Eleven months down, one to go, and the “New Jersey Comeback” that Gov. Chris Christie is counting on to fuel his income tax cut is nowhere in sight.
With state tax collections through May up just 2.3 percent for the year, David Rosen, budget director for the non-partisan Office of Legislative Services, confirmed that he expects his final revenue projections to come in some $724 million to $824 million short of the revenue figures Christie and Treasurer Andrew Sidamon-Eristoff are expected to certify before June 30 — up $100 million to $200 million from the $624 million combined shortfall Rosen was projecting in mid-May.
“We have been looking at the revenues month by month, and when we were slightly behind in March, they said to wait for the big April income tax filings,” Assembly Majority Leader Lou Greenwald (D-Camden) said last week. “Then April’s numbers were worse than the year before, and they said they’d get better in May. Now what?”
Now this: Democratic leaders plan to drag Christie through the tortuous process of looking at revenues month after month over the upcoming year, and to wait for the 7.3 percent revenue growth — including a combined 5.5 percent jump in income, sales and corporate taxes — that he is projecting to materialize before they agree to allocate the $183 million they are setting aside as a special surplus for a tax cut.
Not the 10 percent across the board income tax cut that Christie wants that would primarily benefit the wealthy.
Not even the 10 percent property tax credit up to $1,000 on income taxes for those making up to $400,000 that Christie had negotiated with Senate President Stephen Sweeney (D-Gloucester) last month.
No, as Greenwald made clear Thursday, any future tax cut funded out of the $183 million would be a direct property tax cut because property taxes — not income taxes — are the major issue for New Jerseyans in poll after poll. Christie won’t be able to claim an income tax cut of any kind at the Republican National Convention in Tampa, FL, at the end of this summer or going into his gubernatorial reelection campaign next fall.
And if Christie wants an immediate tax cut to point to, Democrats said, he can have a fiscally responsible, fully funded $1,000 increase in direct property tax credits for senior citizens earning up to $150,000 and non-seniors making up to $75,000, but he will have to approve an increase in the top income tax rate from 8.97 percent to 10.75 percent for New Jersey’s 16,000 millionaires. The Republican governor has already vetoed income tax increases for the wealthy twice, and Democratic strategists believe it is a winning issue.
Toughing It Out
Friday’s release of the May revenue numbers stiffened the resolve that Democratic legislators showed in lengthy Senate and Assembly caucus meetings Thursday to refuse to approve a tax cut until state revenues start reflecting the New Jersey Comeback that Christie is touting.
For the third month in a row, May’s revenue report failed to meet Sidamon-Eristoff’s revenue projections — even though he had revised his revenue forecast downward for the second time just three weeks earlier.
Greenwald said the new revenue numbers showed that Christie is leading one of the weakest economic recoveries in the nation, while asking legislators and citizens to trust him that starting July 1, New Jersey’s revenue growth will be the most robust in the nation — three times the overall national average for the 50 states and twice the average for income, sales, and corporate tax growth.
For Christie, tax growth is all about funding tax cuts, Greenwald noted. “The governor persists with his obsession with massive tax cuts for millionaires and his vice presidential audition, even in spite of this reality,” he asserted.
Christie has been unusually silent since holding a Statehouse press conference Thursday morning to announce that New Jersey had created 17,600 jobs in May — the highest gain in the nation in a tepid month. But even that good news was masked by the revelation that New Jersey’s unemployment rate had risen from 9.1 percent to 9.2 percent — still a full percentage point above the national average.
While he has repeatedly threatened to veto a millionaire’s tax in the past, the governor has said nothing about Democratic plans to hold hostage the $183 million he has set aside for tax cuts as proof of a New Jersey Comeback.
Christie, who has already asked his Cabinet for contingency plans for a government shutdown, has said he will not sign any budget that does not include a tax cut — and it is unlikely that he will view a Democratic promise of a future tax cut dependent on future revenue projections as meeting that standard.
It is also clear that Christie will not want to go along with a process that will bring increased attention to the state’s revenue collections, a process that will underscore every month whether New Jersey’s economy is indeed on the rebound after a 2011 in which the state’s Gross Domestic Product actually declined 0.5 percent, ranking New Jersey 47th in the nation in economic growth.
Sidamon-Eristoff tried to put a good face on the revenue numbers Friday, asserting In his press release that a $165 million increase in income and corporate business taxes in May over the same month the preceding year “confirm that New Jersey is seeing sustained economic growth. As long as that growth continues, New Jersey will see increased stability in state government finances.”
Buried in the accompanying charts, however, was the news that the state’s $2.02 billion in revenue collections in May were $36,395,000 — or 1.8 percent — less than Sidamon-Eristoff had projected for the month.
Even more important, the $608,000,000 in sales tax collected in April was actually 2.7 percent less than the $625,585,000 collected in April the previous year. Sales tax revenue, which is a leading indicator of consumer spending and confidence, is up just 2.6 percent for the year, and would have to grow 8.3 percent in both May and June to meet Sidamon-Eristoff’s projections, the OLS’s Rosen noted.
Further, while income and corporate tax revenue are up over the previous year, May included an extra withholding period this year through a fluke of the calendar. Income tax revenue is really up 2.3 percent so far this year and will have to increase by 4.3 percent in June to hit Treasury’s revised 2.7 percent income tax growth target, Rosen said. More ominously, he added, corporate tax revenues are up just 1.8 percent for the year and would have to jump 15 percent in June to meet Treasury’s projected growth rate of 3.9 percent for the year.
While Rosen said he is expecting income tax and corporate tax revenues to rise in June, he also noted that the final revenue figures for the current fiscal year ending June 30 are likely to be $50 million to $100 million down from the revised revenue projections Sidamon-Eristoff provided last month. Under standard budgeting practice, that means that the treasurer should reduce his revenue projections for the upcoming year by a similar $50 million to $100 million to account for the lower base — or increase ambitious revenue growth projections that are already by far the highest In the nation.
In short, Rosen projects that state revenues will come in a total of $100 million to $200 million further below Treasury’s revenue projections, and he was already $624 million less optimistic than the Christie administration for the upcoming year.
Under the New Jersey Constitution, Christie gets to certify the final revenue figures. But because Rosen is projecting that next year’s budget will come in up to $824 million short of the Christie administration’s forecast, Democratic legislative leaders plan to set aside the $183 million Christie wants to use for the first stage of his income tax cut as an additional “dedicated surplus for property tax relief.” Christie’s budget includes only a $300 million surplus that represents less than 1 percent of the state’s $30.2 billion budget — lower than the bond rating agencies would prefer — and that $183 million presumably could be used to balance the budget if Rosen’s numbers are right
Christie was forced to increase the number of one-shot, non-recurring revenues in the current and upcoming budgets in order to fill the $672 million budget gap that Sidamon-Eristoff acknowledged last month. The governor had to give up his plan to include $260 million in pay-as-you-go transportation project funding in his budget, deciding instead to borrow the $260 million needed to keep the state’s Transportation Trust Fund fully funded — an admittedly tough decision for the governor that indicated that there are few, if any, easy budget solutions left.
Democratic legislators pointed out, of course, that Christie would not have to borrow the additional $260 million, if he was willing to forego or delay the $183 million tax cut he has promised.