We hear a lot about how New Jersey’s credit rating has been downgraded an astonishing nine times this decade, setting a new record. But rarely do we hear much about how to reverse course. That matters because the longer this dismal trend is ignored the more money it costs New Jersey taxpayers to borrow for major investment projects like road improvement and school construction.
An important opportunity to reverse course was recently rejected by Gov. Chris Christie, who claimed that good-government reforms “could grind the budget process to a standstill.”
The vetoed bill included three common-sense components that would have improved the budget process and potentially boosted our standing with the credit-ratings agencies. It would have created a transparent revenue-forecasting process, led to smart planning strategies to catch potential shortfalls in the state budget, and made New Jersey’s executive and legislative branches do more long-term financial planning.
The governor’s veto makes little sense. Given the record of New Jersey’s past three budgets and the cumulative consequences of flawed revenue projections, a change in the revenue-forecasting process is long overdue. Currently, both the executive branch and the Office of Legislative Services estimate revenues, but they do so independent of each other. And in the end, the executive branch can simply ignore OLS’s estimates in its own projections.
The rejected bill would have taken politics and personalization out of budget-making by bringing the executive branch, the Office of Legislative Services, and a mutually agreed-upon third party together to come to a consensus about revenue forecasts. It’s a proven strategy that is currently employed in more than half the states and is a commonsense step toward sounder financial practice. In fact, the credit ratings agency Moody’s lists consensus revenue forecasting as one of the five financial best practices of state governments. Passing the bill would have signaled to rating agencies that New Jersey’s fiscal management is back on the right track.
It would have also required New Jersey budget makers to estimate revenues three years into the future, another typical financial practice employed by about two dozen states. By only projecting revenue for the coming year, New Jersey policymakers are blind to predictable declines (or increases) in state revenue and vulnerable to phased-in tax-cut proposals that balloon revenue losses several years down the line. Projecting how much revenue the state can expect to collect beyond the coming year enables lawmakers to better anticipate and respond to predictable changes in revenue.
Third, the bill would have given New Jersey a stronger grasp of real costs by projecting out the next three years of some spending areas like state contributions to the pension system, education aid, municipal aid, and direct property-tax relief programs. Knowing the cost of maintaining the current level of these services beyond a single year alerts policymakers to major cost increases before it’s too late to avoid a budget-making emergency. It would also highlight the danger of chronically taking in less revenue than needed to meet obligations.
This is a smart-planning strategy that shows the amount of money the state would need to spend just to keep programs stable and would help New Jersey navigate its way toward a more fiscally sound future. By vetoing the bill, Christie chose to keep New Jersey’s budget process short-sighted and unnecessarily political while helping to ensure our credit rating stays near the bottom.