TRENTON – State treasury officials took a first step toward paying down some of New Jersey’s long-term debt Friday.

The actual defeasance of perhaps 5% or more of the state’s more than $44 billion in bonded debt will be a complicated series of transactions that is expected to be completed by the end of December.

But the first approval in that process took place in a public meeting held over the phone Friday afternoon, during which Treasury Department officials authorized the state to defease some general obligation bonds.

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The specific bonds that will be defeased weren’t identified, only a list of prospects. The exact selections will be determined later.

Technically, the state won’t repay the bonds sooner. But it will purchase U.S. Treasury securities and put them into an irrevocable escrow account at a trustee bank. When the bond reaches maturity, a portion of the U.S. Treasury securities plus interest will pay off the bond in full.

Any bonds defeased through this process get removed from the state’s long-term debt balance sheet at the time the U.S. Treasury securities are placed into escrow.

The Economic Development Authority and Building Authority will meet in the coming weeks to authorize additional bonds that can be defeased through the same process.

The transactions are being funded through the Debt Defeasance and Prevention Fund, created alongside the state budget in late June. The fund was allocated $3.7 billion, including $2.5 billion for paying down existing debt and $1.2 billion to pay for capital investments without more borrowing.

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Last year, the state borrowed around $4 billion through emergency COVID bonds in anticipation that revenues would be gutted by the coronavirus’ economic impact, but the downturn was shallower and shorter than expected. The state wound up with a record surplus of over $10 billion.

Now some of that surplus will be allocated toward paying down higher-interest debt, though Sen. Steve Oroho, R-Sussex, said it's "extremely disturbing" that it's taking this much time.

“Every dollar Gov. (Phil) Murphy continues to waste on interest payments on debt he has failed to retire is a dollar that’s not available to help New Jerseyans struggling to recover from the pandemic," said Oroho, who said the delay has cost millions of dollars.

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