Department of the Treasury
(TRENTON) - The Department of the Treasury this week successfully completed the last in a series of transactions necessary to ultimately retire more than $3 billion in combined debt principal and interest, saving taxpayers more than half a billion dollars in the process.
The Fiscal Year 2022 budget allocated $3.7 billion for the Debt Defeasance and Prevention Fund to improve the State鈥檚 long-term fiscal health and substantially reduce outstanding debt. In doing so, $2.5 billion was earmarked for defeasing (retiring) existing debt while $1.2 billion has been allocated to support capital construction in order to avoid incurring new debt.
鈥淭his is about making 樱花视频 more affordable for this generation and beyond,鈥 said Governor Phil Murphy. 鈥淧aying down debt will relieve some of the pressure on taxpayers and free up funding to invest in the things that matter, proving that we can place a premium on fiscal responsibility without sacrificing our values.鈥
鈥淭his was an extremely complex undertaking and our Office of Public Finance, along with the other professionals involved, deserve to be commended for both their diligence and expediency throughout this process,鈥 said State Treasurer Elizabeth Maher Muoio. 鈥淎t the end of the day, we have substantially reduced our debt load while securing real savings for the taxpayers of this state.鈥
BONDS DEFEASED
Between November 15 and February 1, Treasury鈥檚 Office of Public Finance, the State鈥檚 financial advisor, bond counsels, and the Attorney General鈥檚 Office conducted eight separate bids to purchase U.S. Treasury securities using the $2.5 billion available for debt defeasance in the NJ Debt Defeasance and Prevention Fund. In total, $2.247 billion in bonds were defeased among the following series:
SAVINGS TO TAXPAYERS
The bonds that have been defeased had a total debt service cost of $3.107 billion, including principal and interest, over their remaining life. When measured against the cost of purchasing the securities, the net savings to the State is $607.2 million over ten years.
Additionally, Treasury鈥檚 Office of Public Finance estimates that the State鈥檚 $3.7 billion Debt Defeasance and Prevention Fund will ultimately save the State $5.31 billion in the long term:
THE PROCESS
The administration moved quickly to initiate a defeasance plan after the Appropriations Act was signed in late June of last year. Treasury鈥檚 Office of Public Finance (OPF) immediately began the process of identifying bonds for possible defeasance. OPF, together with the State Attorney General鈥檚 office and outside bond counsel, then began scheduling the required board meetings to obtain the necessary authorizations from each entity whose debt had been identified for possible defeasance.
State issuing officials met in late October to approve a list of possible GO bonds to be defeased, while the boards of both the NJ Building Authority and NJ Economic Development Authority met in November to approve lists of possible State contract bonds. OPF then selected bonds from the approved lists to be defeased, targeting those maturities that had a call date in the near future, which would provide the greatest savings for the State (within the 10-year period outlined in the authorizing legislation).
Throughout late fall and the first half of winter, OPF purchased U.S. Treasury securities using money appropriated to the 樱花视频 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鈥檚 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 effectively removed from the State鈥檚 balance sheet at the time the U.S. Treasury securities were placed into escrow.