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Storm Clouds Over New Jersey's Finances

The profound silence from West State Street about the City of Trenton’s misguided, stupid, irresponsible proposal to sell long-term debt to cover the short-term theft of millions of dollars in payroll tax payments by former vendor Innovative Payroll Services tells me that the State of New Jersey has at least tacitly given its blessing to the hare-brained scheme. The State’s effective endorsement of the City’s bond proposal  will no doubt be touted tomorrow evening by the Administration’s representatives and Council Members alike as a Seal of Approval for this plan.

In order to put the State of New Jersey’s “advice” on this matter – if in fact that is what the State is offering – in some kind of meaningful context, I offer the following, without (much) comment. They all describe a very stormy future for New Jersey finances, on the state and municipal levels. Find an umbrella:

New Jersey Penalized in Biggest Muni Bond Sale Since 2013

“The New Jersey Economic Development Authority sold $2.2 billion of bonds at yields that were more than 2 percentage points higher than benchmark tax-exempt securities in the state’s biggest debt sale since 2013.

“The bond offering shows the penalty New Jersey is paying to borrow as it faces financial pressure from an $83 billion deficit in its employee-retirement system, which state leaders have shortchanged for years. The escalating bills to the pension funds have left New Jersey with the second-lowest credit rating among states after Illinois.

“’Unless the state can show that it can make long-standing strides in its pension and health-care obligations, the state should be prepared to be penalized when it brings new issues to market,’ said Neil Klein, senior managing director in New York at Carret Asset Management, which oversees $750 million of municipal debt. Carret didn’t buy any of the bonds.”

Investors, Just Say No to Illinois, NJ and PR Muni Bonds

“Social media makes a mockery of high profile people who lie and cheat. So why do investors let politicians get away with lying, skirting the truth and spending money the state or city doesn’t have? Certainly, adding to the mountain of unfunded pension and health care liabilities fits this category of untruths.

“If you feel anywhere as angry as I do about the mile high pension promises given to public employees—without a snowball’s chance of ever being paid—then do something. The current worst offenders are Illinois, Chicago and New Jersey…

“It is a relatively easy in concept to stop this abuse of investors—just refuse to purchase these bond issues. After all, the yields on Illinois, Chicago, Puerto Rico and New Jersey municipal bonds don’t even reflect the obscene risk they pose to investors.

“Oh sure, the municipal bond fund managers say these issues are money good. They’re just protecting the book of business that fattens their bond fund yield and their own wallets.

New Jersey Cut by Moody’s as Christie Gets Ninth Debt Downgrade

“New Jersey had its credit rating cut one level by Moody’s Investors Service, giving Governor Chris Christie the ninth downgrade of his tenure as he considers a 2016 presidential run.

“The reduction to A2, the sixth-highest rank, brings the Moody’s mark in line with those of Standard & Poor’s and Fitch Ratings. The move covers a combined $32.2 billion of debt, New York-based Moody’s said in a statement late Thursday. The company put a negative outlook on the state, meaning more rating reductions may be ahead.”

The Muni-Bond Debt Bomb

“State and local borrowing, once thought of as a way to finance essential infrastructure, has mutated into a source of constant abuse. Like homeowners before the housing bubble burst, states and cities have gorged on debt, extended repayment times, and used devious means to avoid limits on borrowing—all in order to finance risky projects and kick fiscal problems down the road…

“All these debt-enabled abuses—extravagant spending, concealments of budgetary problems, and risky investment strategies—came to a head in the second half of 2008, when spooked investors withdrew from the muni-bond market in droves. A downturn in tax revenues had revealed how little breathing room some local governments had left themselves to pay their debts; also, several insurers that typically backed muni bonds had exited the market, leaving buyers unprotected against defaults. The investors’ flight should have signaled to cities and states that it was past time to reform their debt practices.”

Look, there is a legitimate place for long-term debt in the financial strategies of cities and states, Even those whose finances are in permanent crisis mode, like Trenton’s. But that legitimate place for long-term debt should be tightly linked to purposes for which there are long-term benefits. Not a one-off short-term cash flow problem created by embezzlement.

What City Council will consider tomorrow evening, in the form of Resolution #16-170, is the wrong solution to this problem, whose origins are still un-examined and the probability for re-occurrence are still unknown.

Any representation made tomorrow evening by the Eric Jackson Administration that this is a sound plan, backed by the advice and Counsel of the State of New Jersey, should be skeptically considered through the perspective of the stories above, and the dozens and dozens of stories just like them.

Tomorrow’s plan to issue long-term debt by Resolution #16-170 is bullshit.

2 comments to Storm Clouds Over New Jersey’s Finances

  • ed. w

    and so it begins

  • Max Headroom

    “Why do investors allow politicians to lie and spend money that don’t have”
    Answer: Because politicians have a captive audience, politicians extract their funds by force and/or the threat of force.
    Resist and your assets are forfeit,you can be jailed,maimed or killed.
    This is why taxation meets the text book definition of theft/robbery.Because that’s what it is