N.J. facing possible $1.1B budget gap over 2016, 2017, official says
The revenue gap could lead to budget cutbacks or further reductions in the payments Governor Christie has been making in recent years to the state's financially stressed pension funds for public workers.
Acting state Treasurer Ford M. Scudder and financial analysts from the Office of Legislative Services are scheduled to testify before the Assembly Budget Committee on Wednesday about Christie's $34.8 billion budget proposal for the coming fiscal year. Experts are also expected to provide lawmakers with an update of New Jersey tax collections in recent months and of broader economic trends.
In total, the OLS is now forecasting that the state will collect $1.1 billion less in taxes than Christie is assuming for the budget that ends in June and for the one now being considered by lawmakers.
In the current fiscal year, OLS forecasts a shortfall of $487 million for the $34 billion budget. That shortfall would have to be balanced with either cuts or more revenue before June 30.
Lawmakers must approve a new, balanced budget before July 1. The proposed $34.8 billion plan Christie proposed earlier this year is off by $622 million, according to the OLS revenue estimates.
The $1.1 billion hole could intensify New Jersey's budget problems, since Christie would have to find ways to balance the budget for both fiscal years -- likely by scaling back some services or further slashing his proposed payments to New Jersey's troubled pension system.
The revenue shortage could also complicate plans to phase out the estate tax and lower other rates as part of a deal between Democrats and Republicans to raise the gas tax to fund road construction and maintenance projects. The estate tax generates around $400 million for the state budget every year.
Lawmakers received an advance summary of the OLS budget testimony on Tuesday. In the memo, a copy of which was obtained by The Record, a budget analyst wrote that OLS had lowered its two-year revenue estimate by $943 million for the current fiscal year and fiscal year 2017, which begins in July, after measuring tax collections for "the important spring filing season."
Of that $943 million revision, "Almost all (93 percent) ... can be ascribed to the recent performance of the gross income tax," wrote Catherine Brennan, an OLS analyst. The total revenue difference between Christie and the OLS is now at $1.1 billion, she added.
The state budget relies on the income tax for roughly 40 percent of its revenue, and most filers send in their checks close to the April deadline. Economists say this setup makes it difficult to forecast revenue growth every year, because New Jersey's tax climate is "volatile."
Brennan added that the OLS forecast could change after Scudder presented the Treasury Department's own revenue update during Wednesday's budget hearing.
A spokesman for Christie’s office did not immediately respond for comment Tuesday.
The OLS memo was first reported by PolitickerNJ.com.
Overshooting the state's yearly revenue estimates has been a problem for Christie. Faced with a nearly $2 billion funding gap that was also revealed after disappointing tax collections in April 2014, Christie closed the revenue gap by cutting two large payments he had scheduled for New Jersey's troubled pension funds for public employees.
The move forced Christie to break the terms of a pension reform package he signed in his first term, promising increased pension payments over seven years in exchange for higher worker contributions to the retirement funds and other concessions. The state Supreme Court ruled 5-2 that Christie could not be bound to the seven-year payment schedule and upheld his pension cuts last year.
Financial experts project that the pension funds, which have nearly 800,000 beneficiaries, could begin to run out of money in the next 10 years unless officials ramp up funding drastically.
For the current fiscal year, Christie has proposed a $1.3 billion contribution to the pension funds. For fiscal 2017, Christie has announced plans to contribute $1.86 billion. Reducing those payments could trigger more downgrades from Wall Street credit-rating agencies, which shifted New Jersey's investment rating to historically low levels after Christie's past pension maneuvers.