New Jersey asks JPMorgan for a $2.25 billion loan
UPDATED REPORT
STEVE CHIOTAKIS: States across the country are being fileted by the tough economy. A lot of state budgets are coming up short.
Marketplace’s Nancy Marshall Genzer is with us live from Washington to talk about those budget shortfalls. Good morning Nancy.
NANCY MARSHALL GENZER: Good morning Steve.
CHIOTAKIS: How are states coping with those shortfalls?
MARSHALL GENZER: Well, when the economy is sluggish, like it is now, the states take in less money from taxes. People and businesses are making less money, so they pay less in state taxes. At the same time Steve, demand for services and benefits like unemployment go up. Some states like Connecticut and Hawaii are coping pretty well. They’re cutting spending and raising revenue, like taxes.
Nick Johnson is with the Center on Budget and Policy Priorities. He says other states will only consider budget cuts. Taxes are off the table.
NICK JOHNSON: And that makes it really hard to balance the budget, really hard to come to agreement, and sets you up for these showdowns between the legislature and the governor that bring us to the end of the fiscal year and this kind of situation.
CHIOTAKIS: So, what are those states doing Nancy? How are they resolving those showdowns, as he says?
MARSHALL GENZER: Yeah. Well some of them are getting pretty creative. Take New Jersey. Johnson says Governor Chris Christie has pretty much ruled out tax increases, or closing tax loopholes. So the state has decided to do what you and I do, Steve — go to the bank for a loan, reportedly that loan is going to be with JP Morgan. This is an unusual approach, though for a state. They usually borrow money by issuing bonds. But that can be complicated. It can take months. Bank loans are quicker. Although they’re expensive, with pretty high interest rates.
And your state, Steve, California, wants to balance its budget using very optimistic projections for future tax revenues. We’ll see how that works. Good luck with that.
CHIOTAKIS: Indeed we will. Marketplace’s Nancy Marshall-Genzer. Nancy thank you.
ORIGINAL INTERVIEW
JEREMY HOBSON: Here in California the governor and democrats in the legislature have reached a budget deal that’ll rely on steep spending cuts and a rosy tax revenue forecast to close a $10 billion budget gap. That’s become standard procedure for states in the midst of money troubles. But clear across the country, one state is doing something pretty unusual. The state of New Jersey will rely on a bank for help with its cash flow problems.
Marketplace’s Nancy Marshall Genzer is with us live with the details. Nancy, what is New Jersey doing?
NANCY MARSHALL GENZER: Well, Jeremy, it’s negotiating a line of credit called a bridge loan with JPMorgan. The state is asking the bank for up to $2.25 billion from the bank. Now New Jersey officials shook the spare change out of the couch cushions — the state was still scrounging for money. So it went looking for a bank loan. The Wall Street Journal is reporting the state chose that JPMorgan. The banks see the state as a good risk. It’s going to have tax money coming in. It just didn’t take in enough this year. And its expenses are highest from July through September — the very start of its fiscal year. Lots of states are having a very hard time balancing their budgets this year. This is how New Jersey is dealing with its red ink.
HOBSON: And are other states doing the same thing? Is this unusual?
MARSHALL GENZER: It is unusual, Jeremy. States normally borrow money by issuing bonds. But that’s a complicated process. If can take a few months. Bank loans are quicker, and take less documentation. New Jersey has done this kind of thing before — it got a $2 billion line of credit two years ago — never had to use it.
HOBSON: Marketplace’s Nancy Marshall Genzer, joining us live. Thanks Nancy.
MARSHALL GENZER: You’re welcome.
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