Christie Expects Revenue Surge to Fund Budget, Tax Cuts
- Credit: Governor's Office/Tim Larsen
Banking on booming revenues over the next 16 months, Governor Chris Christie yesterday proposed a $32.1 billion budget with a $1.1 billion spending increase that includes funding for the first stage of a promised 10 percent income tax cut, but provides less money for direct property tax relief than the year before.
Christie’s treasurer, Andrew Sidamon-Eristoff, is projecting a surge in tax receipts this spring that will wipe out the current $325 million shortfall in state revenue projections for the current year, followed by such soaring growth in income and corporate taxes in Fiscal Year 2013 that state revenue collections will approach the record levels of pre-recession Fiscal Year 2008.
In fact, Christie’s total state spending of $49.474 billion -- including federal funds, the Transportation Trust Fund, and revolving and dedicated funds – would be the largest in New Jersey history, topping Democrat Jon Corzine’s final budget of $48.5 billion for Fiscal Year 2010 that was swelled by Obama administration stimulus funding.
The projected $2.2 billion in expected state revenue growth in Fiscal Year 2013 over the original Fiscal Year 2012 budget enabled Christie to pump the required $1.06 billion into the pension system, increase school aid by $120 million, and boost aid to higher education by 6 percent -- and still set aside $183 million for the first year of his income tax cut and $164 million for the second year of his business tax cuts.
"Why not cut income taxes when our fiscal house is in order?' Christie demanded in his budget speech in the Assembly Chamber, asserting that his budget met all of the state's real fiscal needs. Democrats countered that Christie was asking the wrong question. "Yes, the people of New Jersey deserve a tax cut," said Senate Majority Leader Loretta Weinberg (D-Bergen). "But they want a cut in property taxes, not a $7,000 income tax cut for millionaires and an $80 cut for working people." (See.
The battle between the Republican governor and Democratic legislative leaders over whether to cut income taxes or property taxes began last month after Christie made a 10 percent income tax cut phased in over the next four fiscal years the centerpiece of his third State of the State Address -- and, as a result, the focal point of both this spring's budget debate and his upcoming 2013 reelection campaign.
Democrats control the Senate 24-16 and the Assembly 47-33, so Christie cannot pass the budget or income tax cut he wants without winning over at least five Democratic votes in the Senate and eight in the Assembly. But Democratic legislative leaders lack the two-thirds majority needed to override Christie's veto if they substitute a property tax cut for his income tax cut in the budget they approve in June. If Christie and the Democrats are unable to reach a compromise, the state could be headed for a budget impasse on July 1, the constitutional deadline for passage of a balanced budget.
Assembly Speaker Sheila Oliver (D-Essex) pledged that Democrats would develop their own tax cut package in the weeks ahead, and Assembly Majority Leader Louis Greenwald (D-Camden) left no doubt that the focus would be "property taxes, property taxes, property taxes."
The first important public debate will come when the Senate and Assembly budget committees review Christie budget's aggressive revenue assumptions with Sidamon-Eristoff and David Rosen, budget officer for the non-partisan Office of Legislative Services.
It won't take Democrats long to realize that Christie is actually planning to spend more during Fiscal Year 2013 than the revenue he is expecting the state to take in, that he is relying more on one-shot revenues, and that he is planning to cut the state's surplus to less than 1 percent of the budget in a year in which he is betting on abnormal revenue growth.
Senate Minority Leader Tom Kean (R-Union) defended Sidamon-Eristoff's revenue numbers, noting that his projections for the first two years were "right on the mark," while Assembly Minority Leader Jon Bramnick (R-Union) dismissed the idea that Christie might want higher revenue numbers this year to justify his income tax cut. "What, our cheapskate governor?" Bramnick asked.
But Senate President Stephen Sweeney (D-Gloucester) pointed out that he accurately predicted last July that Christie's insistence on keeping a large surplus in this year's budget, rather than providing the additional money for school aid, municipal aid, and property tax relief that the Democrats wanted, meant that Christie was setting up the budget to call for an income tax cut -- as he did seven months later. "They play games with the numbers too," Sweeney insisted.
According to the Fiscal Year 2013 Budget Summary released by the Christie administration yesterday, state revenue is projected to grow 7.5 percent to $31.858 billion -- a $2.217 billion increase over the $29.641 billion originally budgeted for Fiscal Year 2012 in the Appropriations Act that Christie signed into law last July after redlining hundreds of millions of dollars of state aid programs added by the Democrats.
That 7.5 percent revenue growth would be one of the highest increases in revenue in New Jersey history for any budget that did not include a tax increase -- much less in a budget that included $345 million in tax cuts -- and it comes at a time when New Jersey is saddled with a stubborn 9 percent unemployment rate that is higher than neighboring states.
Without Christie's income tax and business tax cuts, Sidamon-Eristoff would actually be projecting an 8.4 percent increase in state revenue to $32.389 billion -- just over $200 million shy of the record $32.6 billion in revenue recorded in Fiscal Year 2008 before the Great Recession brought Governor Corzine's last two budgets -- and his governorship -- crashing down.
Christie's income tax projections show an increase from $11.132 billion in the current fiscal year to $11.837 billion in the upcoming year -- an increase of $705 million, or 6.3 percent. But Christie is really banking on the economic equivalent of an 8.0 percent increase in state income tax revenues over the previous year because the income tax numbers do not include the $183.3 million that would be given up from January to June 2013 when the first phase of his planned 10 percent income tax cut kicks in.
While Sidamon-Eristoff declined to discuss the reasoning behind his revenue projections after the governor's budget address, he is obviously projecting much of the increase to come from the wealthiest 1 percent of New Jersey taxpayers, who pay almost half of the state's total income tax. Personal income of New Jersey residents hit a new high of $468 million during the third quarter of 2011, despite the state's 9 percent unemployment rate and the cuts in pay and hours for middle- and lower-income residents. Yesterday's Wall Street surge to 13,000 by the Dow will undoubtedly appear as one of the Republican talking points in defending the high income tax growth projections.
The fact that Sidamon-Eristoff is expecting the income tax growth to come from the top is underscored by the relatively low 3.6 percent growth expected in the state sales tax, which was expected to come in at $8.153 billion in last year's budget bill, but has since been revised downward to $8.071 billion for the current year. New Jersey's sales tax is heavily dependent on cars, electronics, and durable consumer goods bought by the bulk of the state's taxpayers, and the small $296 million increase in sales tax revenue to $8,449 billion shows that the Treasury Department does not expect middle-income New Jerseyans to feel any more secure economically next year than they did this year.
The Treasury Department is expecting businesses to do significantly better. The corporate business tax, originally projected to bring in $2.261 billion this year, is now expected to pull in $2.314 billion this year and $2.566 billion next year -- a $305 million increase that represents a 13.5 percent jump over last year's budget. Without Christie's corporate income tax cuts of $70 million in the first year and $127.5 million in Fiscal Year 2013, the governor would be projecting a 16 percent increase in corporate income tax collections.
The biggest "games" in this year's budget, as Sweeney would put it, are contained in the "Other Revenues" category, which is projected to rise $911 million, or 11.3 percent, from $8.095 billion in the current year to $9.006 billion next year.
Included in the "Other Revenues" category is a growth in one-shot, nonrecurring revenue from about $1.25 billion in Fiscal Year 2012 to about $1.6 billion in Fiscal Year 2013. Two of the biggest items are the diversion of $200 million in clean energy funds that were supposed to be used on energy conservation projects to balance the general budget, and an increase of $200 million in available revenue from the Affordable Housing and Neighborhood Preservation – Fair Housing program. The exact figures on one-shot revenues and the original purpose of the Affordable Housing money remained a mystery last night, as spokesmen for the Governor's Office and Treasurer's Office failed to respond to specific emailed questions about the budget.
The largest single one-shot, however, is the decision by the Christie administration to divert $288 million of this year's $588 million to help fund this year's budget. That leaves a surplus of just $300 million for a $31.1 billion budget -- less than the 1 percent that the bond rating agencies usually consider the minimum level acceptable, although less than desirable. Furthermore, the bond rating agencies prefer a higher surplus when a budget shows high revenue increases, as this one does.
With the diversion from the surplus, the Christie administration will be planning to spend $32.146 billion in Fiscal Year 2013, while taking in just $31.858 billion in revenue -- essentially representing a $288 million spend-down from this year's surplus that will not be there to balance the budget next year unless Treasury's revenue projections prove to be low.
The budget also shows that the state's transportation capital program will be relying on $289.2 million in revenue taken from the New Jersey Turnpike coffers this year, up from $176 million last year.
Among other major tax revenues, the state will be relying upon $1.095 billion in revenue from the State Lottery Fund, a $128 million increase over last year when lottery revenue came in $63 million lower than originally projected. But betting on the Lottery, which has shown relatively steady growth over the past decade seems like a better bet than the Treasury Department's projection that New Jersey casino revenues will grow $40 million this year. If casino revenues do grow, it would be the first year with increased winnings for the state since 2006, when casino revenue began six years of steady decline in the face of increasing competition from Indian gaming in Connecticut and New York, and especially racinos in Delaware and Pennsylvania.
Patrick Murray, the Monmouth University political science professor, watched Christie's budget speech and the legislative reactions with a bemused look yesterday. "The budget is very political, and everything now is concerned with the governor's reelection. I'm not sure anyone is thinking about what is in the best interests of New Jersey," Murray said.
Murray, who runs the Monmouth University Poll, noted that voters overwhelmingly tell pollsters that the property tax, not the income tax, is the state's top problem. "New Jersey is still the number one state in property taxes, and we're not doing anything about it," he said.
Greenwald, the Assembly majority leader, sounded what will undoubtedly be the Democrats' major campaign theme of the spring budget battle and probably the 2013 election when he criticized Christie for "his premature Mission Accomplished declaration on property taxes." He noted that Christie's failure to restore property tax credits to the $1,000-plus level of the rebates provided in the final year of the Corzine administration meant that net property taxes were actually 20 percent higher under Christie, despite the 2 percent spending cap that has limited property tax growth.
Christie's budget for direct property tax relief next year is actually $1.187 billion, down $37.3 million from the $1.224 billion in the current budget, because fewer people are expected to qualify this year under the program's existing guidelines, which will remain unchanged and provide an average of $480 in property tax credits to qualifying homeowners.
Christie's assertion that "there will be no cut in property tax relief in this budget" drew no applause from either side of the aisle, unlike the thunderous ovations from Republican legislators and a gallery packed with Christie cabinet officers, staffers, supporters and lobbyists that greeted his income tax proposals.
Lobbyists for the New Jersey Business and Industry Association, the National Federation of Independent Businesses and other business groups worked the press corps, asserting that Democratic attacks on Christie's income tax cut as favoring the wealthy missed the point because many small businesses are registered as S corporations and their owners pay their business taxes through the state income tax. A tax cut on people making $250,000 to $500,000 or more is really a business tax cut, they argued.
Democrats, however, countered that businesses already received what will eventually add up to $662 million in tax cuts by Fiscal Year 2016 under the package of business tax cuts approved as part of last year's budget. They said the state's 16,000 millionaires needed a tax cut much less than middle-income working families, and questioned whether tax cuts for the wealthy would even be spent in New Jersey. "I'm a unionized iron worker," Sweeney said. "Lower my property taxes, and I'll spend the money here and stimulate local businesses."
To guarantee that every New Jerseyan would get an income tax cut, Christie also proposed a full restoration of the Earned Income Tax Credit, which he had previously cut by 20 percent. The program will provide a $550 average credit to the working poor, up from the current $440, but people will not receive it until 2014 after they file their 2013 income tax returns.
Christie's decision to pay the second installment of the state contribution to the underfunded pension system required by the pension reform law he signed was not unexpected, but the size of that contribution was. Christie will pump $1.06 billion into the pension system next year, up from $484 million this year. The $1.06 billion represents the second year of a seven-year plan to bring the state up to paying its full share of funding for the pension system, which this year would have been $3.71 billion.
"Why not cut the income tax when we are making the largest pension contribution in history at $1.1 billion?" the governor demanded.