Treasury Retires an Additional $1 Billion in State Debt, Saving New Jersey Taxpayers More than Half a Billion Dollars

(TRENTON) – The Department of the Treasury this week successfully completed the most recent effort to retire outstanding debt, saving taxpayers some $590 million and reducing the state’s total debt by almost $1 billion.

Over the past two budget cycles, the Murphy Administration has allocated more than $8.8 billion toward the Debt Defeasance and Prevention Fund to improve the State’s long-term fiscal health and substantially reduce outstanding debt. Last year, Treasury defeased $2.25 billion in General Obligation Bonds and other debt, saving taxpayers $607 million.  In the latest round, Treasury defeased nearly $1 billion in school construction bonds, which will save taxpayers $590 million in interest payments.

“Reducing our state’s debt and the burden it places on taxpayers has been a major focus of my administration,” said Governor Phil Murphy. “Reducing our debt load saves taxpayer money and raises our standing with the credit rating agencies, allowing us to invest in building the next New Jersey at a more affordable interest rate.”

“This has been a monumental effort by our Office of Public Finance and others within the department, whose hard work resulted in substantial savings to New Jersey taxpayers,” said State Treasurer Elizabeth Muoio. “With this defeasance and debt prevention program, the Governor continues to deliver on his promise of a stronger, fairer and more affordable state.”

BONDS DEFEASED

Between January 1 and February 16, Treasury’s Office of Public Finance, the State’s financial advisor, bond counsel, and the Attorney General’s Office conducted five separate bids to purchase U.S. Treasury securities using $1 billion available for debt defeasance in the NJ Debt Defeasance and Prevention Fund. In total, $955 million in NJ Economic Development Authority (EDA) School Facilities Construction Bonds were defeased.

SAVINGS TO TAXPAYERS

The bonds that have been defeased had a total debt service cost of $1.59 billion, including principal and interest, over their remaining life. When measured against the cost of purchasing the securities, the net savings to the State are $590.8 million over the life of the bonds.

These savings are in addition to the savings generated by the defeasance actions taken in late 2021 and early 2022.  When combined together, a total of $3.2 billion in bonds have now been defeased with net savings to the taxpayers of $1.198 billion.

THE PROCESS

The administration moved to initiate a defeasance plan after the Appropriations Act was signed in late June of last year. Treasury’s Office of Public Finance (OPF) began the process of identifying bonds for possible defeasance and scheduling the required board meeting to obtain the necessary authorization from the EDA.  OPF then selected bonds from the approved list to be defeased, targeting those maturities that had a call date in the near future, which would provide the greatest savings for the State.

OPF then purchased U.S. Treasury securities using money appropriated to the New Jersey Debt Defeasance and Prevention Fund for the selected bonds. The U.S. Treasury securities have since been placed into irrevocable escrow accounts at a trustee bank. At each bond’s call date, a portion of the U.S. Treasury securities plus interest earned will pay off the bond in full.

All bonds defeased through this process have been removed from the State’s balance sheet at the time the U.S. Treasury securities were placed into escrow.