New Jersey Treasury Saves Taxpayers $590 Million through Debt Defeasance Program

New Jersey's Department of the Treasury has successfully completed the latest phase of debt retirement, resulting in savings of almost $590 million for taxpayers and reducing the state's total debt by nearly $1 billion. The Murphy Administration has allocated more than $8.8 billion over the past two budget cycles towards the Debt Defeasance and Prevention Fund, aimed at improving the state's long-term fiscal health and reducing outstanding debt. Last year, the Treasury defeased $2.25 billion in General Obligation Bonds and other debt, saving taxpayers $607 million. In the latest effort, the Treasury defeased nearly $1 billion in school construction bonds, saving taxpayers $590 million in interest payments.

The bonds, totaling $955 million in NJ Economic Development Authority (EDA) School Facilities Construction Bonds, were defeased between January 1 and February 16, with a total debt service cost of $1.59 billion, including principal and interest, over their remaining life. 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 previous defeasance actions, bringing the total to $3.2 billion in bonds that have been defeased, with net savings to taxpayers of $1.198 billion.

Governor Phil Murphy stated that reducing the state's debt burden has been a significant focus of his administration, allowing taxpayers to save money and raising the state's standing with credit rating agencies, which will enable investments in the state's future at a more affordable interest rate. State Treasurer Elizabeth Muoio praised the efforts of the Office of Public Finance and other departments involved in achieving substantial savings for New Jersey taxpayers. The defeasance and debt prevention program is expected to help deliver on the Governor's promise of a stronger, fairer, and more affordable state.

The 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. The defeasance plan was initiated after the Appropriations Act was signed in late June last year, and the Office of Public Finance identified bonds for possible defeasance and scheduled the necessary board meeting to obtain the required authorization from the EDA. The office then selected bonds from the approved list to be defeased, focusing on maturities with a call date in the near future that would provide the greatest savings for the state. U.S. Treasury securities were purchased using money appropriated to the New Jersey Debt Defeasance and Prevention Fund for the selected bonds and were subsequently 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, and 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.