Friday, September 25, 2020

New Jersey to borrow $4.5 billion

Tracey Tully and Mary Walsh of the New York Times report that New Jersey officials approved a plan to borrow $4.5 billion to cover basic operating costs, plugging a hole created by the pandemic. Governor Murphy argued that the borrowing was necessary to avoid deep cuts in essential services such as education, transit, and health care.

Normally, economists warn that states should avoid borrowing to cover operating costs, which can create a debt spiral. Unlike the federal government, state governments cannot create dollars, so state deficits can lead to spiraling debt that can force major spending cuts or tax increases. One solution is for Congress to agree on a pandemic aid package to cities and states.

"I still think the federal government needs to do more", [New Jersey Assembly speaker] Coughlin said. "If they do, we'll be able to pay down the debt--readily." 

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