Another year, another $500 million difference of opinion between Gov. Chris Christie’s treasurer and the nonpartisan Office of Legislative Services.
For the fourth year in a row, David Rosen, the OLS budget and fiscal officer,that Treasurer Andrew Sidamon-Eristoff’s revenue projections for the current and upcoming fiscal years would come up at least $500 million short -- $526 million this year, to be exact.
Rosen’s track record has been good so far: Over the past three years, the Christie administration’s revenue projections have come up more than $1.6 billion short overall, forcing a series of controversial midyear budget cuts topped off this year by aand a costly that Democrats criticized.
“All of the credit-rating agencies have downgraded our credit outlook to negative because this administration keeps proposing structurally imbalanced budgets based on overly optimistic revenue projections,” Senate Budget Committee Chairman Paul Sarlo (D-Bergen) complained. “We’re always behind, we’re always trying to balance the previous year’s budget, and that keeps forcing bad decisions."
“If the governor was correct in his budget speech that our pension system is in terrible shape, then why did we cut $244 million in pension payments that would have reduced our unfunded liability?” he demanded. “And how does it make sense to do a tobacco bond refinancing grab that will save us $92 million now but cost us $400 million in the future?”
Sidamon-Eristoff defended both the decision to change the state’s pension formula and the refinancing of the tobacco bonds -- which provided more than $185 million of the $697 million in budget cuts needed so far to plug a hole in the current Fiscal Year 2014 budget -- as sound fiscal policy during a wide-ranging and often testy two-hour appearance before Sarlo’s committee.
He said he saw no reason to make further cuts in the Fiscal Year 2014 budget or to revise his February projection that state revenues would rise 5.8 percent to a record $34.447 billion in Fiscal Year 2015, despite Rosen’s less optimistic forecast.
For Rosen, who testified before Sidamon-Eristoff, yesterday was, “in the words of New Jersey Hall of Fame member Yogi Berra, 'déjà vu all over again,'” he said. For the third year in a row, Rosen noted, state revenues fell short of the Christie administration’s projections, and for the fourth year in a row, the OLS is projecting that revenues will come in lower than administration projections.
Rosen yesterday projected that FY14 revenues will come in $216.6 million lower than the Christie administration expects and the FY15 receipts will come up $309.4 million short for a combined budget shortfall of $526 million.
The difference in revenue projections, as Sen. Jennifer Beck (R-Monmouth) pointed out and Rosen acknowledged, is actually quite small -- less than 1 percent on next year’s $34.447 billion budget.
The problem is that three years of unmet revenue forecasts and subsequent midyear budget gaps have forced the Christie administration to eat away at what was once a robust $800 million surplus, but is now down to just $300 million -- a minimal reserve that has proven insufficient to cover midyear revenue shortfalls, as the three credit rating agencies have repeatedly warned.
New Jersey not only has one of the smallest state surpluses on a percentage basis, but also that surplus has to cover the fiscal vicissitudes of a tax system that is one of the most volatile in the nation. New Jersey has one of the most graduated state income taxes. The top 1 percent of filers pay almost half the state’s income tax, and as a result state income tax collections go up and down with the S&P 500 Stock Market Index.
Next year’s projected budget growth is driven by the expectations of both the Christie administration and the OLS that income taxes will grow more than 8 percent -- although OLS’s income tax forecast is $113 million less. “Should the five-year-old bull market falter this year, these forecasts could prove overly optimistic,” the OLS warned, and the state’s skimpy surplus will provide little protection.
Sidamon-Eristoff argued yesterday that Treasury’s year-round monitoring of state spending enables the Christie administration to find savings in state programs as needed to fill midyear gaps, even with a small surplus.
But Sarlo countered that the Christie administration has plugged midyear budget holes through a series of questionable fiscal maneuvers, including the diversion of New Jersey Turnpike money to balance the budget instead of being used to provide pay-as-you-go funding for transportation construction projects, the delay of property tax rebate payments from one fiscal year to the next to provide a $390 million one-shot budget savings, and bond restructurings that will add to future debt-service costs.
Sarlo said he agreed with the assertion of Moody’s Investors Service that the tobacco bond restructuring and retroactive pension payment cut used by the Christie administration to help fill this year’s $800 million budget hole showed that the state had run out of easy solutions.
Yesterday’s Senate Budget Committee hearing provided the first real public explanation of what OLS diplomatically characterized as the “extraordinary action” by Sidamon-Eristoff that resulted in the state giving up $406.7 million in tobacco bond payments from FY2017 to FY2023 in exchange for a one-shot cash infusion of $91.6 million to help plug the hole in the FY14 budget.
“The history of the Tobacco Settlement Fund is that the McGreevey administration and the Corzine administration clearly mishandled it, and clearly now the current administration has mishandled it because it needed to plug budget holes in the current year,” Sarlo said angrily, criticizing both Christie and his Democratic predecessors.
“Giving up $400 million-plus a few years down the road makes no sense. This is almost a repeat performance of the mistakes made by previous administrations.”
New Jersey’s Tobacco Settlement Fund was set up as part of a master agreement with the major tobacco companies to compensate states for the increased healthcare costs caused by cigarette smoking in 1998. The fund was expected to provide New Jersey’s state government with $7.6 billion in payments at a rate of $200 million to $250 million a year in perpetuity, Rosen explained.