New Jersey Republican lawmakers Friday wrote to the Securities and Exchange Commission raising concerns that the state did not include certain fiscal projections in disclosure documents for a $200 million state contract bond deal that priced last week.

Democrats control New Jersey's House and Senate. Gov. Jon Corzine is also a Democrat.

GOP senators said the state should have included in the preliminary official statement for a New Jersey Economic Development Authority school facilities construction bond sale a projected shortfall in the state's unemployment compensation fund. That fund is considered an off-budget account. In March, the Treasury Department estimated the unemployment fund would have a negative $1.6 billion balance by June 30, 2010, the end of the current fiscal year. The Office of Legislative Services currently pegs that shortfall at $2.6 billion and projects it will grow to $3.6 billion by the end of fiscal 2010. The OLS based its calculations on data supplied by the state's Department of Labor and Workforce Development.

"The imbalance in this fund puts intense pressure on the state, as it has in each of the past two years, to raise corporate business taxes," according to the letter that five senators sent to SEC chairman Mary Schapiro. "Such increases will be automatic if the state cannot find other sources of funding. Raising business taxes would be disastrous for our weak economy and revenue collections, and we should make bond holders aware of this possibility."

JPMorgan priced the $200 million NJEDA transaction on Aug. 13. State officials on that day released a supplement to the POS informing investors that several lawmakers intend to file a complaint to the SEC.

Peter Clarke, managing director at JPMorgan, said the supplement did not affect the sale. All the bonds sold, and demand was such that the bank decreased the yield on $51.3 million of debt maturing in 2034, the longest maturity, to 5.2% from 5.25% with a 5% coupon. The first maturity in 2011 yielded 1.45% with a 3% coupon.

"Some maturities were over-subscribed, but some were just on and the long end was strong enough that we were able to lower yield by five basis points," Clarke said.

Republican lawmakers also believe the future of the state's Transportation Trust Fund Authority should have been detailed in the POS. TTFA, beginning in fiscal 2012, will no longer have funds for new projects as debt service costs will absorb all of the TTFA's dedicated revenue stream.

In addition, the GOP legislators believe the POS does not clearly discuss temporary income tax boosts that will generate roughly $1 billion of additional revenue in fiscal 2010 but not in the following year as the tax increases will expire. The POS describes the income tax raises as "one-year" increases.

Neil Grabowski, director of research at Breckinridge Capital Advisors, which purchased bonds in last week's sale, said off-budget funds such as New Jersey's unemployment fund should be detailed in a deal's POS, but he added that his team looks beyond disclosure documents to achieve a final assessment of a borrower. Grabowski said news reports on pressing state fiscal issues, the firm's own evaluation of state revenue projections, and any uses of one-time budget solutions influence Breckinridge's investment choices.

GOP members also raised similar disclosure issues the day before the state sold $1.9 billion of one-year notes on Aug. 5. In that transaction, New Jersey placed more than $10 billion in orders, resulting in a net borrowing cost of 0.54%, according to Treasury spokesman Tom Vincz.

"The information contained in our documents today represents the outcome of the most rigorous and extensive legal and financial review of the state's bond disclosure in history, Vincz said in a prepared statement. "New Jersey stands firmly behind the integrity and completeness of our bond-offering statements."

New Jersey's disclosure counsel, Nixon Peabody LLP, declined to comment.

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