Ex-Senate president’s center warns N.J. will likely drain reserves in coming years

By: - June 15, 2023 8:30 pm

Multi-year forecasts the Steve Sweeney Center for Public Policy released Thursday say the state could be $18.5 billion in the red by 2027. (Dana DiFilippo | New Jersey Monitor)

A group of fiscal experts working for former Sen. Steve Sweeney’s think tank is warning state government that its spending will likely exceed revenue in coming years, without even considering voluminous tax relief proposals backed by Assembly Speaker Craig Coughlin and Senate President Nicholas Scutari.

In a report released Thursday, the Steve Sweeney Center for Public Policy warned that New Jersey is set to spend billions of dollars more than it will collect through taxes over the next five years. The center’s board is chaired by Sweeney, who left the Senate in 2022 after losing reelection and is a potential candidate for the Democratic nomination for governor in 2025.

Under the baseline scenario that the center’s experts call most likely, New Jersey would fall $12.5 billion short of meeting its current costs over the next five years, while their more pessimistic model said the state’s five-year shortfall would rise as high as $18.5 billion.

“Basically, the state will be $3 billion to $4 billion short in each of the years in the next four fiscal years under the scenario that we’ve laid out here,” said Mark Magyar, the center’s executive director.

Such shortfalls, which the center said have an 80% chance of happening, would force the state to spend down its $8 billion surplus, risking credit ratings downgrades and raising the specter of spending cuts or tax hikes.

The state would spend down its reserves in the near term even under an optimistic forecast — which the experts said have only a 20% chance of materializing — but would find its costs stabilized and its reserves rising by fiscal year 2028, when the group predicts a $6.1 billion surplus.

The Sweeney Center’s forecasts measured future revenue against services offered in the current budget with an annual 3% increase for growth. 

The report does not weigh how StayNJ, Assembly Speaker Craig Coughlin’s $1.2 billion senior property tax relief proposal, or proposed changes to the state’s corporate business tax would affect budgets in future years. The center said it would issue an updated report in July that accounts for new spending.

The report’s projections include corporate business tax collections from a 2.5% surcharge applied to business profits above $1 million (the surtax is set to expire at the end of 2023). The surcharge’s sunset is expected to cost the state $322.5 million in foregone revenue in the fiscal year that begins July 1 and $1 billion in future fiscal years. 

The analysis also assumes some other cost increases, including $4.9 billion in additional state school aid over five years, $7 billion in Medicaid and other health programs over four years, and an annual $500 million to head off a fiscal cliff facing NJ Transit beginning in two years.

“Transit, it has been limping along with not a lot of state support but extraneous exterior funding coming in from Turnpike revenues,” said Richard Keevey, former director of New Jersey’s budget office, who added the agency’s fiscal situation would grow yet more dire after federal pandemic aid runs dry.

The center’s report comes amid a downward trend in state revenue. In revenue forecasts released last month, the Treasury and Office of Legislative Services said the state would collect roughly $2 billion less than previously expected. On Thursday, Treasury said May collections declined by roughly 20% year-over-year, or $642 million lower than the same month last year.

Should StayNJ stay

Though the Sweeney Center experts avoided making specific policy recommendations, some members said Coughlin’s senior tax relief proposal would hasten the winnowing of state reserves. The plan has been criticized by the Murphy administration as too costly.

“At least in my humble opinion, there’s no way the state could support the extraordinary spending that’s been proposed under Stay New Jersey,” Keevey said.

Assuming state revenue tracked with the center’s baseline projection — a middle ground the center said is the likeliest among its forecasts — and StayNJ was enacted, the state would spend down its surplus by July 2025, a year earlier than it would with just the services the state pays for today.

But Keevey and others acknowledged that lawmakers would likely adjust spending in future years if it found the state’s surplus dwindling.

“I’m not going to turn around and say that Stay New Jersey is not affordable, but at least it means legislators can look and say, ‘OK, if we do Stay New Jersey, this is what it potentially means in the future. Does it then squeeze something out?’” said David Rousseau, a former state treasurer.

Though Gov. Phil Murphy has expressed concern about StayNJ’s cost, lack of targeting, and administrative load, the plan has won support from the speaker’s legislative colleagues, with some disagreement about how to fund the plan.

The program would offer New Jerseyans ages 65 and older a tax credit equal to 50% of their property tax bill, to a cap of $10,000, beginning in the 2025 tax year.

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Nikita Biryukov
Nikita Biryukov

Nikita Biryukov most recently covered state government and politics for the New Jersey Globe. His tenure there included revelatory stories on marijuana legalization, voting reform and Rep. Jeff Van Drew's decamp to the Republican Party. Earlier, he worked as a freelancer for The Home News Tribune and The Press of Atlantic City.