Why We Should Love More State Borrowing, Part I

Murray Sabrin

Last week we learned that Governor Corzine will propose to borrow at least $6 billion to refinance the bonds owed by the Transportation Trust Fund (TTF), and use much of the money to fix the state’s roads, highways and bridges. The infusion of money will replenish the trust fund without raising the gas tax. Moreover, the new bonds will be paid off in 30 years, thereby lowering the state’s yearly principal and interest payments.

New Jerseyans should applaud Governor Corzine’s proposal because it accomplishes so much good for the people and businesses of New Jersey as well as families and enterprises in the rest of the New York metropolitan region. In addition, replenishing the TTF also allows the Governor to fulfill two campaign promises: 1) holding the line on the gas tax, 2) investing and growing the economy.

Corzine’s stroke of financial sophistication will undoubtedly not be appreciated by the unwashed motorists and the state’s taxpayers. Motorists have been paying into the TTF for the past two decades believing that their taxes would be used wisely by the Republicrats to keep the state’s highways and byways in great shape. So what if New Jersey’s roads, highways and bridges are not smooth as glass as they should be after the people have been taxed to the tune of nearly $9 billion since 1986. Politicians aren’t perfect. Cut them some slack.

Despite the pothole-laced roads and crumbling bridges throughout the state, the billions borrowed by Florio, Whitman, and McGreevey have had an enormous positive impact on the state economy and regional businesses.

The billions that the state has borrowed boosted the income of Wall Street and New Jersey bond lawyers and investment bankers. They in turn have kept the high end real estate market bubbling for 20 years in New Jersey, New York, Long Island and Connecticut. The denizens of debt also kept retail sales humming in Tiffany, Saks Fifth Avenue, Neiman Marcus and all the other upscale retailers in the Short Hills Mall and Garden State Plaza.

Let’s not forget how the fees generated by New Jersey’s ballooning debt propelled luxury automobile market sales higher throughout the region. And while we are totaling up all the economic benefits past legal and investment fees did for the regional economy, we have to include all the second homes bought by lawyers and investment bankers in Aspen, Boca Raton, Cape Cod, and other U.S. and international locations.

As demand for luxury homes, furnishings, automobiles, jewelry, clothing, restaurant meals, vacations, and other goods and services soared along with the TTF’s debt, sales tax and income tax receipts also rose. In addition, the wages and salaries of low and middle income workers increased as more private sector workers were hired during the past two decades to provide services for the upper crust. And more local and state workers were also hired to meet the public service needs of the rich as they moved into upscale neighborhoods around the state.

Tax cuts for the rich, according to Democrats, are a giveaway to the people who do not need to have their after-tax income reduced. Well, not quite. The multiplier effect of more state debt boosts the income of upper income families and individuals in the legal and finance communities, who in turn spend and invest, fueling the economy and providing capital for new jobs. Upper income folks tend to save more than low-income families, thus giving a lift to the stock market.

Trenton Republicrats—primarily Democrats--understand the importance of issuing more state debt so the underwriting fees earned by bond lawyers and investment bankers will be used to prime the pump in New Jersey’s economy.

Governor Corzine wants to keep the money flowing to his friends in the financial community on Wall Street. Moreover, what the hell are friends for in high places if they cannot take care of you?

In the final analysis, Governor Corzine’s bond refinancing proposal is nothing short of financial genius. As a bear market will soon arrive on Wall Street, Wall Street’s investment bankers will feel the pinch. And the last thing the regional economy needs is a precipitous drop in the incomes of lawyers and investment bankers. Sales would plunge in Short Hills, Garden State Plaza and other malls in the tri-state area. Luxury home sales would drop; auto sales would take a beating. Thus, the economic consequences would be catastrophic.

Governor Corzine’s bond refinancing is just what the doctor ordered to avoid an economic meltdown in New Jersey.

(I am speaking at Bergen Community College, Paramus, March 27th, 12:30pm. My topic is, "The Coming Collapse of the Welfare-Warfare State." For more information, see http://www.bergen.edu/clife/SLSPRING06.pdf)


Murray Sabrin, Ph.D., is professor of finance in the School of Business, Ramapo College of New Jersey, where he is also executive director of the Center for Business and Public Policy, www.ramapo.edu/cbpp.