$1 billion of New Jersey debt added without required voter approval

New Jersey has borrowed nearly $1 billion to renovate the State House, build new offices in Trenton and redevelop a pedestrian strip near Rutgers University — all without asking permission from voters, as required by the state's constitution.

That borrowing, much of which took place during Chris Christie's last year as governor, used an accounting trick to evade the requirement for voter approval: Essentially, the bond payments were structured as leases, with the state serving as its own landlord.

It was a novel move for a state with the fourth-highest debt burden per person in the country and the second-lowest credit rating.

Officials likely reasoned that, given the depth of the state's fiscal woes, borrowing millions to build offices and renovate the State House would have been a tough sell to voters, said Bruce Afran, an attorney for Assemblyman Reed Gusciora, D-Mercer, and the Trenton property owners who unsuccessfully challenged the $376 million bond sale that took place Jan. 8.

"The issue of debt in New Jersey is so prevalent that voters almost certainly would turn down most of these projects," Afran said. "This device of using the EDA to rent it back evades the people, who almost certainly would have voted no." He was referring to the state Economic Development Authority.

THE BONDS: New Jersey bond sale adds nearly $376M in debt

CHRISTIE LEGACY: Chris Christie leaves a complicated record

Last June and this January, the state sidestepped the constitutional requirement by packaging nearly $700 million in bonds as lease payments from one state agency to another.

Those moves flew in the face of what state residents decided in 2008, taking borrowing power away from the governor's office and placing it in the hands of voters.

But increasingly, the state has turned to the lease-revenue model, in which bondholders are repaid with rent from one state agency to another, and not asked for voter approval before going deeper into debt. And taxpayers are still on the hook for paying off all that state debt.

The annual tab just to pay debt is roughly $4 billion.

Debt burden ever-increasing

Academics and credit-rating agencies have been sounding the alarm over New Jersey's debt burden for years. Under Christie, Wall Street ratings agencies downgraded the state's credit 11 times, which increases the interest that taxpayers must shoulder when the state borrows money.

New Jersey spends twice as much per year to pay its debts as the combined cost of operating state prisons, police and other law enforcement.

The debt stands as an obstacle to new Gov. Phil Murphy's plans to step up state payments to the beleaguered pension system, to restore funding to public schools and to provide free tuition at community colleges.

Murphy has not said whether he plans to continue the Christie-era practice of packaging some debt as leases to avoid voter approval.

TRENTON CHALLENGES: Phil Murphy faces challenges on taxes, transit as governor

WHAT'S AHEAD: Phil Murphy's to-do list

In the latest example of the state's workaround, the offices for taxation, agriculture and health will pay rent to the Economic Development Authority, which will use the money to pay off $216.5 million in bonds to finance two buildings to house the agencies.

A group of Trenton property owners and lawmakers unsuccessfully challenged the deal in court, saying the state was trying to evade the constitutional requirement for voter approval of general debt by disguising the obligation as a lease.

"The lease for the State House and the leases for these new EDA projects are going to obligate the taxpayers of New Jersey to spend $750 million — three quarters of a billion dollars — over the next 30 years," said John Wisniewski, a former Democratic Assembly member who was a plaintiff in the case. "Never once were the voters consulted. It doesn't pass the smell test."

New Jersey voters have decided just two bond measures since 2010, both in favor: $750 million for upgrades to state colleges in 2012 and $125 million for public libraries last year.

Since that time, the Economic Development Authority has issued $237 million in lease-paid bonds for the Rutgers project; $8 million to redevelop the state police barracks; $60 million for charter schools; $300 million for the State House renovation, and $376 million for the state offices and two new youth prisons.

Evading the will of the voters

In 2008, as concerns about debt burdens on current and future taxpayers mounted, about 58 percent of New Jersey voters approved a constitutional amendment to require voter approval for the state to take on new debt.

The ballot measure created an exception for special-purpose debt with a specific source of money to repay it, such as building dorms at Rutgers and paying off the debt with rent money from students.

Since then, the state has used the Economic Development Authority — which had issued bonds to help private companies expand in New Jersey — as a financing tool for its own projects, such as office buildings and extensive repairs to the 18th-century State House in Trenton.

The EDA can issue bonds with only the approval of its own board; the New Jersey Building Authority, which earlier financed most state building projects, has to go to the Legislature for approval.

Willem Rijksen, a spokesman for then-Gov. Chris Christie's Treasury Department, defended the practice of routing bond issues through the EDA without going to voters.

"The EDA has been issuing debt for state office buildings for the past 25 years and has the legal authority to finance such projects," Rijksen said in an emailed response to questions. "Therefore its financing of the State House, Trenton offices and other state building projects is appropriate."

Poor fiscal health

The Mercatus Center at George Mason University rated New Jersey last among the 50 states in the fiscal health of its government. Center researchers faulted New Jersey for "weak" and "ineffectual" enforcement of budget rules, including the ban on issuing bonds without voter approval. They noted that many other states also have routed bonds through "independent" authorities as an end-run around voters.



During his final state of the state speech on Jan. 9, Christie repeatedly defended his administration's fiscal record, particularly on debt. He said he has slowed the rate of growth of state debt from 10 percent a year to about 2 percent. And in a Jan. 12 report, his Treasury Department cited $499.2 million in savings from refinancing bond issues at lower interest rates.



"We have stopped the decade of exploding growth of debt initiated by our predecessors," Christie said.

FACT CHECK: Some of the true and not so true moments from Christie's last speech

EDITORIAL: Christie’s farewell address to New Jersey

Even so, taxpayers continue to pay more in interest on the state's debt. During the year ended June 30, 2016, taxpayers paid $4.2 billion to service the state's $171.6 billion in long-term debt, up from $3.3 billion the year before, according to state fiscal records. State officials projected $3.7 billion in debt service payments this year.

New Jersey's debt load of $4,388 per resident is more than four times the national average, but ranks as less of a concern than the state's future pension and retiree health care costs, said Howard Cure, director of municipal bond research for Evercore Wealth Management in New York.



"New Jersey has a lot of problems," Cure said. "I haven't viewed their debt as overly cumbersome. I am much more concerned about their pension and health care liabilities and the sluggishness of their economic recovery."

The state budgeted $146.2 million in the year ending June 30 for lease payments by state agencies to the EDA and other landlords, down from $150.8 million the previous fiscal year.

The state declined to break down lease payments from one state agency to another as opposed to a private landlord. The future State House and Trenton office building projects are not reflected in the $146.2 million figure.

EDA officials noted that the authority has financed several projects for state tenants over the last 30 years, including the New Jersey Performing Arts Center in Newark, state office complexes in Trenton, Camden and Asbury Park, and the Liberty Science Center in Jersey City.



"It's used for many different reasons, including a little bit of nimbleness," said Maureen Hassett, senior vice president of the agency. "We have a real estate team here, and we're accustomed to issuing tax-exempt bonds on behalf of the treasurer."