NJ takes next step in reducing debt

August 11, 2008 5:16:25 PM PDT
Less than two months after creating a special fund to pay down state debt, the Corzine administration has taken a significant next step: identifying the bonds that will be paid off early. Gov. Jon S. Corzine created the fund in June, setting aside $684 million in unexpected tax revenue and other savings. Most of the money - $650 million - is being used to reduce the state's crushing $32 billion debt load. The rest will go toward other pressing needs, such as improving state prisons and psychiatric hospitals, the administration said.

"For the first time, we were able to put money to the side to pay down debt, which is an unprecedented move toward fiscal responsibility in New Jersey," Corzine spokesman Sean Darcy said Monday. "Putting aside excess surplus to pay down debt is a continuation of Gov. Corzine's efforts to help reverse the state's deep-seated fiscal problems.

The state's Public Finance office identified the most financially advantageous bonds to sell after a six-week search that took into account maturity dates, interest rates and other factors, said Treasury spokesman Tom Vincz.

The agencies whose debt is being retired - the Economic Development Authority, New Jersey Building Authority and the Sports and Exposition Authority - all must approve resolutions authorizing the debt repayment. The EDA board was to meet Tuesday for a vote, the first board to do so.

By retiring $650 million in debt, the state can save $130 million a year in debt service payments.

The state's annual debt service payment is $2.7 billion, making New Jersey the fourth most indebted state in the country. Annual debt costs have doubled since 1999, consuming 7 percent of the state budget.

The state has typically used unexpected tax money for new spending, but Corzine, a former Goldman Sachs chairman, insisted it be used to pay down debt. The Legislature approved the idea.

Republicans commended the concept, but said Democrats' approval to borrow $3.9 billion for court-ordered school construction would erase any gains.

Sen. Leonard Lance, R-Hunterdon, estimated that the new school borrowing would cost $6.82 billion once interest and other costs were included. He has long advocated a plan to subject all state borrowing to voter approval.