Taking the Guesswork — and the Politics — Out of Forecasting NJ’s Tax Revenue

A new bill aims to add accuracy and transparency to the process of estimating state’s yearly tax collection

Assemblyman Gary Schaer (D-Passaic)
A series of missed revenue forecasts in recent years has forced Gov. Chris Christie’s administration to delay property tax relief, cut contributions to the public-employee pension system, and borrow more to pay for transportation projects.

Now, lawmakers want to significantly overhaul the way the state projects tax collections each year in a bid to make the process more transparent — and accurate.

A bill (A-4326) that cleared the state Assembly Budget Committee yesterday calls for more long-range forecasting, contingency planning, and a deeper analysis of what spending is necessary to keep up with state laws and to maintain current services.

The measure would also create a three-person advisory panel that would put forward a revenue forecast each January in advance of the governor’s budget message in February. The forecast would then be updated in May, weeks before the state constitution’s July 1 deadline for the adoption of a balanced budget.

Assemblyman Gary Schaer, the chairman of the budget panel and the sponsor of the bill, said other states have had success using a similar approach, while New Jersey has struggled in recent years to patch holes in its budgets.

“This bill is an attempt at transparency, it is an attempt at bipartisanship, it is an attempt at making whoever is in that executive seat responsible,” said Schaer (D-Passaic).

Right now, the state constitution gives the executive branch in New Jersey the sole authority to certify revenues for the annual state budget. The state Department of Treasury compiles a fiscal outlook and revenue forecast, with the state treasurer appearing before lawmakers twice each spring to review the forecast and make changes, if necessary, based on tax-collection trends.

A forecast is also prepared by the budget analyst for the Office of Legislative Services, the state Legislature’s nonpartisan research arm, but those projections are only advisory.

In recent years, however, as tax collections have consistently trailed the Christie administration’s projections, the forecasts prepared by the legislative analysts have been more accurate. Last year, after the administration’s forecast came up about $1 billion short, Christie cut the planned contribution into the public-employee pension system from $1.57 billion to $697 million.

A judge allowed that cut, but ruled against the state last month on another pension-payment cut.

Prior shortfalls have forced the administration to delay Homestead property-tax relief payments — there were no credits paid out in 2014 — and abandon a plan to ease a reliance on new debt to fund transportation projects by using more revenue from the annual state budget.

The shortfalls, and the actions taken to address them, were also cited by credit-rating agencies last year as the state suffered a series of credit-rating downgrades. Those downgrades have the potential to increase borrowing costs ultimately borne by taxpayers.

[related]The bill that passed the Assembly panel yesterday would overhaul the forecasting process by impaneling a three-member advisory board to prepare revenue forecasts. The board’s members would be the state treasurer, the Office of
Legislative Services’ budget analyst, and a third member agreed upon by the treasurer and the legislative analyst.

The panel would meet in public to put forward its forecast each January and then again to update it in May.

A similar bill (A-3620) was approved by the Assembly panel in December, but the measure that passed the committee yesterday was expanded to address other revenue-forecasting concerns.

The newer measure also calls for long-term revenue and expenditure forecasting, and comparisons between budgeted appropriations and the appropriations called for by state law, such as those requiring property-tax relief and school aid. Contingency planning would also be improved under the bill.

“Making New Jersey’s budget process more transparent and more democratic via this bill will help eliminate the potential for the gimmicks and shortfalls that resulted in credit downgrades for our state,” said Assemblyman Joseph Lagana (D-Bergen), another sponsor of the legislation.

Christie’s current budget, a $32.8 billion spending plan in place until June 30, calls for revenue growth of 5.3 percent compared to last year’s budget. Tax collections through the end of February were up 4.9 percent, according to the latest Treasury revenue report.

But it’s unclear how big that shortfall is in dollars because last year the Christie administration broke with years of tradition and stopped providing on a monthly basis a precise side-by-side comparison of tax collections against budget targets for the each of the more than a dozen largest tax sources.

Christie’s proposed $33.8 billion spending plan for the fiscal year that begins July 1 projects more modest revenue growth of less than 4 percent.

Sheila Reynertson, a senior policy analyst at the liberal-leaning think tank New Jersey Policy Perspective, said consensus forecasting is a best practice that other states are already doing. She also pointed to the role politics can play in revenue forecasting, when governors are tempted to paint a rosy tax-collection landscape to avoid making politically unpopular decisions.

“A change in the forecasting process is long overdue,” she said. “We hope it will take some of the politics out of the process.”

Deborah Cornavaca, legislative director of the New Jersey Working Families Alliance, pointed to frequent news stories about New Jersey’s annual budget problems, saying it can discourage investment in the state.

“The impact of this bill really should not be underestimated,” Cornavaca said.

But Assemblyman Jay Webber (R-Morris) said if anything is discouraging investment in New Jersey it’s the state’s tax-and-spending policies. He challenged Cornavaca to support cutting taxes.

“My view is, a much bigger problem for us is that we spend too much and tax too much,” he said.

Webber and other Republicans ultimately voted against advancing the measure, but Schaer and the other Democrats, who hold a majority, voted in favor of the bill and it was released.

A spokesman for the Department of Treasury declined comment on the legislation yesterday.

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