OLS: $200 Million Revenue Shortfall Will Cut Deeply Into Surplus
Christie administration attacks OLS as biased, but Democrats see vindication for decision to defer tax cut.
- Credit: Amanda Brown
State revenues for the fiscal year that ended June 30 are coming in up to $200 million less than the Christie administration had projected just seven weeks ago, stiffening Democrats in their determination not to approve any new tax cut until Christie can prove that the revenue will be there to pay for it.
The Christie administration immediately attacked the analysis by David Rosen, budget officer for the nonpartisan Office of Legislative Services, who issued the memo that put a number to the shortfall. The administration dismissed Rosen's assessment as politically motivated and biased, and insisted not only that revenue projections are coming in on schedule, but that income, sales, and corporate business taxes are running $85 million ahead of expectations.
However, Rosen was looking at the same Treasury tax collection databases as Christie administration officials when he compiled the confidential report he sent to legislative leaders last Thursday.
If Rosen is right, Christie’s vaunted $648 million surplus for the current fiscal year is now below $450 million, That includes the $183 million set aside in a special fund for future property tax relief that Christie wants the Democratic-controlled Legislature to spend now on a tax cut, rather than waiting until December to see if his revenue projections are coming in as scheduled.
Next Year's Growth
Christie’s call for an immediate tax cut is based on the assumption that incomes, sales, and corporate taxes will grow an average of 5.9 percent next year, and that total revenues will jump 7.3 percent -- the highest growth rate projected by any governor in the nation.
But if Rosen is correct on the $200 million Fiscal Year 2012 revenue shortfall, that would drop that year’s state revenue to $29.2 billion, meaning that state revenues would actually have to rise more than 9 percent to meet Christie’s $31.7 billion revenue target and replenish the surplus to its expected level.
Rosen remains skeptical, and his July 5 memo to legislative leaders shows that he is sticking to his earlier projection that revenues will come in more than $700 million lower than Christie has predicted over the next 12 months, which would not only wipe out the entire surplus and any possibility of a midyear tax cut, but also force midyear spending reductions.
“This just proves that it is Democrats who are being responsible, while Christie wants to spend money and cut money he doesn’t have,” said Assembly Majority Leader Lou Greenwald (D-Camden). “I can’t find one responsible budget expert who believes Christie’s irresponsible and reckless revenue projections.
“We’re just two weeks into the Fiscal Year 2013 budget, and we already have a revenue shortfall that has eaten up one third to one half of the surplus that Governor Christie was crowing about on Monday,” he noted, referring to Christie’s budget and tax policy speech to the Brookings Institution in Washington, D.C.
Delegating Attack Duties
Christie, who has previously launched preemptive personal assaults on Rosen’s integrity prior to his testimony before legislative budget committees, delegated the attack duties to his press spokesman, Kevin Roberts, yesterday.
“It’s not shocking that, once again, OLS jumps the gun with a hasty and speculative analysis that takes a dour view of revenue figures in order to serve the agenda of Corzine Democrats in the legislature (a group that has hung its hat on rooting for failure in hopes of holding tax relief hostage for middle-class New Jerseyans),” Roberts said in an email to reporters.
Roberts said Fiscal Year 2012 revenue would prove to be 3 percent higher than the previous year. “It’s that simple,” he concluded. “Despite the panicked estimates offered in the Rosen memo, reality is a completely different story. And nothing can make clearer that Rosen’s projections are nothing more than projections than Rosen’s own words: ‘Of course, if these assumptions prove incorrect collections could [be] higher or lower.’”
Assembly Republican Budget Officer Declan O’Scanlon (R-Monmouth) immediately seized upon Roberts’ assertions to reinforce Christie’s message that Democrats should vote for an immediate tax cut.
“New Jersey’s revenue streams are stronger than they were a year ago and our economy continues to show encouraging signs of recovery, including strong sales of cars and homes, and personal income growth that exceeded the national average,” O’Scanlon said. “No matter how you view these numbers, there is no dispute that New Jersey can afford tax relief for families and job-creating businesses right now. The bottom line is that there is nothing here to excuse legislative Democrats from refusing to put money back into people’s pockets.”
A Double Whammy
Greenwald, however, noted that Rosen’s report not only would eat into Christie’s projected $648 million surplus in the current year’s budget, but would carry a double whammy for his revenue projections.
“This really creates two problems,” said Greenwald, who has served as the chairman of the Assembly Budget Committee for almost a decade. “First, it eats up the surplus, but second, it cuts into the revenue base going into next year because revenues for Fiscal Year 2012 are actually going to be $200 million less than expected.”
Normally, fiscal policy analysts reduce their revenue forecasts for the upcoming year by the same amount as the previous year’s shortfall, rather than simply anticipate that revenue growth will be that much higher. But the Christie administration is sticking to its original revenue forecasts, Greenwald noted.
As a result, “Christie’s going to have to raise his extreme revenue projections even higher to get the revenue growth he is projecting,” Greenwald explained. “It’s just not responsible. It’s pie-in-the-sky budgeting. This is the Bush-Rovian budgeting that got the federal government into such a mess.”
Revenue forecasting is an inexact science -- one in which a 1 percent change in tax collections on a state budget in the $30 billion range will produce a $300 million gain or decrease in revenue.
With the political stakes surrounding revenue projections so high, the Christie administration and Democrats joust with economic statistics as their lances. New Jersey ranked 47th in economic growth in 2011, Democrats argue. Personal income rose 0.9 percent in the first quarter of 2012, the 15th-highest increase in the nation, Republicans counter. New Jersey’s 9.2 percent unemployment rate remains stubbornly above the 8.2 percent national average, Democrats note. New Jersey home sales rose 6.0 percent in the first quarter of 2012, higher than the national average, Republicans argue.
It is rare that dry economic statistics and revenue projections become so political, but Christie built his case for a 10 percent across-the-board income tax cut on aggressive revenue growth forecasts, and Democrats followed suit with their own property tax cut plans based on expectations of future revenue growth.
It wasn’t until Christie’s treasurer, Andrew Sidamon-Eristoff, was forced to come up with a series of controversial budget maneuvers in late May to make up for an acknowledged $676 million combined revenue shortfall for Fiscal Years 2012 and 2013 that Democratic legislative leaders decided that it would make more sense -- both fiscally and politically -- to defer any vote on a tax cut until December.
Christie, a potential vice presidential candidate or keynote speaker at the Republican National Convention in Tampa next month, has continued to campaign hard for an immediate tax cut, calling the Legislature back in for a special session on July 2 to plead his case.
But Greenwald said Rosen’s memo reinforced Democratic legislative leaders in their belief that it makes more sense to wait.
Christie already has abandoned his own across-the-board income tax that would have primarily benefited the wealthiest taxpayers in favor of a proposal by Senate President Stephen Sweeney (D-Gloucester) that would provide property tax credits up to $1,000 on the first $10,000 paid in income taxes for those earning up to $400,000 a year.
The Sweeney tax cut, as currently written, would not kick in until April 2013, when citizens file their income tax returns, which takes away any impetus for the Legislature to vote on a tax cut now -- especially when the OLS and the Christie administration cannot even agree on the meaning of tax collections that have already come in.
“We need to be responsible about this,” Greenwald concluded.