Gov. Murphy Discusses New Jersey’s Fiscal Turnaround. WATCH LIVE:

Governor Murphy Discusses New Jersey’s Fiscal Turnaround in New York City, NY on January 18, 2024.

Great way to start off the calendar year I want to thank all of you for being here I want to thank those of you who are tuning in via computer for joining us as well we’re going to have a great conversation this cannot happen without the participation of all of you and with

The board members and the participants on the programming committee but we also thank the sponsors of Magny because this wouldn’t happen without the sponsors of Magny they’re sponsors of Mand by being sponsors of of Magny so I’d like to specifically thank assured guarantee build America Mutual credit sites Fitch

Ratings CW ratings Moody and S&P if we could give a quick Round of Applause of gratitude to our sponsors today’s format is going to be a little bit different from what we ordinarily do because of the governor’s schedule so the governor is here I’m going to introduce uh Shan McHugh who’s

Our newest board member of magney uh also an advertisement that this is a great way to get involved with the mini business so please take advantage of participating in the programming committee please join us on the board in future years so let me uh hand it off to Shannon Shannon thanks very

Much thank you everyone for coming we have a great turnout today so we appreciate it and uh just to start off with a little bit of um housekeeping um we do ask that um people silence their phones this is being live streamed and we also would like everyone

To know that there will be no audience questions again um the governor’s time is very limited and we’re very appreciative to have um to have him here today and then I’d also like to thank the program committee for putting this together there’s a lot of work that happens behind the scenes

And I really appreciate the input of all um and I wanted to point out that we will have another luncheon on February 15th the topic and the details will be coming soon so please keep your eyes open for that um and I’d also like to remind people of the nfma um high yield

Conference in Salt Lake City on February 1st and 2nd so now that we have the housekeeping done I’m going to um go over Nene Jenkins bio Nene Jenkins is executive director of Municipal research at JP Morgan Asset Management she’s based in New York uh Nene leads research efforts supporting tax awareness

Strategy Nene is also responsible for identifying investment opportunities in the high yield and investment grade sectors prior to joining the firm in 2019 she was a senior vice president for Alliance Bernstein for nine years covering Municipal high yield and investment grade sectors Nene holds a ba and Applied Mathematics from the

University of Buffalo and an MPA um in Public Finance from New York universities um Robert F Wagner School of Public Finance where she also served as an Adjunct professor and now I’d like to introduce the governor governor Philip D Murphy began his second term as New Jersey New

Jersey’s 56th governor on January 18th 2022 he is the first Democratic governor to serve a second term in 44 years since taking office govern Governor Murphy has focused on building strong fair and more affordable New Jersey under his leadership New Jersey has made strides in growing the state’s economy and

Creating new economic opportunities while shrinking longstanding inequities restoring fiscal responsibility to state government while expanding critical Investments and delivering real tax fairness relief including 14 tax cuts for New Jersey’s middle class and seniors the state of New Jersey has been has seen credit rating upgrades over the past year um which highlights the

Improved credit story and one of the reasons why we’re so excited to um hear a little bit about that story today prior to uh entering public life Governor Murphy worked for over 20 years at Goldman Sachs starting as an intern in 1982 and ending in 2003 as a member

Of the firm’s management committee during his business career he led offices in Frankfurt Germany and Hong Kong from 2009 until 2013 Governor I’m sorry I’m gonna um the governor is a graduate of NM high school Harvard University and the Wharton School of the University of Pennsylvania and he has been awarded numerous

Honorary degrees and we’re so pleased to hear the story of New Jersey’s credit so please [Applause] welcome you left out the Heisman Trophy by the way that was perfect you’re absolutely right every time I hear that I think you know some of that sounds fake but it’s

Real I could throw in a couple extra I’m particularly gratified you got my high school in there which was uh lovely well thank you thank you for joining us for this conversation I’m I’m very excited uh to talk to you a bit um I I know that you’re very busy um as mun

Analysts we we we we operate seasonally um so we’re between state of the states and before budget so I’m going to start out with a question right away um which is uh given everything that Shannon just introduced about the progress of uh of the state how do you intend to continue the

Positive momentum great question um and and one of the things I want to say up front is I don’t want to ever and certainly not today uh tear my rotator cuff patting ourselves on the back so while I we’ve made an enormous amount of progress and

I want to talk about that I also want to be honest with you about the stuff that we’re still dealing with may may I step back just to give a 10,000 foot so just a couple of things about New Jersey if you if you don’t uh if if you haven’t

Been paying close attention uh around 9.3 million residents so it’s the 11th largest uh state by population it’s about the ninth or 10th largest economy uh it is the fourth smallest geographically speaking State and you combine first and second points Were Far and Away the most densely populated state in America

We are proud when I sell I just got back a short while ago from being overseas pitching New Jersey in Japan South Korea and Taiwan the two words the first two words that come out of my mouth when I’m selling New Jersey are talent and location number one public education

System in America some of the Great American universities arguably the best in Princeton um and location second to none and when you combine location with on the Northeast Corridor with density you’ve got to be able to move people and things around better than anybody that’s really in many respects job number one

And we are lastly two other points we’re probably by many measures the most diverse state in America and we take that very seriously we wear that as a badge of honor and we our economy is overwhelmingly an innovation economy so while I made trying to make cars and

Trucks again in New Jersey the reality is where much you know we dominate spaces like pharmaceutical Bio Life Science Tech Telecom increasingly film television digital I believe ultimately generative AI um offshore wind the green economy fintech sports betting not just the handle which is number one in

America but the guts of that industry and the jobs so that’s a quick sense back to your very fair and by the way thank you for having me I should have said that to magne uh it means a lot that you all would have me here and so

Thank you for that uh and I wish I could stay for lunch I can’t um so let’s roll the tape back to what we inherited in many respects New Jersey had which by the way 30 40 years ago as you all know better than I was a AAA

Bond rated state it was the state folks look to not just as a credit uh through a credit lens but also smart public policy responsible government Etc well we had fallen off the rails over those ensuing de uh decades by the way both sides of the aisle guilty as charged

This is not a political observation uh but a reality from both sides so we inherited a state that was in in many respects broken it and I I say that through the three lenses it wasn’t growing it was incredibly unequal the the the inequalities particularly across racial

Lines ran throughout almost all of the state and we were really irresponsible and to give you a sense you all will know this better than and I think you all know this Fitch has got us at a A+ as does craw Moody’s A1 S&P straight A again we we had been a AAA

Bond rated state back in the day uh to give you a sense of how long we have been going off the rails we’ve gotten I think seven upgrades during our six years in office the last upgrade before that was 2005 the last upgrade before that was

1977 uh to give you a sense in the prior Administration 11 downgrades so by any measure we were broke broken and I’m proud to say there’s good news and and unfinished business I wouldn’t say bad news good news unfinished business is the way I think about this our revenues have grown

If you look at the budget that was in effect when I first put my hand on the Bible to the budget that’s in effect today we’ve grown from 35 billion to 53 billion that’s 7% a year the Surplus was 410 48 million I think in the last budget signed by my predecessor today

It’s uh the budget that we’re in the middle of today 8.3 billion so over 20 fold increase we’ve shrunk a lot of the inequities although we have a long way to go and as I mentioned we’ve stabilized um we’ve stabilized our our credit but we still have challenges the

The inequities journey is unfinished business you know when you have the mo when you have the widest white non-white Gap in the criminal justice system of any state in America even six years you can’t flip any light switches that’s a one example of a work in progress we

Have reinvented our economy in many respects so there are literally new industries that are D I mentioned generative AI offshore wind um film television and digital film was invented in Jersey but we had long ago walked away from it uh sports betting the green economy offer wi Etc so that I feel good

About that we’ve got several deficits though that we have to be honest with and we’re we’re cleare eyed about it we have in many respects fixed NJ Transit through the customers lens reliability safety confidence ontime performance but we now are going to have to tackle what is a growing fiscal Challenge and we’re

Working on Solutions there I’m confident we’ll come up with that we have something called the transportation trust fund which allows us to invest in our infrastructure at record levels we have to replenish that again I think there’s a solution that uh that we’re close to and that we’ll we’ll arrive at

And then thirdly just the operating structural deficit and we went into this knowing this particular fiscal year knowing that the econ the global economy would be challenging inflation High interest rates uh at that point one fullon war now two fullon Wars aftermath of the pandemic supply chain tail end

Issues so we deliberately said you know what we’ve never approached a surplus of $8.3 billion so we printed that and knowingly said we’re going to run in this difficult time uh a structurally imbalanced operating budget but not ever um succumbing to what has happened in Washington I think the last balanced

Budget in Washington is the mid 90s as I recall you can’t do that in New Jersey thank God and we won’t do that so that’s you know we’re going to have to look at our revenues and we look at our expenditures good news is in New Jersey

Enormous latitude one of the big topics that comes up when we sit with the rating agencies and many of you are in this room is constitutionally not me personally constitutionally most powerful governor’s office in the country so we can if we had to pull many levers to get ourselves back into a

Better structural position so we’re as you mentioned Nene we’re looking at the uh this is budget season uh and so we are looking at all of our options right now now huge Bol medium to longterm I can get into that in in a minute if you’d like and and and an optimist that

Will be able to navigate our way through a lot of external exogenous challenges right now I promise I won’t give a Castro speech to answer every question no no I appreciate it if I take my shoe off and bang this table um well well let’s touch upon

Let’s let’s continue with the the budget process um we’ve had a lot of focus uh as analysts we we look at the process we look at policies that are in place and I’m just curious if you are considering any changes of significance to the budget process well the process itself

Process itself is Bill glal here Bill how are you long time buddy bill would like us to do multi-year budgeting uh and he and Paul Paul vulker have been on my ass for uh even as longer than I’ve been Governor I don’t think that’s going to happen but I that doesn’t mean I

Don’t think it’s a good idea um I just stepped down a few months ago as chair of the national Governor’s Association and by the way I was at the same time chair of the Democratic governor Association no one had ever done that before and having done it I now know why

Because you could one is Kumbaya the other one is going to we’re going to rip your throat out and you get the emails crossed you have unintended consequences but at any event I say that because with six years in and having had that position I’ve got a good lens on how

Budgets are done in other states and again to to Bill’s point and the like Paul vuler who is a good friend uh I I I agree with him but I don’t see it realistically we largely have a very good process with one exception which I’d really like to see changed and I

Think the legislative leadership agree with me um I’ll I’ll present the budget in late February it’s due to be signed on June 30th in that intervening and again I know enough to be dangerous because I’ve been doing this a while and I’ve now seen a lot of other states those intervening

You know March April May June are very robust open transparent back and forth months of hearings private deliberations Advocates weighing in it’s a really really good process for the most part the part that folks complain about um and rightfully so in my opinion is that is that it ends

Suddenly so you’ve got a plus or minus 120-day process 105 days of which or 104 or six are really robust and and open great back and forth everybody’s airing things out you you start to begin to figure out where compromises are all the stuff you would want but there’s an enormous

Amount that gets done at the last minute and so I’ve said for several years I would support and again I think the legislative leaders if they were here would support as well some mechanism at the end that there’s a minimum you know 72 hours to review X or

Y uh bills getting posted uh with some some window I suspect that would help you all although I know that you care mostly about where it lands uh but I in particular think it would help our residents advocate get other stakeholders uh feel like that they had

A process that they were really a part of that’s the one big fix I would hope we could change I don’t think I don’t I don’t see it’s it’s changing this year although I would not be opposed to that you know I think you’re right uh

You you have many people who consume the budget and I will say that that for mun analysts uh budget season is I guess our Super Bowl we we’re going through the documents we want to understand what this budget means for credit from a high level um what we’re looking for is

Trying to understand where the flexibility is because we are very cognizant of the current economic conditions and there are many states that are facing challenging Revenue environments uh where is the flexibility that you’re um considering as you enter this this this cycle yeah I’m not sure I’ve got

News to make given that we’re still building uh the plane uh our revenues excuse me so far are helding up are holding up largely well um January April’s a huge month obviously for obvious reasons January is a pretty big month uh because you get a real sense of you get your first real

Sense of income tax Trends and you certainly get your first sense of consumption or not first but your biggest sense given you you’ve got the the Christmas uh reality holiday reality and we’ll see the the the news including in the Press today I believe we you all

Saw the general American sense of of cons consumption around the holidays is strong I don’t have details enough to give you what that looks like yet in New Jersey um so we’ll see um but the levers are significant uh by the way it’s 20 that’s now 20 tax cuts uh we we’ve done

Six more since my people gave you the propaganda to introduce me so I apologize we didn’t get that up that would never have happen happened in the mid-70s in the Soviet Union we would that would have been right on the money uh so we’re proud of that and that includes listen affordability continues

To be bless you you get a lot you know the the good value for money equation is hugely important in New Jersey so you know as opposed to realistically weever going to be the lowcost state to either do business in or raise your family in we are our every State’s got a

Bumper sticker ours is unquestionably the number one state in America to raise a family that’s New Jersey and you think about what goes into that well we fund public education per capita unlike anybody else on the planet and that’s deliberate that’s a coldblooded decision uh because we see that not just for our

Precious kids and how they grow up but that’s a huge element of our Economic Development and so affordability uh is always an issue but it’s within that context if you’re the number one state in America to raise a family um you’ve got to have great public education you’ve got to have and

We do top handful of Health Care Systems in the world great infrastructure particularly our location great quality of life and all that goes with that you know we are proud that we lead the nation in gun safety for instance uh freedoms are now increasingly I talk to CEOs and and and

Companies and families all the time and you know even compared to when I got here six years ago uh you know what what do your reproductive Freedom laws look like L what do your lgbtqia plus protections look like gun safety how do you feel about the environment

And so those are all factor in and those to some extent run through a budget uh but but we don’t want to lose our mantle so again enormous flexibility to a point enormous flexibility so if the roof fell in our pension payment this year assuming it’ll be full and I’ve already previewed that

It will be it’s over7 billion because we’re still making up for incredibly irresponsible behavior that went on for 25 years across both sides of the aisle had we been making a full pension payment in each of those 25 years that 7.1 is billion dollar payment would be just at a

Billion think about that an annual penalty for past malfeasance and irresponsible Behavior both sides of the a six billion dollar a year in just pension payments and I’ve said this to many of the rating agency folks who are here and their colleagues while it is not a sacred obligation like a bond

Would be and by the way with defe I think we defeased we announced the defeasement Daryl today $500 million more we’re now up to 3.7 billion I think those savings will be almost a billion four over the lifetime so we we manage our debt portfolio aggressively we did I think

The trade of the century in the throws of the pandemic uh we borrowed $ 4 billion at an infimal interest rate and parlay that into a lot of what we’ve done since my only point is we don’t a pension obligation is not you know I didn’t sign an indenture associated with

That but I view it essentially in the same sacred neighborhood we have to once again I think we’re getting there I’m proud of our progress but still work unfinished business we have to be again the state that people trust our residents all the way from our residents

To folks like you in the room you you want to say you know whether I like what they’re doing or not it’s part of a journey that they have laid out for us from day one they they haven’t woken up and gone off the rails that they’re

Doing what they said they would do maybe not at the pace with like uh but we’re getting it done so that’s I could go on and I won’t I will actually though because you’ll go I I think it’s been a focus of any analyst uh that has covered

This credit closely for me it’s Chris hessenthaler he’s my lead analyst on New Jersey Chris is sitting right up there in the front row I slip Chris at 20 before I leave just to make sure uh I think this is the point when I say um you know all of my

Comments are my own they do not reflect JP Morgan or Associated Affiliates thank you for the disclaimer opportunity um but we’ve been very focused on the tension Challenge and really want to understand how sustainable the path forward is because as you say the the challenge is great yeah it’s sustainable

Um if if we were here six years ago I would have said it is likely sustainable we we we had to climb over a series of years about a billion or more per year more than the prior year so what I look at by the way just in terms of first

Piece of paper I get is a best guess sense of revenues uh including in this year and projected in out years um what is sort of just what your print plus or minus are going to be consistent with what you’ve been doing in a bunch of categories on expenses and

Then what I call the UPS list what’s what’s changing and so the UPS list on the pension payment for several years was up a billion at a point again remember what I said earlier I believe the budget that the last budget my predecessor signed I say that because

That’s it’s in the middle of that budget that I put my hand on the Bible Surplus 48 billion $48 million the budget I just signed on June 30th $8.3 billion and so roll the tape back when you’ve only get 48 million of surplus and you’re up on the pension fund alone

Never REM you’re up on school funding we didn’t we didn’t allow the school funding formula before I got here to be implemented so now we’re in year seven coming up I’m happy to say that’s going to be the final big up but the pension up this

Year it’s going to be 50 to 75 million I think so it’s sort of a rounding error so you you’ve gone from when we were putting four billion in then five then six and then we got to the Mountaintop that that up it’s a big

Number but the up went from a billion to less than 100 million school funding is still going to be a multi hundred million up that’s going to be the biggest up that we’ll have in the budget and that’s been the case other than the when we prior to getting to the mountain

Toop on the pension that would have been the biggest up but school funding has been up 5 to 700 million a year now for every year of Ben here that will ultimately reach its Mountaintop with the budget that I’ll be announcing so short answer I feel very good about

The pension payment uh going forward got it um occasionally when we uh talk in the investment Community we’re asked what our favorite bond is I think we know your answer already but I will ask you what your Capital spending priorities are my favorite Bond it’s New Jersey we understand you

Put the indenture under my pillow at night uh Capital spending uh the big one although the feds are playing an enormous role is the Hudson River tunnel project which is either called that or Gateway that’s finally happening uh thank God uh and that’s but that’s the biggest infrastructure project in the United

States right now and I suspect it will be for the next 10 or 12 years but again could not have asked for more support from the feds on that and I think the details of that are all public and well known School construction will be a continue to be a big

Priority uh when you’re in the number one public education system in America you better damn well have good schools infrastructure investment at record levels but again assuming we get the transportation trust fund settled which I’m highly optimistic we will that’ll be spoken for which is a good thing and I’d

Say lastly this these are not Mega items but they have enormous impact in the economy going forward and if I could Riff on that for one minute and that is we are placing bets on a series of innovation hubs the most recent one we’ve announced although The Economic Development

Authority has not said on that one specifically how much it will put to work but we typically put 20 to $25 million to work on these Innovation hubs the most recent one is a generative AI joint venture with Princeton University which we think has enormous potential

The Helix in New Brunswick which is has much more of a life sciences angle although Bell Labs a few weeks ago announced they’re going to they looked around the entire country New Jersey one and they’re going to move from Murray Hill into New Brunswick over the next number of years something called sitech

City in Jersey City associated with Liberty Science Center uh we will have a fintech hub I think to be announced soon a we’re cooking up a applied when I when you say plasma physics at least I think you think of nuclear reactors but there’s sort of a

I’m going to this is pejorative and I don’t mean it to be the sort of a low-end version of that applied plasma physics that’s another area that we’re focused on we have the wind energy Institute so I think our Board of Public Utilities next week is going to announce

A big solicitation so those all have to a greater or lesser extent Capital associated with them and the reason the Riff is very simply this what our one of our objectives other than grow stronger fairer responsible which are the three legs of the stool from day one grow the economy

Shrink in equity equities be a state that people could trust again remember I said we started at 35 billion of revenues in that first budget that was signed by Governor Christie and we’re in this budget that we’re in now we’re plus a plus or minus 53 billion one other way to think of

That is going forward through economic Cycles good and bad our objective is to meaningfully outperform that point in the cycle relative to what how we performed in the past so I’m not naive enough to think that the 35 billion of Revenue in the fiscal year 2018 budget could be

Automatically a 53 billion dollar experience at the exact same economic circumstances took place but I am AR sort of walking around back of the pocket um hope is that that economy produces 10 to 20% more Revenue uh than it did when we live through it does that

Make sense to y’all so that a $35 billion Revenue economy really looks more like a $40 billion Revenue economy Etc um and I think we’ve got the pieces in place for that to happen I think I’m getting the hook am I well we’re we’re coming close um so so I’ll

Give you one more which I’ve I’ve personally been curious about um you talked you spoken a bit today about what you inherited um and the success that you have achieved so far and unfinished business uh and so I guess my question for you is what advice would you give to your eventual

Successor um to keep it going very good question and by the way it’s not at all clear who that’s going to be it’s going to be a crowded field of Democrats and a crowded field of Republicans and for the most part if the names that how many

Folks live in Jersey I should have asked you that okay bless you all uh um for the most part by the way part of the reason why that economy that generated 35 billion our hope is generates revenues that are sort of 10 to 20% more than

That is not just a reconfiguring of the economy including old stuff we now manufacture a lot more than we did six years ago CNBC by the way I should get this off my chest not necessarily a home game for me CNBC rated us last year as the number one improved state for

Business climate in America um but the other reason is I I thought of this when you all raise your hands we have a lot more bodies in New Jersey than we did six years ago uh it’s partly pandemic and by the way we we root unequivocally for New York City’s success because a

Lot of people live in Central and northern Jersey because of a Nexus to New York but the reality is co contributed to that um affordability has certainly contributed to that median house price single family home in New Jersey is 525,000 today I think in Brooklyn that’s probably double I

Believe over over a million I was about to say over a billion uh but so let me go back to this so we’re trying to draw a line under past bad habits that that would probably be job number one one so you make the damn pension payment you should be

Reducing indebtedness or managing deesing preventing we have a fund in addition to our Surplus called the debt defeasance and prevention fund which still has some money in the tank that allows us to be opportunistic or fund stuff right off the balance sheet so for this room in particular draw a line

Under or over I guess the bad habits of the past and just that that’s take it as a given and what happened 30 to 35 years ago bad habits became the norm in New Jersey so they were accepted practice uh and and it’s in other words when you went from one Governor to

Another the political party mattered less than hey if he did it or she did it I can do it and we came in again we’re not holier than now we still have challenges our work is not done I’m not Pat myself on the back but we came in

Committed if nothing else we were going to draw a line and say you know what this will be different so far for the most part it has been but again we still have work to do thank you Governor Murphy the hook is here we’re going to keep you on schedule

And we really appreciate you spending some time with us um and and and glad you joined us for lunch today I I love it thank you [Applause] than