This Year’s Budget Blunder: Projected $527M Shortfall

Paying off Homestead tax-relief credits next fiscal year, tapping Clean Energy Fund cited as ways administration plans on finding revenue to close expected gap

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Gov. Chris Christie’s administration is once again scrambling to close a projected budget shortfall in the final weeks of the state’s fiscal year, this time a $527 million gap that will be fixed in part by shifting the pain to municipal governments.

The new budget problem is just the latest for the Christie administration. Five of the seven state spending plans that have been produced by the Republican governor since he took office in 2010 are now coming up short of earlier projections to some degree. That requires last-minute adjustments to stay in line with the state constitution, which forbids running a deficit.

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To help offset the latest projected shortfall, the Christie administration is pushing off payments totaling roughly $300 million that go to municipalities to cover Homestead property-tax relief credits until the new fiscal year begins in July. That means municipalities that also operate on a fiscal-year calendar will have to scramble to close their own unexpected shortfalls, local government representatives said yesterday.

Money from budget surplus and the state’s Clean Energy Fund — a frequent Christie administration target for patching up budget holes — will also be used to help close the gap, according to documents released yesterday by state Treasurer Ford Scudder as he appeared before the Senate Budget and Appropriations Committee in Trenton.

Trouble ahead?

This year’s budget scramble could also foreshadow more trouble ahead, since Christie’s administration has decided not to scale back its revenue projections for the upcoming fiscal year, which begins on July 1. Instead, Scudder announced yesterday that the revenue forecast has been bumped up by nearly $200 million, boosted in part by a plan to launch a series of new tax-collection initiatives, like more aggressive audits and targeting of tax delinquents.

But if that effort comes up short, it will likely be the next governor’s problem to solve, since Christie is due to leave office early next year under the state constitution’s gubernatorial term limits. And the gloomy budget news is also a setback for lawmakers who were hoping for a windfall that would allow them to boost aid to local school districts. It will now be tougher for them to do so responsibly, unless the lawmakers are willing to make cuts elsewhere in Christie’s proposed $35.7 billion spending plan.
This year, New Jersey is phasing in a series of tax cuts that Christie and lawmakers enacted in 2016, including reductions to the sales tax and a phasing out of the estate tax. But Scudder yesterday cast his new revenue forecast that projects tax collections coming up short of earlier projections by a total of $527 million as part of a broader problem that other states, including Connecticut, Massachusetts, Ohio, and Pennsylvania, have also been dealing with this year. He also stressed that overall tax collections are up year-over-year, but at a rate that is “less than previously projected.”

“I want to emphasize that total revenues in New Jersey continue to grow,” Scudder said.

The insurance-premium and corporate business taxes were identified by the treasurer as underperformers, and $125 million in revenue from a major legal settlement that has yet to be finalized was also blamed for helping cause the latest budget shortfall.

Pushing off payments

Delaying $307.5 million in payments to municipalities to offset Homestead property-tax relief credits until July, when the new fiscal year begins, was a “step that we would prefer not to take,” Scudder told the members of the committee. And he said if additional income and corporate business tax payments come in stronger than expected through the end of June the delay could be shortened. He also told lawmakers that the budget for the next fiscal year right now assumes that the delay in payments to municipalities would only be a one-time event.

Christie changed the Homestead benefit from a rebate check into a direct credit on property tax bills shortly after taking office in early 2010. Before that change, the state would send out rebate checks directly to homeowners who qualified for the tax relief, but the credit now reduces the actual bill that’s sent to homeowners, with the state reimbursing towns for the difference.

That means the decision to delay the payments won’t directly impact homeowners, but Michael Darcy, executive director of the New Jersey State League of Municipalities, said towns that operate on the fiscal-year calendar like the state does will now have “a difficult issue to deal with in a very short time period.”

“How will municipalities be impacted? In some cases, by postponing work or programs they prioritized to benefit their residents; in worse cases by bonding and paying the additional costs to borrow money to fill cash flow shortages,” Darcy said.

Tapping Clean Energy Fund

The Christie administration’s plan to address the new shortfall also involves using an additional $50 million in revenue from the state’s Clean Energy Fund, continuing a practice that’s been a hallmark of Christie’s tenure despite the loud objections of environmentalists. In fact, the latest raid comes as lawmakers have been working to ban the practice through a proposed constitutional amendment as the total amount of funds taken from the account has now risen to well over $1 billion.

The Clean Energy Fund is supported by a surcharge on utility customer bills, and it is supposed to be used to promote energy efficiency and cleaner ways of producing power. Jeff Tittel, director of the New Jersey Sierra Club, said the fund raids violate a statutory dedication, and the continued diversions have harmed the environment and cost the state thousands of jobs as energy efficiency programs have been starved of revenue.

“I think the treasurer has proven why we need to constitutionally dedicate it,” Tittel said. “The public is tired of this becoming the private piggy bank of this administration.”

“It hurts the economy, it costs consumers money and it harms the environment,” he said.

Back to 2018

As the discussion turned back to the 2018 fiscal year during yesterday’s hearing, Scudder said the Christie administration was boosting its revenue forecast from an early version of the proposed fiscal year 2018 budget by nearly $200 million. He also outlined a series of new tax collection initiatives that the treasury is launching, saying they are “guaranteed to have a significant revenue impact.”

According to Scudder, the initiatives include adopting a process for collecting overdue taxes that is “similar to how credit companies alert their customers that a bill is past due,” increasing detection of “taxpayers who have stopped filing” their taxes, and modernizing the “methods of selecting taxpayers for audits.”

“In the aggregate, we estimate that they will generate nearly $200 million in additional revenue in (fiscal 2018), with further benefits to come,” Scudder said.

But before Scudder’s testimony and his announcement of the new tax-collection programs, the nonpartisan Office of Legislative Services offered its own forecasts for the 2017 and 2018 fiscal years, projecting revenues would come in a combined $687 million less than Christie’s original projections over the next 14 months.

Those estimates followed a similar warning issued last month, when OLS projections at the time indicated a revenue shortfall of $223 million was looming in fiscal 2017.