By Joseph De Avila 

The New Jersey Senate budget committee approved legislation giving the state the authority to borrow nearly $10 billion to cover a growing deficit stemming from the Covid-19 pandemic and economic crisis.

The state's Republican party said the measure, which doesn't require the typical approval from voters, is unconstitutional and planned to challenge the action in court. The full legislature, controlled by Democrats, is scheduled to vote on the bill Thursday, and Gov. Phil Murphy, also a Democrat, is expected to sign it.

Democratic Senate President Steve Sweeney, the top-ranking lawmaker in the legislature and a co-sponsor of the bill, said he hopes any legal challenge is quickly resolved so the state can make preparations if the courts rule against the measure. If that happens, New Jersey will be staring at massive cuts to education and other essential services, he said.

"If it fails, we are going to have some big, tough decisions to make," Mr. Sweeney said during a debate of the bill Tuesday.

New Jersey's Department of the Treasury previously projected that the state's tax revenue will fall short of previous estimates by $10 billion through June 2021. But Mr. Murphy said Friday that number could double to $20 billion. The shortfall stems from the economic shutdown put in place to help curb the spread of the coronavirus, which led to massive job losses and steep drops in corporate and income-tax revenue.

In June, Mr. Murphy signed a $7.6 billion stop-gap budget covering three months of expenditures to give lawmakers additional time to craft a spending plan. That three-month budget pushed off several obligations into the next budget that begins Oct. 1, including $467 million in school funding, a quarterly pension payment of nearly $1 billion and $355 million in municipal aid.

Republican Sen. Samuel Thompson, a member of the budget committee, said borrowing billions of dollars to fix the state's fiscal problems will only lead to large tax increases down the road.

"It will throw a $10 billion anchor around the necks of people who are already struggling to make ends meet," Mr. Thompson said.

The legislation is moving forward following an agreement struck by Messrs. Murphy and Sweeney, along with Democratic Assembly Speaker Craig Coughlin. The state Assembly previously approved a separate measure, but Mr. Sweeney didn't support that bill.

The new version of the legislation would create a commission made up of two state senators and two members of the state Assembly that would be tasked with approving each borrowing request.

Write to Joseph De Avila at joseph.deavila@wsj.com

(END) Dow Jones Newswires

July 14, 2020 15:29 ET (19:29 GMT)

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