New Jersey, one of the richest states in the nation, is nearly broke.
Starting next week the Garden State could be unable to pay its bills unless it secures a short-term loan of $2.25 billion, which it is reportedly close to doing with JPMorgan Chase. New Jersey’s fiscal year starts July 1st. Usually it has a fair amount of money left over from the year before. But this year, New Jersey’s excess reserves aren’t enough to cover it in the first few months of its fiscal year. The state plans to do a late summer bond offering, which will shore up its cash problem. But until then, the Garden State is what you would call cash poor. So New Jersey is going the unusual route of getting a bridge loan from J.P. Morgan.
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New Jersey’s economy does appear to be in pretty poor shape. In May, at a time when unemployment around the country continues to rise, albeit slowly, state unemployment in New Jersey fell by 400 jobs, and the unemployment rate rose to 9.4%, which is slightly higher than the rest of the nation. And I think Chris Christie’s effort to scare the state into agreeing to cut its municipal workforce is doing more harm than good. Nonetheless, I don’t think today’s news about New Jersey’s finances signals a new round of trouble in the muni bond market. Here’s why:
