To address a $10 billion shortfall in revenues, the state treasurer released a report on May 22 that proposes the elimination of state aid increases that had been earmarked for education.

The treasurer said a deficit of just under $10 billion is expected through June 2021. That would include $2.7 billion for this fiscal year, which now runs until the end of September, and $7.2 billion for the nine-month fiscal year 2021.

In February, the governor proposed a $336 million increase in direct state aid to education. That aid increase would be eliminated under the recommendation in the treasurer’s report.

Proposed new programs as well as expansion of existing programs for fiscal year 2021 are also targeted for elimination. This would include expansion of Pre-K and additional Extraordinary Special Education funding. These programs would be held at current levels. In addition, the Sept. 22 state aid payment, and the reimbursement of extraordinary special education costs, would be pushed to October. The proposed moves require legislative approval.

To cover the $10 billion deficit while avoiding further painful cuts, Murphy wants to borrow billions from the federal government, and he has asked the Congress to approve a new rescue package that would help state governments pay their expenses.

To borrow money, Murphy needs the approval of the Legislature. Assembly Speaker Craig Coughlin has  endorsed Murphy’s plan, but Senate President Steve Sweeney has not. The Assembly Speaker has scheduled legislative action for June 4, but no Senate action has been announced.

Murphy’s plan to borrow billions to ease the pain of revenue shortfalls faces an uncertain fate.

The borrowing plan’s detractors say it could be in violation of the state’s constitution, which requires voter approval to borrow money, except “to meet an emergency caused by disaster or act of God.” Murphy has proposed taking up to 35 years to pay the money back.

A recent opinion by the nonpartisan Office of Legislative Services (OLS) has said that short-term borrowing, for the current fiscal year ending on Sept. 30, may be constitutional. But OLS raised questions about the constitutionality of borrowing to meet expenses in the new fiscal year that begins on Oct. 1. An in-depth analysis of the issue was published in a May 7 article by NJSpotlight.com.

Additional funding now under consideration in Congress includes $500 billion in aid for state and local governments, part of an aid package that has bipartisan sponsorship. Democratic U.S. Sen. Bob Menendez of New Jersey and Republican Sen. Bill Cassidy of Louisiana want to establish the fund to help the states hardest hit by the COVID-19 pandemic. The money would be divided into three pools and distributed according to formulas that reflect population, infection rates and revenue loss, according to an April 23 article in the Washington Post.

Meanwhile, on May 15, the House of Representatives passed a $3 trillion aid package to help states, cities, and households. However, according to a May 8 story in the Wall Street Journal, the Secretary of the Treasury said that the federal government should wait “a few weeks” to see how the previous federal aid package is working before providing more funding. Senate Majority Leader Mitch McConnell of Kentucky was highly critical of the House package.

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