State projects billions more in revenue after income tax collections

New Jersey is swimming in cash, and the glut has lawmakers eyeing more tax relief.

Two months after they issued already optimistic revenue projections, officials from the Treasury and Office of Legislative Services now predict New Jersey’s tax collections will surge above even those rosy expectations.

The legislative office’s forecast collections for the current and coming fiscal years are $6.9 billion more than the Treasury projected in April and an additional $3.8 billion above what the nonpartisan office forecasted that month.

Treasury officials are even more optimistic, predicting an additional $7.8 billion in collections during the current and coming fiscal years.

Martin Poethke, director of the state’s revenue and economic analysis office, told the Senate Budget Committee Monday he has “never seen a period like the last two years.”

“The growth rates and the turnaround in the revenue forecasting has been stunning,” Poethke said. “My colleagues state by state across the country are seeing the same things.”

Most of the unforeseen gains are driven by surges in the state’s income tax, which the Treasury predicts will bring in $4.9 billion more than Gov. Phil Murphy predicted during his budget address in March.

But officials warned lawmakers to be prepared for a coming economic downturn, noting sales tax growth suffered a sharp slowdown in April and quarterly income tax payments paid in April actually declined by 24%.

Independent contractors and certain small businesses make estimated quarterly income tax payments, while the majority of filers pay income tax through withholdings on their paychecks. A decline in quarterly collections signals growing caution among those filers, Deputy Treasurer Aaron Binder said.

“We are in a very good place today, better than anyone could have hoped for 24 months ago,” Binder said. “This is a good problem to have, but it will clearly serve as a temptation. We have to be cognizant of the economic news coming in on a daily basis.”

What to do with extra billions

The surging forecasts have left New Jersey lawmakers with an enviable problem: They must decide what to do with the billions not already set aside for the coming fiscal year’s budget.

Sen. Paul Sarlo (D-Bergen), chair of the chamber’s budget committee, suggested New Jersey’s cash reserves could be boosted to $7 or $8 billion. Binder said that range seems “reasonable,” adding that paying down debt and “looking at additional property tax relief” are priorities.

It’s not yet clear what the tax relief or debt components will look like. There are a few likely candidates.

Officials could choose to boost the state’s planned $6.8 billion pension payment and pay more than the $1.3 billion Murphy has proposed adding to a fund used to pay down debt and save the state money on debt service.

The matter of tax relief is a less clear cut. Assembly Speaker Craig Coughlin said Monday he wants something historic.

“We have additional money this year, and New Jersey needs tax relief now. In this year’s budget, I will insist on the largest tax relief program in state history,” the speaker said in a statement.

Cecilia Williams, the speaker’s spokesperson, declined to provide details.

Tax relief could come through a quicker phase-in of the governor’s proposed ANCHOR tax credit program, a $900 million replacement to the perennially underfunded Homestead Benefit Program and the Middle-Class Rebate Program.

ANCHOR is intended to deliver qualifying homeowners an average credit of $700 in its first year. The average award would rise to $1,150 by fiscal year 2025, when funding for ANCHOR would reach its $1.5 billion peak.

No new public hearings

New Jersey lawmakers face annual criticism over what is typically an opaque budget process where decisions are often hammered out in closed-door meetings between the Senate president, Assembly speaker, and governor.

While budget committees in both chambers have each held a series of hearings in recent weeks to allow advocacy groups and members of the public to give input on how the state should spend its money, that input all came before officials predicted the latest surge in revenue.

Some groups have already renewed calls for money to go to their spending priorities.

New Jersey Policy Perspective, a left-leaning think tank, on Monday urged the state to establish a state child tax credit and boost award levels for the earned income tax credit, among other things.

But Sarlo said the public won’t get another chance to speak before his committee, noting advocates have spent weeks telling lawmakers what their spending priorities are.

“We all know what their needs are,” he said. “I think we have enough public input.”

The surge of funds means lawmakers can eschew infighting over spending items that often color budget negotiations.

Indeed, legislators and the administration appear to be on the same page on most of their issues, but control over roughly $3 billion in unallocated federal funds disbursed to the state under the federal American Rescue Plan remains a sticking point in budget talks.

Language in the current year’s budget gave the Joint Budget Oversight Committee approval powers over the allocation of most of the federal funds New Jersey received, but those passages were notably missing from the governor’s spending proposal for the coming fiscal year.

Sarlo, Senate President Nicholas Scutari (D-Union), and Assembly Budget Chairwoman Eliana Pintor Marin (D-Essex) have each said that language must return.

“They have to just give that back to the way it was originally, and it should be no issue,” Sarlo said Monday, adding the two sides were “getting there.”