N.J. faces $2B budget shortfall, but Christie holds out hope
Monday, January 14, 2013 Last updated: Monday January 14, 2013, 7:38 PM
BY JOHN REITMEYER
STATE HOUSE BUREAU
With six months left in the fiscal year, New Jersey needs a nearly 12 percent growth spurt in tax collections to stave off possible cuts in education aid, property tax relief or the public employee pension fund.
But that kind of economic growth hasn’t been seen in eight years, according to an analysis by The Record. And it happened then only because borrowing gimmicks and a host of tax increases by Gov. James McGreevey generated a huge revenue spike.
Governor Christie — whose current budget features tax cuts, not tax hikes — is still holding out hope that tax revenue from corporate bonuses and Wall Street gains will combine with the rebuilding effort from superstorm Sandy to create an economic burst.
New Jersey’s budget — built on tax projections portrayed as highly optimistic as soon as Christie introduced them in early 2012 — is on pace for a $2 billion shortfall. But Christie is not talking about spending cuts — cuts that would be distasteful to any officeholder in a reelection year.
Waiting deep into the fiscal year to confront any revenue shortfall could leave only a few unpopular options or open the door to one-shot financial stopgaps that end up costing taxpayers more in the long run.
“I think it’s all too early to be pushing the panic button,” Christie told The Record in a recent interview when asked about a revenue shortfall that his own administration measured at $451 million last month.
Rebuilding from Sandy could serve as a much-needed stimulus in New Jersey, where unemployment was near 10 percent, among the highest of all states, before the storm hit. So far only $9.7 billion, to cover flood insurance claims, has been cleared by Congress heading into this week’s voting sessions.
A significant factor in a possible recovery built in large part on Sandy is how much of the expected $60 billion federal aid package will ultimately make its way to New Jersey.
After Hurricane Katrina devastated much of Louisiana in 2005, officials lowered that state’s revenue outlook. But President George W. Bush signed a $51.8 billion federal aid bill, and Louisiana eventually ended up experiencing a growth spurt that lasted for a few years.
“You had not just insurance settlements but federal aid,” Jan Moller, director of the non-partisan Louisiana Budget Project, said in an interview last week.
“Louisiana, which had been on a kind of modest upward path, all of a sudden had billion-dollar surpluses,” said Moller, a former newspaper reporter who covered the recovery efforts there.
Christie said it’s too early to determine how much of an impact the Sandy recovery would have on New Jersey’s economy and when it might kick in. But he predicted it will provide a boost.
“We’re in this situation where Hurricane Sandy has happened, which has closed businesses and caused people to leave neighborhoods. On the flip side, we’re now starting to have rebuilding going on that’s going to cause more materials to be purchased, sales tax, and more people to be employed to do all this reconstruction,” Christie said in the interview.
Just as he needs the Sandy effect to help save his budget, Christie is relying on high-earning Wall Street traders and corporate executives to help prevent spending cuts that could hit the state’s middle class while he’s running for a second term.
The governor said he remains confident that income tax returns can rescue his budget, which called for revenue growth of more than 7 percent. The state has seen revenue grow by less than 1 percent since the fiscal year began last July.
“Usually January and April are the big months on income tax because of the payment of Wall Street bonuses in January and then everybody squaring up their taxes in April, so I think there’s no question that we’re going to wind up being ahead of our projection on income tax,” Christie said.
Yet just as it’s unclear how much New Jersey will receive for the rebuilding effort, it’s still too early to say how much Wall Street gains and corporate bonuses will help. The outlook at this point is mixed.
Corporate profits are at an all-time high in the U.S. But one recent estimate of 2012 Wall Street bonuses projected only 5 percent growth. And a more negative prediction came from New York State Comptroller Thomas DiNapoli, who said late last year that “trends suggest that the total cash bonus pool for work performed in 2012 is likely to decline for the second consecutive year.”
David Rosen, a non-partisan budget analyst for the New Jersey Office of Legislative Services, said this month that Christie will need nearly 12 percent growth across all major revenue streams to meet the administration’s budget projections. Though Treasury has tracked the state’s overall revenue shortfall at $451 million through the end of November, Rosen said it is actually $705 million when a revenue gap from the prior fiscal year is rolled in.
If the current trend holds, New Jersey is on pace for a $2 billion deficit by the end of June, Rosen said during a recent Senate Budget and Appropriations Committee meeting.
“Where revenues have grown at 0.2 percent for the first five months, they would need to grow by 11.9 percent over the remaining seven months,” he said.
New Jersey hasn’t seen such widespread growth since the 2005 fiscal year, when revenues surged well over 10 percent thanks to McGreevey’s creation of a “millionaire’s tax” — which actually hiked income-tax rates on those making over $500,000 — and his borrowing against future tobacco tax proceeds.
McGreevey, a Democrat, had generated a similar spike in revenue during the 2003 budget year by increasing corporate taxes and borrowing against New Jersey’s share of a federal tobacco settlement. His creative use of *borrowing and financing from Wall Street to generate immediate revenue was later interpreted by the state Supreme Court as a violation of the state constitution’s balanced-budget clause.
Christie has enacted no such tax hikes or borrowing gimmicks during his time in Trenton, a point he drove home during last week’s State of the State address.
Instead, the governor’s current budget sacrifices an estimated $347 million in revenue to business tax cuts. And he is still pushing for an income tax cut, which was his signature issue in 2012 even with the budget uncertainty.
When asked by The Record about the revenue goals and the potential |for spending reductions, Christie said only that his administration will act *responsibly in 2013, as it has in the past.
“We’re certainly not so far off that we’re talking about drastic things needing to be done,” he said.
Democrats who control the state Legislature disagree, saying it’s time for Christie, a Republican, to stop talking about the ways his budget projections could still work and instead figure out where he will cut spending if they do not.
“What we do know is that the budget gap is growing by the month and the governor continues to avoid facing up to this reality,” said Senate Budget and Appropriations Committee Chairman Paul Sarlo, D-Wood-Ridge.