New Jersey residents have grown accustomed to broken promises from leaders in Trenton, as tax relief initiatives and programs that provide aid to schools, businesses and individuals are usually the first to get axed when the state faces financial difficulties.
With spending soaring to record highs in the face of an impending economic slowdown, a new bill in the state Legislature aims to strengthen New Jersey’s ability to weather future economic storms and financial crises.
The state Senate Economic Growth Committee this week voted 5-0 to approve the measure, S-2539, which would require the New Jersey Department of Treasury to conduct periodic budget “stress tests” and compile reports on the state’s ability to maintain services under varying economic conditions.
In an interview with NJ Advance Media, state Sen. Troy Singleton, the bill’s main sponsor, said it is meant to be used as a tool to guide state leaders in making sound financial decisions and “to minimize future disasters.”
“The whole concept really is to help our state estimate the potential shortfalls that could result from any adverse event, such as an economic downturn,” said Singleton, D-Burlington. “Implementing preventative measures, such as stress testing, will allow for our state government to be better protected in the wake of a recession.”
Budget and policy experts with Pew Charitable Trusts say stress tests serve as an invaluable tool to help ensure state’s can maintain critical government services during tough times.
In a 2020 report, Josh Goodman, a senior officer with Pew’s state fiscal health project, said budget stress tests help states prepare for dramatic economic downturns “or an outbreak of illness, such as the one caused by the novel coronavirus.”
New Jersey leaders were ill prepared when COVID-19 rocked the state in Spring 2020, and the ensuing panic prompted Gov. Phil Murphy to issue $3.7 billion in emergency bonds to plug a projected shortfall in tax revenue that never materialized.
Instead, the Garden State is now experiencing an unprecedented surge in tax collections, and Trenton’s overflowing coffers pose a new dilemma. State spending has soared to record highs, even as budget experts warn that New Jersey is approaching a fiscal cliff, and tax revenues are expected to fall billions of dollars short of what the state will need to maintain government services over the next five years.
Murphy and lawmakers have used some of the state’s newfound riches to pay down a fraction of New Jersey’s substantial debt, and they are attempting to mend the state’s battered balance sheet with two full payments to the pension fund, the first time that’s been done in 25 years.
But Murphy’s budget proposal for the new fiscal year that begins July 1, including the recent expansion of a property tax relief program, clocks in at a staggering $50 billion, more than 30% higher than the state budget for 2019.
Goodman, in his 2020 report, said state policymakers can use the data gleaned from stress tests to help “avert or limit a fiscal emergency and keep long-term priorities on track.”
“In times of fiscal hardship, data from these analyses can help lawmakers and governors decide how to manage budget uncertainty while still meeting the needs of their constituents,” Goodman said.
Singleton said he and his colleagues worked closely with Pew in crafting the stress test bill, which is also sponsored by state Sens. Shirley Turner, D-Mercer, and Nilsa Cruz-Perez, D-Camden. It lays out five elements to be included in the economic stress test analyses.
State Treasury officials would be required to produce long- and short-term revenue projections, provide a comparison between projections and historical trends, as well as an analysis of expenditures that are likely to change in various economic conditions. The department would also need to conduct an accounting of the state’s reserves and provide options for responding to and lessening the negative impact of economic recessions.
The bill calls for these reports to be completed every year, but Singleton said that will likely get amended to every three years, based on recommendations from Pew. The measure must still be voted on and approved by the entire Legislature before making its way to Murphy’s desk.
Murphy wouldn’t comment on the legislation, and Singleton said he hasn’t spoken with the governor about it.
“I want this information to be publicly accessible, and to guide state leaders in such a way that we will be able to make more informed decisions,” Singleton said. “I would be shocked if the administration sees this as anything but a positive.”