Jessica Gould covers politics and public finance for WNYC.
Bible Lessons Explain NJ's Budget Sacrifice
Wednesday, April 02, 2014
To understand what New Jersey is doing, consider the biblical story of Jacob and Esau. They were the twins sons of Isaac and Rebekah. Esau was born first and therefore stood to inherit the family title and estate. One day, however, he was hungry and sold his birthright to his brother for a bowl of stew.
In the case of New Jersey, by refinancing bonds tied to the 1998 multi-billion settlement settlement with tobacco companies, it's receiving a short-term gain for a long term benefit.
At a state senate budget committee hearing on Tuesday, New Jersey state treasurer Andrew Sidamon-Eristoff said the deal will bring in more than $91 million to help balance this year's budget. He added this will also boost the quality of the bonds - which have been losing value fast as fewer people smoke - and paves the way for potential savings far into the future.
"We've given up a revenue stream for a short period of time and we've received an upfront payment," he said.
But it also means losing some $400 million the state would have gotten over the next decade.
State Senator Paul Sarlo says all these complicated financial maneuvers wouldn’t be necessary if the state did a better job estimating its revenues and costs.
"We're always throwing Band-aids and we're always trying to plug holes from the previous year," he said.
This year, overly optimistic revenue estimates along with more spending for things like snow removal, has led to a budget gap of hundreds of millions of dollars. The state plans to make up the difference with the tobacco money, and by recalculating its pension contribution, among other spending changes.