In 2004, with New Jersey facing a revenue shortfall, then-governor Jim McGreevey’s administration borrowed—in defiance of the state’s constitution—some $2 billion in order to boost spending by a hefty 17 percent. Though the state supreme court ruled the move unconstitutional, it allowed the debt to remain because the state had already budgeted the money. It was one of a series of court decisions that prompted voters in 2008 to approve, overwhelmingly, a referendum that tightened borrowing restrictions.
Trenton is now planning to defy the will of the voters. The Democratic-controlled state legislature has approved an unprecedented plan backed by Governor Phil Murphy to borrow $10 billion to close a projected deficit. Despite the squeeze on state budgets caused by the Covid-19 lockdowns, only three other states—California, Illinois, and New York—have announced similar borrowing plans (most other states are announcing significant budget cuts). Relative to the size of its budget, New Jersey’s deficit is by far the largest. Jersey plans to cover most of the cost of its deficit with debt by tapping a last-resort Federal Reserve lending program.
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