Legislation in support sailed through the Senate, but hasn’t budged in the Assembly

After New Jersey was so blindsided by revenue losses at the onset of the COVID-19 pandemic that state government slashed spending and borrowed billions of dollars, lawmakers introduced legislation to require regular stress testing of the state budget.

According to public-finance experts, such analyses have been used successfully in other states to manage fiscal trouble, including during the pandemic.

These financial stress tests help policymakers measure a state’s ability to maintain key services, even amid economic declines and recessions, which historically is when revenues tend to plummet but demand for government assistance increases.

Legislation seeking to add New Jersey to the states that perform regular stress testing sailed through the Senate late last week with overwhelming bipartisan support.

“A critical lesson we must learn after facing this pandemic is to implement cautionary measures for unprecedented and unpredictable circumstances,” said Sen. Shirley Turner (D-Mercer), a primary sponsor of the legislation.

Delaying the stress test

However, the fate of the budgeting reform in New Jersey remains uncertain.

A companion version of the Senate legislation was introduced over a year ago in the Assembly, according to legislative records. But it appears to have stalled.

Asked about the status of that measure, which records indicate has yet to receive a committee hearing in the Assembly, a spokeswoman for the lower house’s Democratic majority said officials were “thoughtfully reviewing the bill.”

How stress testing has been successfully used in other states, including New Mexico and North Carolina, was highlighted by NJ Spotlight News last year in an installment of The Change Project, a multimedia series examining some of New Jersey’s thorniest social and economic challenges.

In New Jersey, where regular stress testing is not required as a matter of law, policymakers initially responded to the revenue losses triggered by the COVID-19 pandemic with a series of deep spending cuts.

The budget cuts were so widespread that programs intended to help seniors and low-income homeowners who struggle to pay the nation’s highest property-tax bills were not spared.

Concerns about the revenue losses triggered by the pandemic, and the economic shutdowns imposed in response to it, were running so high that Gov. Phil Murphy and state lawmakers also approved in late 2020 emergency borrowing to help keep the annual budget afloat.

As a result, New Jersey taxpayers remain on the hook for principal and interest payments for that borrowing, which runs through the middle of 2032, according to state financial documents.

Senate votes yes

The stress-testing measure approved on Thursday by the Senate in a 37-0 vote would require the New Jersey Department of the Treasury to conduct a financial analysis of the state budget every three years.

The exercise would have to determine state government’s ability to deliver key services under various economic conditions, including a recession, according to the bill.

The state budget surplus and other reserves would also be evaluated as part of the regular stress testing, and the results of each analysis would have to be made public, including on Treasury’s website, the bill says.

‘Proactive consideration of future possibilities and the preparation of solutions will help to minimize future disasters.’ — Sen. Troy Singleton (D-Burlington)

During the pandemic, the breadth of state government’s revenue losses swamped the budget’s surplus account, which independent experts highlighted last year in a lengthy report on the Murphy administration’s response to the health crisis.

In more recent years, the Murphy administration has prioritized rebuilding the state’s budget reserves, an effort that has drawn the attention of major Wall Street credit-rating agencies amid New Jersey’s economic recovery.

Concerns about Trump effect

But the overall budget now creeps closer to $60 billion following a series of spending hikes in recent years. And what was an opening budget surplus of $8.25 billion will be reduced to $6.125 billion by the time the 2025 fiscal year closes on June 30, according to an updated budget sheet obtained by NJ Spotlight News through an open public records law request.
The drawing down of surplus will help cover a more than $2 billion gap between projected annual revenue and expenditures, according to the fiscal year 2025 budget sheet.

Meanwhile, there are also growing concerns about how a host of policies being pursued by President Donald Trump, a Republican, could impact the state’s finances. These include significant federal spending cuts and a mass-deportation initiative targeting undocumented immigrants.

In New Jersey, Murphy and lawmakers appropriated more than $27 billion in federal funds through the state’s fiscal year 2025 spending plan, in addition to nearly $57 billion in state funds, according to budget documents. The amount of federal funds distributed through the state’s annual appropriations act increased by more than $1 billion year over year for fiscal year 2025, according to the budget documents. And on the revenue side of the ledger, a recent study estimated undocumented immigrants contribute more than $1.3 billion in state and local taxes annually in New Jersey.

Budget watch

How the state would make up for its share of any lost tax revenue from deported immigrants, including sizable sales-tax contributions, is unclear. The sales tax is the largest source of revenue for the state budget’s general fund.

Murphy, a second-term Democrat, is due to present his plan for New Jersey’s next annual budget to lawmakers on Feb. 25.

In all, more than a dozen states have published at least one budget stress test since 2018, helping inform fundamental fiscal decisions, such as how much to save and how much to spend, according to a 2023 report published by The Pew Charitable Trusts.

In New Jersey, Sen. Troy Singleton, another primary sponsor of the stress-testing legislation, pointed directly to the pandemic as a reason for states to be better prepared for “potential financial pitfalls.”

“Proactive consideration of future possibilities and the preparation of solutions will help to minimize future disasters,” said Singleton (D-Burlington).

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