Jersey's business tax receipts are expected to increase by $240 million over earlier projections for fiscal 2009.
Rousseau also said his office now anticipates a structural deficit for fiscal 2010 of $2.1 billion, up from the $1.8 billion figure officials announced in February.
"We need to be cognizant that anything we do, any decision to use one-time revenues or one-time actions in this year to support current spending, is just going to change that $2.1 billion number to something else," Rousseau stressed to committee members.