New Jersey Avoids Economic Turbulence As Hurricane Swerves Out to Sea
Previous weather disasters have left both short-term and long-term fiscal damage in their wake
With Hurricane Joaquin veering out to sea this week, New Jersey residents still weary after superstorm Sandy made landfall here nearly three years ago were breathing a big sigh of relief. But the near-miss was also good news for the state budget, which just closed a first quarter with a mixed bag of tax-collection results.
That’s because major weather events in recent years, including Sandy in 2012 and Hurricane Irene the year before, have taken a toll on New Jersey tax collections thanks to widespread property damage and long-term power outages that slowed economic activity practically to a halt, including closing stores and forcing people to stay home from their jobs for prolonged periods of time.
While the state’s beachfront communities sustained some damage and experienced some power outages over the weekend, thanks to a strong nor’easter, state Department of Treasury officials said they didn’t expect the type of economic disruption that comes after a direct strike from a major hurricane.
Such an impact, combined with an ongoing stock-market slowdown, could have significantly challenged a $33.8 billion state budget that’s projecting revenues to grow by nearly 4 percent by the time the 2016 fiscal year ends next June.
A budget well off its projections would also come as unwelcome news to Gov. Chris Christie as he continues to seek the GOP’s 2016 presidential nomination. Christie, speaking in general about the hurricane forecast duringin Cape May County on Friday, called the near-miss by Joaquin “very good news for us.”
“We’re very fortunate, at least at the moment, that the hurricane is heading out to sea and not heading toward the coast,” Christie said.
Tax revenues slumped after Sandy
In the wake of Sandy in 2012, the immediate impact on New Jersey tax collections was significant. The state’s top source of annual revenue, the income tax, dropped 11 percent below expectations in November 2012. Gas-tax revenue dropped by 13 percent and casino-tax revenue was down by nearly 40 percent, according to official revenue reports.
“Leisure and hospitality sales losses reduced sales, hotel, casino, and fuel taxes as potential tourists abandoned their New Jersey travel plans,” explained Joseph Perone, a spokesman for the state Department of Treasury. “Those downsides would be offset by replacement purchases, but those purchases can take extended periods to occur.”
“Remember, people, in most cases, had to delay rebuilding and re-furnishing their homes until after they received a homeowners’ insurance check,” he added.
Just as it did in the wake of Irene when it hit the state in late August 2011, Treasury allowed those affected by Sandy to delay their tax payments. A month after Irene, income, sales and corporation-business taxes all came up short of expectations as some areas of the state dealt with prolonged power outages.
It’s unclear what such a hit would have done to this year’s state budget, which just closed out its first quarter at the end of September. Revenue figures for the full first quarter have not yet been released by Treasury, and September can be an important month given hefty individual and corporate tax payments that are collected by the state.
Heading into September this year, the tax-collection data represented a mixed bag. Revenues in July, the first month of the new fiscal year, came inhigher compared to the same period in the year before.
But tax-collection growth wasafter the month of August ended, slightly below the 3.8 percent growth rate that was used to set spending at $33.8 billion for the 2016 fiscal year.
A recentprepared by the nonpartisan Office of Legislative Services noted that “data from the summer months are always muddled by accounting adjustments and shifts between the old and new fiscal years. For each fiscal year, September typically books more revenue than the months of July and August combined.” Some positive news on economy
Still, New Jersey also received somelast month as the state’s unemployment rate dropped to 5.7 percent and more than 13,000 jobs were added to the labor force.
And Christie, after anin the final months of the last fiscal year, was also able to double the surplus account for the current fiscal year, which will make it easier for the state to offset any unexpected fluctuations in tax collections.
That comes after New Jersey in recent years has been knocked for maintaining some of the slimmest budget-surplus cushions among U.S. states, although recent data collected by The Pew Charitable Trusts shows thatin the wake of the last recession.
The Christie administration earlier this year also didn’t bank on a repeat of the economic conditions that generated the revenue windfall at the close of the last fiscal year, attributing the more than $200 million boost in tax collections to stock market conditions that aren’t expected to occur again – a move that has looked increasingly wise in the wake of recent Wall Street slowdowns brought in large part by economic problems in China.
Many states took the same approach for the 2016 fiscal year, according toby the New York-based Nelson A. Rockefeller Institute of Government.
“State revenue forecasts call for a slowdown in total personal income tax growth to 2.7 percent in FY 2016, from 5.1 percent estimated by states for FY 2015,” the institute said in a recent news release. “These forecasts generally do not reflect the steep drop in stock markets over the last month, which could adversely impact state income tax revenues.”