More Shoddy Research from NJ Policy Perspective with a Boost from NJ Spotlight
November 18, 2020NJEA VP Sean Spiller Eyes the Governor’s Office: Will Special Interests Actually Run NJ?
November 23, 2020The ever-vigilant BuryPensions blog has provided valuable information on NJ’s COVID bonds – the $4.5 billion that Gov. Murphy is borrowing to plug budget gaps and allow for a record $4.7 billion payment into NJ’s broken and unreformed public pension system.
The sad truth is that Murphy is doing the bidding of his public union pals, and especially the NJEA. Despite the COVID crisis and the resulting hit to state revenues, Murphy is taking care of his public union pals by maintaining state workforce levels, not reducing government spending and making a record pension payment. By borrowing money for over 10% of the FY2021 budget, Murphy is perfectly content to saddle future New Jersey citizens in order to take care of his special-interest political supporters now.
What is even worse is that the structure of the bonds makes this even more expensive for future NJ citizens. Without getting into too much bond math, these bonds are being priced at over 100% of their face value (and as high as 123%) so that the money that NJ gets now ($4.3 billion) is $629 million greater than what will be paid off at maturity ($3.7 billion). In order to be able to do this, NJ must pay much higher interest rates on the bonds than would be the case if the bonds were issued at 100% of their value. So rather than pay 1.95% (what NJ would pay if the bonds were issued at 100% of their face value), NJ will pay as much as 5% in annual interest (see here for the various tranches and interest rates).
In other words, most of the $629 million difference will be paid for by excess interest payments. The harsh reality is that in order to have more money now to please his special interest pals, Murphy is saddling future NJ citizens with hundreds of millions of dollars of excess interest payments.
So Murphy’s public-sector union pals get what they want now and future NJ citizens will pay extra for it. If all goes according to plan for Murphy, he will be re-elected with the support of his special-interest pals in 2021 and will be long gone after 2025, so what does he care if NJ citizens are screwed?
The public-sector unions win, Murphy wins and NJ citizens lose. What a racket.