I hereby cop again to being one of the many US Public Finance nerds who predicted a serious pandemic crisis in state and local tax an fee revenues and advocated the largest possible federal fiscal interventions now admitting that I maybe should have been more skeptical of the predictions of the many public and private sector economists and analysts who - fully equipped with terrific models, wise hindsight on the overly timid federal response to the 2008 financial crisis, etc. - forecast a full-on revenue shortfall Armageddon resulting from the pandemic and the mitigation strategies undertaken in response to it. But just as the Biden Administration's $1.9 Trillion American Rescue Plan with its $350billion state and local fiscal assistance component was passing and the states started receiving and banking their allocations, it was starting to become clear that the predicted Armegeddon hadn't happened, at least not in states like my own economically-stressed home of New Jersey as well as others hard-hit by the pandemic like California, Washington and New York.
This unexpected turn of events puts state elected decision-makers in a very complex dilemma: how to make the most effective short-term as well as long term use of the comparative bonanza without looking like revenue grubbing rip-off artists. Our Harvard- and U-Penn/Wharton-trained Governor Phil Murphy is a former Goldman Sachs hotshot who also served as US Ambassador to Germany so you might think this dilemma would be a snap for him and his no-doubt very talented team of wonks figure out. However, as this pretty sympathetic piece by NJ Advance Media Reporter Samantha Marcus makes clear, the dilemma must be resolved in an equally complex scrum of competing interests with a Legislature trying to do its constitutional duty as the state's co-equal branch of government.
And in our state the Governor may already have sacrificed some of his financial credibility by borrowing $4 billion in an emergency General Obligation bond transaction that, for reasons I've never seen explained, neglected to include to include early repayment ("call") features that would facilitate the state's ability to erase that additional and (with six months hindsight) apparently unnecessary additional debt burden for an already heavily indebted state.
Now I expect that a clever State Treasurer and Governor can figure out other ways to use some of the unexpected revenue windfall to retire trenches of outstanding state debt that carries higher interest rates than the rock-bottom rates (1.95% according the the NJ Treasurer) achieved by New Jersey's November issuance. But that requires telling a complicated story to respond to a simple opposition attack that the whole debt burden- increasing deal was at best unnecessary in the political silly season of a gubernatorial election year.
So the complex weighing and tough debating of trade-offs between short-term needs like putting cash in the pockets of needy citizens, small employers, etc. and long term imperatives like investing in education, rebuilding public-transit, and addressing climate change is now in full-swing in New Jersey, as I expect it is in most other states as they grapple with the unexpected cancellation of the revenue Armageddon.
If only we had an ACIR or the rough equivalent available in these contentious hyper-partisan times to help the Congress, and all the rest of us make sense of all the disparate ways the states are dealing with their varied specific components of their dilemmas.
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