Officials anticipate this week’s collections will help offset $3 billion budget gap, acknowledge uncertainty given that ‘more taxpayers than usual will request extensions’
New Jersey tax collections sagged for the third month in a row last month, demonstrating the continued impact of the ongoing coronavirus pandemic on the state’s finances.
But with total revenues having now fallen off pace by roughly $3 billion compared to this time last year, Department of Treasury officials signaled the budget gap could still be offset, at least in part, as they continue to collect and count income-tax payments due earlier this week.
“Just how much remains to be seen as it is likely more taxpayers than usual will request extensions,” Treasury officials said Friday in a statement attached to their official report on June revenues.
All tax payments due on July 15 — including income, but also corporate-business tax payments — are being closely eyed by lawmakers after they just gave Gov. Phil Murphy preliminary authorization to borrow as much as $9.9 billion without voter approval to manage the state’s budget throughout the ongoing health crisis.
Murphy has argued the state will need to borrow billions of dollars to offset revenue losses that are projected through the middle of next year. But just how much will be borrowed remains to be seen, and there’s also a chance the borrowing authorization will get nullified by the state Supreme Court, which has agreed to take up a suit filed by Republicans on an expedited basis.
State tax collections had been running ahead of last year’s pace heading into the pandemic, and forecasts were upgraded by Treasury officials in late February.
But things took a turn for the worse in April, when the state delayed its collection of income and corporate-business tax payments to help residents and businesses manage the economic disruption of the pandemic. Declines continued in May, with monthly revenues off pace by more than 13% year-over-year.
Treasury reports 15% drop in monthly revenues
Treasury’s latest revenue report, covering June tax collections, shows a year-over-year drop in monthly revenues of nearly 15%. And over the last 12 months, tax collections are now off 9.2%, or roughly $3 billion, compared to the previous 12 months , according to the June report.
While unemployment has surged in New Jersey as a result of the pandemic and the economic restrictions ordered by Murphy because of it, the state income-tax payments that were due earlier this week will largely reflect economic activity in 2019, when unemployment hit a record low in the state and the economy was still firing on all cylinders.
The income tax accounts for some $2 billion of the $3 billion year-over-year drop in revenue that was measured through the end of June, and Treasury officials said in Friday’s statement they are now “closely monitoring” both the income-tax and corporate-business tax payments due on July 15. Treasury officials will be providing another update next month, they said.
The most recent sales-tax collections offer some additional potential signs of hope even as they continue to reflect, year-over-year, double-digit declines.
Monthly sales-tax collections were off nearly 15% year-over-year in June. But that marks a drop from the nearly 30% year-over-year decline in sales-tax revenue reported in May. They also appear to be outperforming official revenue projections from the Murphy administration that were issued in May, which forecast sales-tax declines of more than 30% holding through May, June and July.
Moreover, there is a lag in sales-tax collections, with economic activity from the prior month usually reflected in the monthly reports from Treasury. That suggests the sales-tax figures could improve even more in the coming months as more economic restrictions may be lifted if the pace of new infections slows across the state.
New Jersey typically operates on a July 1 to June 30 fiscal year, but this year Murphy and lawmakers extended the closeout of FY2020 for three months in response to the pandemic.
A stopgap spending plan was enacted to cover July, August and September. A budget for a truncated FY2021 is now due by Oct. 1.
The law that extended the fiscal year — New Jersey is the only state in the country to take that action — also gives the governor until August 25 to present a FY2021 budget proposal to lawmakers.
If shortfalls persist, Murphy now can issue bonds without voter approval if a four-member select committee of lawmakers agrees to sign off. However, the new borrowing setup could end up being blocked in the courts under the lawsuit filed by Republicans.
The Republicans argue Murphy’s plan to issue bonds to offset projected revenue losses violates restrictions written into the state Constitution, but the governor has claimed those restrictions don’t apply during times of war or major emergency.
The Supreme Court on Friday scheduled oral arguments in the borrowing case for August 5.