Sales and property taxes could go up if New Jersey follows through on a plan to borrow up to $9 billion from the U.S. Federal Reserve to patch the holes in revenue ravaged by the coronavirus pandemic.

Gov. Phil Murphy first discussed the possibility last week but it is unclear if legislative leaders will sign off on the proposal.

New Jersey doesn't know the true impact the pandemic has had on state finances, but it inevitably will slash major revenue streams and put Murphy's $40.9 billion proposed budget in jeopardy. Sales tax collections will slow after Murphy ordered nonessential retail stores closed; hundreds of thousands of taxpayers are out of work and filing for unemployment, impacting the income tax; lottery sales were hit and gas tax collections decline as New Jerseyans stay off the roads.

Earlier this month, the central bank said it would buy up to $500 billion in bonds that mature in two years or less that are issued by states and cities across the country. Murphy said he did not know the exact amount the state would borrow, but it could be as much as $9 billion for New Jersey under the program's cap.

"How that impacts, and we don't take any of this lightly, whether it's credit ratings or other realities we take very seriously, but the fact of the matter is, we are going to have serious cash flow challenges," Murphy said Thursday.

The governor said this was "an essential tool to have in the toolkit" because the state can't depend on direct cash assistance from the federal government, support Murphy and New Jersey's congressional delegation continuously push to receive.

Murphy said he spoke with U.S. Senate Minority Leader Chuck Schumer, D-N.Y., Friday night, who told him "there’s not momentum right now in Congress to put significant amounts, or any amount of money, into direct state aid and that would lead unequivocally to a national disaster," Murphy said.

"Let me just tell you what the alternative would be, particularly if we can’t borrow money," Murphy said Saturday. "We will have layoffs that will be historic, in the history of our state, at the state level, at the county level and at the local level, that’s what’s at stake. I don’t know how many, but it is big, big numbers so I plead. This is not either or. We need both direct financial assistance to states from a bill passed by Congress and signed by the president and we will need bonding flexibility in either case."

Draft legislation of the plan was first reported by Bloomberg. Sales and property taxes would be used to repay the bonds, and the current 6.625% state sales tax and local property taxes could increase if needed. The average state property tax bill last year was $8,953, among the highest in the country.

If New Jersey doesn't receive federal assistance and doesn't issue bonds, Murphy said, "Folks should assume we're going to have to cut programs, and that will affect everybody in this entire state. There's just no other way around it. I hope it doesn't come to that.

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New Jersey requires voter approval before it can issue general obligation bonds, and does not allow borrowing to cover operating costs in most cases. However, the state Constitution makes exceptions for "purposes of war, or to repel invasion, or to suppress insurrection or to meet an emergency caused by disaster or act of God.”

Republicans questioned the constitutionality of Murphy's plan.

“The reference to the ‘act of God’ clause in the constitution, which Murphy’s legal team seems to be promoting, has no effect on the holding in [the state Supreme Court case] Lance v. McGreevey,” said Assemblyman Jay Webber, R-Morris. “The ‘act of God’ clause applies to the provision requiring voter approval of debt, not to the constitution’s guarantee that our expenditures will not exceed our revenues, which do not include monies from bond issuances.”

Any legislation would need the support of Assembly Speaker Craig Coughlin, D-Middlesex and Senate President Stephen Sweeney, D-Gloucester, who said he first needed to see the where the state's revenues stood.

“We need to get a firm grasp of all the economic and fiscal factors that will impact the state so that we can make plans to restart the state’s economy when we emerge from the coronavirus crisis,” Sweeney said. He assigned budget chair Sen. Paul Sarlo, D-Bergen, and Republican Budget Officer Sen. Steve Oroho, to work with the Murphy administration to plan how New Jersey can restart its economy.

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“To help us through the unique challenges and the significant revenue loss the coronavirus public health emergency has caused, I will work with Governor Murphy and Senate President Sweeney to responsibly borrow funds to make up for our revenue shortfall and stimulate our economy," Coughlin said in a statement. “Funds must be specifically dedicated to assisting our residents, businesses, municipalities and schools. We must simultaneously achieve budget savings during this most challenging period in our time."

Earlier this week, New Jersey pushed back its income tax filing three months to July 15, and became the only state in the country to also move back the deadline for passing a new state budget.

The state Treasury also put close to $1 billion in spending from the current fiscal year's budget in a lock box, freezing programs such as the Homestead Property Tax assistance until the budget director determines New Jersey has the money to spend.

The latest state Treasury revenue report released Wednesday has a one-month lag in reporting, so the impacts of business closures and banned gatherings are not reflected yet in the numbers. The March analysis showed that total collections were up $1.3 billion, or 6.2% percent above the same period last year.

"This delay [to file income taxes], in combination with the likely weakness in future withholdings from employee wages, suggests a challenging period for State tax revenue collections lies ahead," the Treasury reported.

On Monday, the credit ratings agency Moody's Investors Service lowered the state's credit rating outlook from "stable" to "negative." It did not lower New Jersey's credit score, which could impact the state's interest rates on borrowing.

Ashley Balcerzak is a reporter in the New Jersey Statehouse. For unlimited access to her work covering New Jersey’s legislature and political power structure, please subscribe or activate your digital account today.

Email: balcerzaka@northjersey.com Twitter: @abalcerzak