Analysis: Tax Amnesty Eyed As Part Of $1.4 Billion Budget Solution
Christie’s budget options to plug combined FY14-FY15 gap include pension changes, aid shifts and fund raids
Five years ago, Gov. Jon Corzine’s Treasury Department opened up envelopes containing more than $200 million in checks in a single day en route to athat not only solved a current-year budget crisis, but enabled the Democratic-controlled Legislature to restore property tax rebates it had previously cut.
Now, with the state facing an $807 million deficitand at least a $600 million reduction in the proposed $34.4 billion spending plan for FY15, legislative analysts -- and undoubtedly Christie administration officials -- are exploring whether New Jersey should consider yet another tax amnesty as part of a comprehensive strategy to plug the combined $1.4 billion budget gap without politically painful cuts, sources confirmed.
Cash-strapped state governments are turning increasingly to tax amnesties to balance their budgets, theLouisiana raised $295 million and Connecticut $180 million last fall, and the Massachusetts, Mississippi, and Nebraska legislatures are among those currently considering broad tax-amnesty legislation.
Estimating what another tax amnesty would raise is difficult, said David Rousseau, who supervised the 2009 tax amnesty as Corzine’s treasurer. “I don’t see how you could book more than $150 million to $200 million,” said Rousseau, who now serves as budget analyst for New Jersey Policy Perspective.
Implementation of a tax amnesty this year would come just five years after the 2009 amnesty -- compared with a seven-year gap between Corzine’s 2009 and Gov. Jim McGreevey’s 2002 amnesty -- and Corzine’s 2002-2009 amnesty years included a mid-decade Wall Street boom. However, a $300 million to $400 million windfall would not be out of the question in fall 2014, given the results in states like Connecticut and Louisiana, whose $19 billion and $25 billion budgets are smaller than New Jersey’s.
Rousseau originally projected only $100 million, then $200 million, for the Great Recession tax amnesty of 2009, and was surprised when $752 million came in.
Any tax amnesty would most likely be part of the solution for the FY15 budget problem, rather than the current FY14 shortfall: Not only would it be exceedingly difficult -- if not virtually impossible -- for the state to put together a tax amnesty program before the June 30 end of this fiscal year, but such a hurried program would bring in less revenue. Clearly, the state needs to maximize revenue for both budget years.
While the state Constitution requires the FY14 budget to be balanced by June 30, Treasurer Andrew Sidamon-Eristoff is really dealing simultaneously with a combined $1.4 billion budget shortfall for the two fiscal years whose solutions are inextricably intertwined because of the most “one-shot” options to plug the FY14 shortfall would make the FY15 budget situation worse.
Sidamon-Eristoff is putting together a revised fiscal plan to present to the Legislature no later than the May 21 Assembly Budget Committee hearing that will most likely include a reduction of at least $600 million from the original $34.4 billion budget proposed for FY15 to correspond with the drop in FY14 revenues announced last week.
Gov. Chris Christie said there is “nothing off the table,” and said that while he was prepared to work cooperatively with Democratic legislative leaders on budget solutions, he was also ready to implement unilateral cuts, if necessary, as he did in 2010.
Like Sidamon-Eristoff and other Christie administration officials, legislative leaders have been exploring potential budget options, but the solutions -- especially for the FY14 budget -- are limited. Furthermore, the most likely solutions -- including a tax amnesty -- are likely to raise further questions by the three bond-rating agencies, which have criticized theto prop up its “structurally imbalanced budget,” and its he had to make to balance an earlier $694 million current-year deficit in March, Sidamon-Eristoff is unlikely to find much more than $100 million or so in real spending cuts to make in FY14.
Christie is opposed to tax increases, and cuts to school aid, homestead rebates, and other popular programs are unlikely to be considered for FY15.
That means the most likely budget-balancing options are going to be more one-time budget maneuvers, pension changes, or debt restructurings that compound future fiscal problems.
Among the most probable options are:
- Pushing off a sizable chunk -- $600 million, for example -- of the $1.558 billion pension payment scheduled to be made at the end of June into the following fiscal year, thus creating a one-shot savings of $600 million to help fill the current $807 million budget gap. With interest rates low, the state could then borrow that $600 million in a short-term note and make the pension contribution just a week later than expected -- in the same way that past governors borrowed each summer to cover the cost of homestead rebates.
The pension shift would solve the state’s FY14 problem, but add $600 million to the FY15 gap -- unless the state did the same thing the following year, as the Christie administration did with its shift of about $400 million in homestead rebate payments from May to August to fill a hole in its FY13 budget. The shift in the pension payments would violate the provisions of the 2011 pension law, which made the payment of pensions on the agreed-upon seven-year ramp-up to actuarially required funding a “contractual right,” but the full FY14 pension payment would be paid before any union lawsuit was decided.
- A similar maneuver would be to shift the state’s last $75 million higher-education aid payment from June to early July, which could force some of the state’s colleges and universities to borrow money on short-term notes to cover payroll, or to shift the state’s school aid payment of about $400 million from May -- if it has not already been issued -- to early July, which could cause the same problem for some of the state’s school districts. The June school aid payment was already shifted permanently to July by McGreevey. Once again, making the shift permanent would create a one-shot for FY14 without affecting FY15.