State governments have had a hard time restoring budget reserves since the last recession, and New Jersey remains among those struggling the most, according to new state-by-state fiscal data released by The Pew Charitable Trusts.
Before the recession hit, state governments had enough money socked away in reserves to operate uninterrupted for about 41 days, but the “Fiscal 50” research from Pew shows that number had dropped to a median of just over 20 days as of the end of the past fiscal year.
And in New Jersey — where maintaining a healthy surplus account has been a big challenge since Gov. Chris Christie took office amid the recession in early 2010 — the effect has been even more pronounced.
The state had enough money in its reserves during the 2007 fiscal year, the last full fiscal year before the recession hit, to fund operations for about 31 days. But that number dropped to just over 3 days during the 2014 fiscal year.
The news is not unreservedly bleak, however. The state managed to add another day to its reserve in fiscal 2015, which ended June 30, according to Pew. And the surplus account in this year’s budget, which went into effect July 1, is at $700 million, which does offer something of a cushion.
Still, the situation is not pretty.
Reserve accounts and rainy day funds, Pew said, are maintained by states to “manage budgetary uncertainty, deal with revenue forecasting errors, prevent severe spending cuts and tax increases, and cope with unforeseen emergencies.”
Generally, a state that has been able to build up its reserves is usually experiencing economic health, while states with thin reserves are typically facing budget problems and revenue shortfalls. The size of a state’s reserves is also one of the factors that major Wall Street credit-rating agencies look at while analyzing its creditworthiness.
For New Jersey, where the last recession took a huge toll on tax collections, its slim surplus account over theplast several budgets has been one of the factors that the rating agencies have cited while giving the state the second-worst credit-rating in the country behind only Illinois.
[related]New Jersey also ranked dead last among states for long-run solvency, which is another way to gauge a state’s cushions against fiscal risks, in rankings that were released in July by George Mason University’s Mercatus Center.
And since New Jersey’s constitution requires a balanced budget, keeping few funds in reserve has also had its consequences for taxpayers in recent years when shortfalls have occurred. Those have included delayed property-tax relief payments and reduced contributions into the already underfunded public-employee pension system.
New Jersey has also not fully funded its school-aid law and is on the verge of running out of revenue for the state Transportation Trust Fund when the current fiscal year ends on June 30.
But the new data released by Pew does offer some signs of improvement for New Jersey. Its $300 million surplus fund during the 2014 fiscal year would have covered operations for 3.5 days, while the $388 million fund that was maintained during the 2015 fiscal year, which ended on June 30, would have lasted 4.4 days.
And the surplus account in the $33.8 billion budget that Christie signed into law for the fiscal year that began July 1 rose to nearly $700 million, an increase that has yet to be reflected in Pew’s research.
Despite the improvement, New Jersey still has a long way to go.
According to the Treasury Department, “New Jersey’s surplus is lower than some other states, but it is at an appropriate and suitably growing level. The Pew report relies on two-year-old, dated data which glosses over a doubling of the surplus since 2014.”
Department officials also indicate that because of New Jersey’s uniquely strong executive powers afforded by the state constitution, the governor has the ability to control the flow of spending so as not to get into deficit spending.
The Pew research, which stretches back to the 2001 fiscal year, ranked New Jersey among the worst in the country when it came to maintaining adequate reserves during the 2014 fiscal year, the last year for which there are complete records to compare all 50 states.
New Jersey’s 3.5 days worth of reserves that year ranked behind only Pennsylvania, which had one day of reserves, and Arkansas, which didn’t have enough to last a day.
On the other end of the spectrum was Alaska, which could have covered operations for nearly 700 days using reserves. Other states in the top five included Wyoming, 189 days; North Dakota, 188 days; Nebraska, 134 days; and West Virginia, 118 days.
In all, just 17 out of 50 states had more money socked away in reserves at the end of the 2014 fiscal year than they did during the 2007 fiscal year. And that number fell to only 14 during the 2015 fiscal year, according to the preliminary data collected by Pew.
Still, Pew’s research did offer one sign of hope on the subject of reserves: For two straight fiscal years no state was expected to require borrowing to offset depleted reserves.