State ‘well prepared’ to handle $2B dip in tax revenue, treasurer says
New Jersey’s surplus more than enough to weather shortfall, officials say
Declines in capital gains collections will slash some state revenue, but New Jersey's reserves will see the state through, budget experts said Wednesday. (Hal Brown for New Jersey Monitor)
New Jersey will collect roughly $2 billion less in taxes in the current and coming fiscal years, but the years of booming revenue will let the state weather the shortfall without much trouble, state budget experts told lawmakers Wednesday.
Despite the looming shortfalls, officials said New Jersey is well prepared to meet the funding shortfall, which could do little more than cut the state’s surplus from a healthy $10 billion to a still healthy $8 billion.
“We are well prepared to handle this April surprise,” Treasurer Liz Muoio told the Assembly Budget Committee Wednesday.
The declines are driven mostly by worse-than-expected gross income tax collections in the month of April, when business owners and others who do not pay taxes through regular withholdings typically settle their tax bills with the state.
Muoio attributed the expected drop in income tax collections to poor stock market performance and a significant reduction in state capital gains taxes. That revenue declined by at least 55% — only slightly less than the drops seen after the Great Recession and the burst of the dot-com bubble.
Still, most of the state’s other revenue sources continued to perform at or above expectations, and state revenue in the fiscal year that ends June 30 is still expected to exceed last year’s forecasts.
“This is not the cataclysmic event that it would have been 10 or 20 years ago,” said Thomas Koenig, budget and finance officer with the nonpartisan Office of Legislative Services.
Officials now expect the state to collect roughly $52.8 billion in tax revenue in fiscal year 2023 and fiscal year 2024, which begins July 1.
It’s unclear whether lawmakers will reduce the state’s surplus below $8 billion to fund legislative priorities. Muoio and Office of Legislative Services officials urged restraint.
Ratings agencies that have praised New Jersey’s handling of its finances under Gov. Phil Murphy could reverse course on recent ratings upgrades they’ve granted to the state if lawmakers choose to spend down the surplus or expand the $277 million structural deficit created by the moderated forecasts.
Martin Poethke, director of the state’s revenue and economic analysis office, said he expects job growth and consumer spending to slow in the coming year, but also believes growth will rebound somewhat.
Koenig noted lawmakers could keep the surplus to $10 billion if they skipped a $2.35 billion deposit into a state debt defeasance fund. That’s the amount Murphy suggested making in his budget plan.
“We have consistently cautioned of considerable downside risks and against expectations that revenue growth will defy gravity forever,” Koenig said. “Our downward revision today might therefore signal the end of the period of exuberance, but it does not herald a round of doom and gloom.”
The revenue declines come as New Jersey is set to eliminate a 2.5% surtax charged on business profits above $1 million dollars.
The surtax, which business groups have argued makes New Jersey uncompetitive for businesses, is set to phase out at the end of the calendar year. Its sunset is expected to cost New Jersey $1.3 billion in lost revenue over the next two years.
Unions and progressives have urged against allowing the temporary surcharge to expire, with some pointing to it as a potential dedicated funding source for NJ Transit. But Wednesday’s updated forecasts did little to move lawmakers in that direction.
“At this point in time, we’re not looking at revenue raisers,” said Assemblywoman Eliana Pintor Marin (D-Essex), who chairs the chamber’s budget panel. “I think come next year, everything will be back on the table, but this year we feel like we’re in a good position.”
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