What a difference a year makes. It was this time last year when the state was dealing with a $1 billion “April surprise” revenue shortfall. In response, Gov. Chris Christie put forward a series of steep spending cuts, including delaying property tax relief and reducing the state payment into the public-employee pension system.
But this year, even as the Christie administration is still defending the pension cut in court, the state is expecting a happier result as final April income-tax collections and refund payments are tabulated.
The state treasurer told lawmakers last week he’s tentatively expecting a $200 million windfall, and that the additional revenue this year would go to padding the planned payment into the pension system, which has suffered from two decades of underfunding. More precise revenue estimates are due to be presented to lawmakers next week.
For Christie, a second-term Republican, the positive revenue news comes just as he’s attempting to present himself as someone capable of handling the national economy as he continues to explore a run for president in 2016. Christie delivered a lengthy speech in New Hampshire on Tuesday that focused on federal tax policy and economic growth, saying “the next president of the United States must have a specific plan to restore growth to America’s middle class.”
This year’s expected windfall in New Jersey is also a welcome departure from more recent years when the April surprises have not been very happy. And since the state’s constitution requires a balanced budget, Christie has been forced to respond to those shortfalls with difficult spending reductions.
Those measures have included not only the delayed property-tax relief payments and reduced pension funding, but also raiding accounts set aside for affordable housing and clean energy and relying more on borrowing for transportation spending to offset gaps.
The April surprise is something that is tracked every year by state Treasury departments as income-tax collections come in and refunds are paid out. The surprise comes from both the inexact nature of revenue projecting and the sheer amount of money — roughly $13 billion in New Jersey — that states take in each year from the income tax.
Missing the projection by even a small percentage can generate sizable windfalls or shortfalls depending on how conservative forecasters were when making their original projections. And the surprise comes not just from whether tax collections grew, but also how that growth compares with how much spending expansion was projected in the annual state budget.
New Jersey Treasury records show that the last time the state was expecting a good April surprise was in the final weeks of the 2011 fiscal year, when the Christie administration announced a projected $242 million windfall. Christie proposed boosting property tax relief and public-employee pension funding in response.
But that was the only year since Christie took office in early 2010 when the April surprise turned out to be a good one. Other sizable gaps include last year’s $1 billion shortfall and a $514 million projected shortfall that appeared in the final weeks of the 2012 fiscal year just as Christie was attempting to pitch an across-the-board income-tax cut.
This year, however, the state was right on its 5.3 percent projected growth rate when the last official revenue report was released by Treasury in mid-April.
[related]And New Jersey appears to be one of many states across the country that is enjoying good news after counting up their April tax returns, said Brian Sigritz, director of state fiscal studies for the National Association of State Budget Officers.
Other states enjoying a bump include Pennsylvania, North Carolina, Arkansas, Missouri, Illinois, Arizona, and California, Sigritz wrote this week on the association’s “Budget Blog.”
“The positive April surprises appear to be widespread this year, with states from different regions seeing revenues come in above forecast,” he said.
In neighboring New York, a recent report released by the state’s comptroller tracked modest tax collection growth of just under 2 percent during the past fiscal year, which ends on March 31 in New York — which is still significantly more than $200 milion.
Those state-level gains mark a significant reversal from last year, when many states, including New Jersey, saw their revenue collections fall well short of projections. Economists blamed the shortfalls on federal tax policy changes enacted for the 2013 tax year in response to what was called the “fiscal cliff.”
The result was higher tax rates for the wealthy that forced many to push gains into the prior tax year to escape the elevated rates.
But Christie said during his policy speech at the University of New Hampshire-Manchester on Tuesday that the country’s top-end tax rate should be lowered, from nearly 40 percent to no more than 28 percent. He said the federal corporate tax rate should be cut as well, from 35 percent to 25 percent.
“We must create a flatter, fairer, simpler tax code,” Christie said.
The tax cuts could be done in a “revenue-neutral” way, Christie said, by eliminating some deductions and credits. But those for home mortgages and charitable contributions would not be affected, he said.
Still, state Senate President Stephen Sweeney, a frequent critic of Christie’s economic policies, said the speech showed a continuing preference for policies that benefit the wealthy.
“The latest proposal by the governor is nothing more than another significant tax break for the wealthy that will make economic conditions for everyday Americans worse,” said Sweeney (D-Gloucester).
Other observers noted the speech said little to nothing about New Jersey, where despite a series of business-tax cuts and more than $5 billion in corporate-tax incentives awarded by Christie’s administration since 2010, the unemployment rate remains more than a full percentage point higher than the national average.
And despite the potential for a $200 million windfall, the state budget for the current fiscal year could still soon be thrown into disarray depending on how the state Supreme Court rules in the case challenging the legality of Christie’s nearly $1.6 billion pension-payment cut. A decision could come at any time, and state Treasurer Andrew Sidamon-Eristoff told the Assembly Budget Committee last week that his agency is planning for a range of outcomes.
“I can’t anticipate what the timing is or what they will ultimately decide,” Sidamon-Eristoff said. “We’ll be ready for whatever contingency presents itself.”