Murphy unleashed? The money spigot is open | Moran

Gov. Phil Murphy, along with all Democrats, won a huge break on Wednesday when the state Supreme Court approved their plan to borrow up to $10 billion, about one-quarter of this year’s budget.

The alternative was to begin massive layoffs of teachers and cops, defund NJ Transit and public schools, and hike taxes on everything that moves. To force that on New Jersey, while this pandemic has us on our knees, would be savage. The Court’s unanimous decision means we can spread the pain out over several years.

But this could spin out of control fast. Because the decision also means that they are free to abandon restraint, to push all these costs to a distant future, to dig the state’s fiscal hole even deeper. And that’s what our friends in Trenton do best.

The most important line in the Court’s decision comes at the bottom of page three, where Chief Justice Stuart Rabner notes that he’s not endorsing the decision to borrow $10 billion: “It is not for the Judiciary to assess the wisdom of that decision,” he wrote. “The only question before the Court is whether the borrowing scheme violates the New Jersey Constitution.”

Let me translate that into Jersey speak: Under our Constitution, the governor and the Legislature have a perfect right to screw things up as badly as they choose.

So, what will they do in September, when they have to pass a new budget, including borrowed money? I spoke to Senate President Steve Sweeney, Speaker Craig Coughlin, and the Treasury Department, and I believe they are all being sincere when they say they have no clue how this will turn out.

Here’s my guess: Murphy will press to borrow as much as he can. Sweeney will demand cuts to pension and health benefits for public workers. And Coughlin will sit between them, holding the balance of power, without tipping his hand one bit until the last minute.

“I’m a consensus guy,” Coughlin told me. “It’s who I am. I get along with people. And I think adversity like this can bring people together.”

The logistics are unusual this year, and give the Legislature added leverage: The governor goes first, presenting his budget on Aug. 25, including his borrowing request. The borrowing question will go to a special committee of four legislators, including Sweeney and Coughlin, who can accept or reject it. Then, by Sept. 30, the full Legislature must vote on a full budget, giving Sweeney and Coughlin a second chance to set conditions for their approval.

“It puts us in a better position,” Sweeney says.

Neither Sweeney nor Coughlin will commit to supporting a tax increase, even the millionaire’s tax. But that’s coming. Their dance now is to avoid looking eager to hike taxes, to be the last one in, to appear reluctant. Murphy is the champion that tax hike, along with about 70 percent of New Jersey. Why Coughlin and Sweeney fight so hard against it is a mystery to me.

Two innovative ideas for raising revenue are circulating in the Legislature and have a shot. Assemblyman John McKeon, D-Essex, suggests a tiny fee on financial transactions that are processed in New Jersey, one that he says could raise as much as $10 billion a year, a potential game changer, but unproven.

And Sen. Steve Oroho, R-Sussex, wants to start a border war with New York State by capturing more of the income tax revenue generated by New Jersey residents who work for New York companies, but do some work here in New Jersey. “That could be $1 billion a year,” he says.

Murphy has asked all his department heads to prepare for cuts of 15 percent and has already cut all the new spending programs he proposed in February.

But the pandemic is going to make austerity even tougher than usual. Medicaid costs are likely to soar, for example, but how can the state cut that now? To fix the horror at New Jersey nursing homes, the Legislature approved a bump in the poverty wages of their staffs, and again, how do you scale back on that as we brace for a possible second wave? How about the need to help small businesses save jobs and survive this storm, so we still have an economy after the virus recedes?

“We can’t cut a lot of those services, or any of those services perhaps,” Coughlin says. “That’s why it’s necessary to borrow.”

The Court imposed some restraint on borrowing, ruling that it must be directly related to the pandemic. That was a setback for Murphy, whose lawyer asserted a nearly unrestrained right to spend, even to subsidize a new $1 billion sports stadium, if it provides needed stimulus to an economy damaged by the virus. Rabner’s ruling swatted that notion away. But he drew no bright line defining what spending is beyond the pale, so we can expect the governor to stretch the limits.

I find it shocking and infuriating that the Red State crew in Washington is refusing to provide more money directly to states and cities, and that Sen. Mitch McConnell, the GOP leader, had the nerve to call that a “blue state bailout.” For the record, New Jersey sends $25 billion more to Washington than it gets back every year. If we could stop that drain for a single year, our fiscal problems would evaporate. So, who’s getting the bailout, Mitch?

The real danger of this moment is that Murphy and the Legislature take the easy way out and push all costs to the future. It’s reasonable to spread this pain out for three years, maybe five. But Murphy could refinance the bonding to stretch it out for 30 years, with payments backloaded to land on his successors.

That’s where the ghost of Christie Whitman haunts this conversation. She borrowed $2.8 billion to shore up the pension fund in 1997, the backloaded it shamelessly. We will owe $2 billion of principal and are stuck now with annual payments of nearly $500 million. If you wonder why we can’t afford to fix NJ Transit or fully fund our schools, there’s your answer.

So, that’s the challenge – to get through this crisis without pulling a Whitman. I’d put the chances at about 50-50.

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Tom Moran may be reached at [email protected]. Follow him on Twitter @tomamoran. Find Opinion on Facebook.

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