Contradiction in Christie Budget Plan: Grow Revenue $1B While Cutting Taxes

The governor may be taking a gamble, but if he’s wrong it will be up to his successor to make things right — most likely with last-minute spending cuts

Credit: Governor's Office/Tim Larsen
Gov. Chris Christie
The new budget that Gov. Chris Christie proposed earlier this week for New Jersey’s next fiscal year counts on state revenues growing by about $1 billion even as a round of phased-in tax cuts enacted last year will continue to take hold.

Christie’s relatively rosy revenue outlook comes as his administration has slightly downgraded the tax-collection forecast for the current fiscal year, and after the Republican governor called for an extra $400 million in spending on road, bridge, and mass-transit projects within the next 100 days.

Several states that have enacted ambitious tax-cutting initiatives in recent years like Louisiana and Kansas have been struggling to close sizable revenue shortfalls this year. But Christie’s administration seems confident that a strengthening state and national economy will help to sustain another spending increase in New Jersey even as the cuts to the sales tax and several other state revenue sources are widening.

Whether that outlook will hold true remains to be seen, but if it doesn’t, any problems will likely fall to the next governor since Christie is due to leave office in early 2018. With crucial April income-tax collections for the current fiscal year looming, lawmakers say they’re reserving judgment on Christie’s growth estimates for now.

Income-tax revenue projected to rise by $500 million

In all, Christie’s $35.5 billion fiscal year 2018 budget projects increases in all three of the state’s “Big 3” revenue sources, which are the income, sales, and corporate-business taxes. Despite widening tax cuts impacting both the income and sales taxes, Christie is projecting income-tax revenue to improve by nearly $500 million and sales-tax collections to rise by more than $150 million during the 2018 fiscal year, which begins in July.

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Those increases come after projections for both the income and sales taxes for the current fiscal year, which closes at the end of June, were downgraded slightly earlier this week as part of an overall $250 million reduction of the fiscal year 2017 revenue forecast. The changes were made during routine, midyear fine-tuning of the budget, and reflect the impact of the first phases of the tax cuts, which were passed after Christie enacted the budget in June 2016.

In addition to the downgraded revenue forecast, Treasury officials also announced $344 million in spending lapses, including savings from refinancing issues. They will more than offset $106 million in supplemental spending, including for snow removal and medical/tort claims. Christie’s call for $400 million in additional spending on roads, bridges, and mass transit over the next 100 days — announced during his budget address on Tuesday — will be supported by Transportation Trust Fund revenues, Treasury officials said. That means it will have no direct impact on the fiscal year 2017 spending plan since the TTF is an off-budget account with its own dedicated revenues.

State treasurer confident of growth forecast for NJ

In a budget briefing held with reporters on Tuesday, Treasurer Ford Scudder expressed full confidence in the Christie administration’s growth forecast for the FY2018 fiscal year. Asked specifically about sales-tax revenue, Scudder said there are good reasons to believe the sales tax will hit its elevated target even as a reduction in the sales-tax rate from 6.875 percent to 6.625 percent will go into effect on January 1, 2018.

“We had pretty strong growth in the sales tax last year,” Scudder said. He also pointed to other factors, including rising consumer confidence.

“All of the economic trends nationally are continuing to improve,” he said.

Scudder also spoke more broadly about the Christie administration’s belief that the state will be able to support a roughly $1 billion increase in spending even as cuts to the income, sales, and estate taxes are progressing as part of the bipartisan deal the governor struck with lawmakers last year. Scudder said federal IRS data show New Jersey has been losing a chunk of its tax base in recent decades and suggested the tax cuts are intended to help grow the base again by stimulating economic activity and investment.

“I will submit to you that you can’t balance the state budget on the backs of unemployed workers or people who aren’t in the state,” he said. “What we are trying to do with pro-growth tax cuts is create an environment that’s more hospitable to economic growth, capital investment, business formation, and job growth.

“Without those things, we have no tax base, and we will have no tax revenues,” he said.

Scudder also addressed concerns that the surplus for the fiscal year 2018 spending plan, which right now is budgeted at just under $500 million, may not be enough to hedge against any future revenue shortfalls. Some economists have been predicting the nation is due for a recession, and New Jersey was among the states to see a steep drop-off in revenues a decade ago at the onset of the Great Recession.

Crucial April income-tax season

But Scudder said padding the surplus account would mean either hiking taxes, cutting spending on vital programs or reducing the state contribution into the public-employee pension system. In fact, much of the $1 billion spending increase is going into the pension system.

“None of those things are things we wanted to do,” he said.

The state constitution also gives the governor broad latitude to make changes to the budget throughout the fiscal year to keep spending in balance, he said.

“The executive branch has tremendous power in New Jersey that other states don’t necessarily have to change appropriations midyear,” Scudder said.

Senate Budget and Appropriations Committee Chairman Paul Sarlo (D-Bergen) said he had no problems with the projected increase in spending, which measures roughly 2.5 percent compared to the current fiscal-year budget. Sarlo, who helped author last year’s tax-cut legislation, said he’s more interested right now in how the fiscal year 2017 budget will perform heading into the crucial April income-tax season.

Last year, after income-tax collections fell short of estimates, Christie had to cut about $600 million in spending in the final weeks of the fiscal year. And that gap opened up before any tax cuts were approved.

“I think 2.5 percent is reasonable, but I really want to see where we end up at the end of this (fiscal) year,” Sarlo said.

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