N.J. budget experts expect bigger tax windfall
State Treasurer Elizabeth Maher Muoio told lawmakers the administration is erring on the side of caution when it projects revenue. (Courtesy of New Jersey Governor’s Office)
Revenue estimates released by nonpartisan legislative budget analysts Monday present a rosier view of state tax collections than one issued by Treasury officials last month.
Revenue estimates from the Office of Legislative Services say the state will collect roughly $3.2 billion more than Treasury projections in the current and coming fiscal year: $1.4 billion in fiscal year 2022, which ends June 30, and $1.8 billion in fiscal year 2023, which begins July 1.
“Circumstances were incredible — historic — last year,” Thomas Koenig, the legislative budget and finance officer, told the Assembly Budget Committee Monday. “Well, history is repeating itself.”
The administration’s fiscal estimate predicts the state will bring in about $47.2 billion total in the next fiscal year. The Office of Legislative Services believes collections will be just under $49 billion.
Revenue disconnects have led to impasses in budget negotiations in previous years, and lawmakers have previously accused Murphy and former Gov. Chris Christie of massaging revenue figures to achieve political aims, like the millionaire’s tax.
Such gridlock appears unlikely this year, and the difference between the two estimates will likely decrease when the Treasury releases updated revenue collection figures later this month.
The Office of Legislative Services expects each of the state’s major revenue sources — the gross income tax, sales tax, corporation business tax, and the pass-through business alternative income tax — to perform above the administration’s expectations, with the greatest gains coming from taxes on businesses.
The legislative budget analysts expect the corporate business tax to bring in $965 million more than Treasury officials project over the two fiscal years, while the pass-through business alternative tax collections are expected to draw in $1.1 billion in unforeseen revenues through fiscal year 2023.
Their projections for sales and income tax growth were more measured, coming in at $392 million and $251 million above administration forecasts, respectively.
If these projections are realized, the additional collections would allow the state to avoid using one-shot revenues to pay for Gov. Phil Murphy’s $49 billion budget, which contains roughly $2.5 billion in funding from non-renewable sources, including a $1.7 billion drawdown of the state’s surplus.
“A budget that relies on $1.7 billion in surplus to be balanced is not sustainable in the long run when the surplus is $4.6 billion,” Koenig said. “Maybe revenue growth will continue to surprise us and will close, or at least considerably narrow, the gap.”
The governor has sought to draw down the use of non-renewable revenue sources in past years with some successes, but they account for roughly 5% of his latest budget proposal. Because the state will continue to receive money from legal settlements, federal aid, and other non-recurring sources, it’s unlikely officials will ever fully excise one-shots from the budget.
Treasurer Liz Muoio, who also testified before the Assembly Budget Committee Monday, signaled better-than-expected collections in March could lead to increases in the administration’s projections but noted the rosier prediction lawmakers heard Monday relied largely on heightened revenues from two of the state’s most “volatile and unpredictable” revenues.
“Erring on the side of caution is not just wise — it’s warranted on the heels of a historically volatile time for revenues, coupled with an entirely new revenue stream that no one fully understands yet in the form of the pass-through business alternative income tax,” she said.
Koenig warned a recession could reduce New Jersey’s tax collections by billions.
Administration and Office of Legislative Services officials both warned the state’s economic growth would slow as its economy emerged from its pandemic surge but said that would represent a return to normalcy more than an economic downturn.
Federal aid spending powers
Committee members from both sides of the aisle raised concerns about the administration’s removal of budget language that requires the Joint Budget Oversight Committee, a bicameral panel staffed by top budget legislators from both parties, to approve federal aid expenditures of more than $10 million.
That language was added to last year’s budget after lawmakers on both sides of the aisle grew frustrated with Murphy’s often unilateral response to the pandemic.
“I think it’s a little bit surprising to all of us because it’s something we negotiated on, and we think that having that pot of money would’ve been good for not only the governor’s office to have a say in how it gets spent but for all of us to have a say in how that gets spent as well,” said Assemblywoman Eliana Pintor Marin (D-Essex), who chairs the chamber’s budget committee and sits on the joint panel.
Muoio signaled a similar provision would likely be negotiated during budget talks, but it’s unclear how that process would change, if it does at all.
“The governor has always been clear. He said it again when he unveiled the budget message last month that he is working with the Legislature on the expenditure of federal funds,” Muoio said. “I think just the idea was look at how that process worked, figure out if we need to tweak the process going forward and do that with negotiations with the Legislature, as was done last year.”
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