“The State will take any and all actions necessary to offset the reductions in anticipated revenues, including the identification of additional lapses and savings opportunities, as well as the exercise of the full range and scope of executive authority, including, but not limited to, reserving and/or impounding budgeted appropriations,” Sidamon-Eristoff said.
In a nod to the bond-rating agencies that have criticized the state’s surplus as insufficient, Sidamon-Eristoff said that the state would not cut the $280 million surplus it plans to take into FY15 in order to balance the FY14 budget. Rumors of the budget shortfall circulated within Statehouse circles a few hours before the Treasury Department issued its late afternoon press release, with one source describing the revenue drop as “catastrophic.” Rousseau characterized it as “very challenging,” noting that the magnitude of the shortfall didn’t approach the budget deficits faced by Democratic Gov. Jim McGreevey, who took office after 9/11, and Gov. Jon Corzine, whose revenues plunged in 2009 in the depths of the Great Recession.
Assembly Speaker Vincent Prieto (D-Hudson) yesterday said the treasurer’s announcement “is very concerning news that re-emphasizes the need for everyone to put their catchphrases and slogans aside and work together to find a solution.
“This is everyone's problem to solve, and we're now going to have to roll up our sleeves and get to work solving this without damaging the valuable programs needed by residents,” Prieto said.
Prieto’s statement did not criticize Sidamon-Eristoff for missing the mark on his revenue targets, as Democrats have repeatedly done in the past. While David Rosen, budget officer for the nonpartisan Office of Legislative Services,that state revenues would come in $216.6 million lower in FY14 and $309.4 million below administration forecasts in FY15, his estimates also missed the impact of the income tax plunge.
“This isn’t an issue of Treasury overestimating revenues for political purposes. There’s no politics involved,” emphasized Rousseau, the budget analyst for New Jersey Policy Perspective who has been a frequent critic of Christie administration fiscal policies. “OLS and Treasury both agreed that about $250 million in income tax was shifted into 2012 to avoid the fiscal cliff. They were both wrong, but so was everybody else. Connecticut just announced that it’s facing a $400 million shortfall too.”
Just a few hours before Sidamon-Eristoff issued his press release,that the loss of about $330 million in expected income tax revenue would force him to cancel a planned $55-per-person tax refund and eliminate a planned $100 million payment into his state’s pension system.
Both the New Jersey and Connecticut income tax dives -- which are expected to be matched by similar reductions in income tax collections by the federal government, New York City, New York State, and other affluent states -- stemmed from a similar underestimate of the impact of wealthy taxpayers trying to avoid higher federal income taxes going into effect in 2013.
Treasury Department officials said the “full scope of the unanticipated revenue shortfall was only detected in the course of tabulating collections after the April 15 income tax deadline.”
“Typically, a significant portion of April income tax receipts come to the State in the form of physical checks mailed by extremely high-income taxpayers,” Treasury explained in a press release. “These payments, which are not normally received until some days after the April 15 deadline for final settlements and extensions, are heavily affected by swings in capital gains and business income, which are volatile and difficult to predict prior to processing.
“New Jersey’s highly progressive income tax is notoriously volatile due to its extreme reliance on a relative handful of taxpayers" Treasury continued. "In recent years for example, just 400 taxpayers have accounted for almost 10 percent of New Jersey’s Gross Income Tax, the top 1 percent of state income taxpayers accounted for almost 40 percent, and the top 10 percent of all income taxpayers accounted for approximately 70 percent of total income tax revenues.”
While corporate and sales tax revenues are also expected to be down for April, $700 million of the total $807 million shortfall is attributable to the decline in income tax revenues, Treasury officials said.