As COVID-19 Heats Up, Governor Puts $1B of Planned Spending in Deep Freeze

Social-distancing measures have sent consumer spending into a tailspin, a sharp downturn felt all across the state economy that’s reducing revenues in all sectors
Credit: Daniel Frank via Pexels
Ice cave

Gov. Phil Murphy’s administration has put nearly $1 billion in planned spending in reserve in response to ongoing concerns that the coronavirus outbreak could take a huge chunk of revenue out of the state budget.

Among the fiscal year 2020 appropriations that have been sidelined by the administration’s spending freeze is $142 million that was supposed to cover the next installment of the state’s popular Homestead property-tax relief benefits, which was due to be paid out to thousands of New Jersey residents to help offset their sky-high property-tax bills in May.

Other appropriations that were put on ice include about $45 million in state aid to New Jersey municipalities, nearly $14 million for combating opioid addiction and $9 million for lead-abatement programs, according to a list released on Monday evening by the Department of Treasury.

The decision to freeze a total of $920 million in appropriated FY2020 spending comes as New Jersey has faced an increasing number of COVID-19 cases, and as Murphy, a first-term Democrat, has enacted a series of aggressive “social-distancing” measures in an effort to stop the disease from spreading further.

The spending freeze was enacted on Friday, according to a state bond disclosure, but was not revealed to the public until Monday. The bond disclosure issued on Monday called the impact of the coronavirus on the state’s economy and finances “unpredictable and rapidly changing.”

“The State believes that it may be some time before the State is able to determine the full impact that the various events surrounding COVID-19 have on the State’s economy and its financial condition,” the disclosure said.

New Jersey among hardest hit

So far, New Jersey has been among the states that have been hit the hardest by the coronavirus, with more than 2,800 confirmed COVID-19 cases and 27 deaths. In response to the growing outbreak, Murphy has ordered all nonessential businesses closed and all residents to stay at home, with some limited exceptions.

New Jersey had been enjoying a solid year for revenue growth heading into the onset of the coronavirus outbreak, with a generally strong pace of state tax collections between July 2019 and the end of February. In fact, total revenues were up about 6% year-over-year during that period, according to the Department of Treasury’s most recent tax-collection update.

Budget reserves were also boosted by Murphy and lawmakers heading into FY2020, with a total of $1.276 billion socked away in either general surplus or the state’s more restricted rainy-day fund.

But the bond disclosure issued by the Murphy administration on Monday indicated the coronavirus outbreak and the measures the governor has ordered to control its spread will impact all major tax sources, including the income, sales and corporate-business taxes. Treasury is also expecting to have to revise major revenue projections for the remainder of the current fiscal year, which runs through the end of June, and also for the upcoming 2021 fiscal year, according to the disclosure.

An end to optimistic projections

The Murphy administration recently issued a series of optimistic revisions to the FY2020 budget that included an upgraded revenue forecast for the remaining months of the fiscal year. In all, nearly $1 billion in additional tax collections were projected over the original revenue estimates that were included in the $38.7 billion spending bill Murphy signed into law late last June.

Treasury also indicated it was expecting to see tax collections grow by another nearly $1.7 billion in FY2021, although some of that increase would have been generated by a series of tax hikes that Murphy had proposed as part of his $40.85 billion spending plan for FY2021.

But those projections now appear to be superseded as a result of the coronavirus outbreak. And unlike the federal government, the New Jersey Constitution prohibits the state from operating with a deficit, meaning spending must be held back or cut to offset any expected revenue losses.

“The State expects that it will need to significantly revise the estimated revenues and projected appropriations for Fiscal Years 2020 and 2021 contained in the Governor’s Budget Message for Fiscal Year 2021 delivered on February 25, 2020, which was before the outbreak of COVID-19 within the State,” the bond disclosure said.

Last week, Murphy joined with the governors of Connecticut, New York and Pennsylvania in asking for a cash infusion to the four states of at least $100 billion to help cover expected state-revenue losses, and added costs related to the ongoing coronavirus response. But it remains to be seen what, if any, federal funding will go to states like New Jersey as the Congress continues to debate a stimulus package.

On Monday, Murphy was asked during the latest state media briefing on the coronavirus response about the impact the outbreak could be having on the state budget, including on tax collections. He did not disclose the spending freeze at the time, and it wasn’t officially announced until several hours later.

Assemblyman Harold Wirths, a Republican who serves on the lower house’s budget committee, said lawmakers were informed of a hold on discretionary spending over the weekend. Wirths urged Murphy to continue the FY2020 spending freeze into FY2021, which begins July 1.

“New Jersey is already in a poor fiscal condition, and we are not sure how revenues will play out in the coming months,” said Wirths (R-Sussex).

“Obviously we need to pay our bills first and foremost,” he said. “Tough decisions need to be made to make sure the budget is truly balanced a year from now.”

Here is a full list of all FY2020 spending items that have been placed in reserve by the Murphy administration:

  • Homestead Benefit Program $141,851,261
  • Motor Vehicle Commission $83,956,232
  • 50% of Non-Salary Operating $78,486,712
  • 50% of College Operating Aid $70,642,379
  • Municipal Aid Programs $44,738,465
  • Legislative Adds $40,502,082
  • EDA Grant Programs $32,239,459
  • Support of Patients in County Psychiatric Hospitals $31,402,553
  • Judiciary Pretrial Services/21st Century Funding $25,447,834
  • Tuition Assistance Programs $21,088,183
  • Child Support/Paternity/Enforcement $20,928,360
  • Capital Balances $16,819,376
  • Opioid Initiatives $13,813,597
  • Treasury Revolving Funds $13,595,785
  • Salary Program $10,000,000
  • County College Operating Costs $9,730,756
  • Lead Programs $9,186,714
  • Children & Families Programs $7,936,256
  • LPS Expungement Unit $7,500,000
  • Environmental Protection Programs $6,290,408
  • Senior Freeze $4,782,689
  • Drug Court $4,665,049
  • Parolee Programs $3,582,582
  • Other Judiciary Programs $3,183,989
  • Statewide IT Initiatives $1,756,528
  • Victims of Crime Claim Payments $1,717,475
  • Juvenile Justice Programs $1,232,452
  • Services for Veterans $376,630
  • School Aid $93,553
  • Other Discretionary and 50% of Special Purpose $68,895,103
  • 50% of All Other Dedicated Funded Programs $144,171,590

               Total $920,613,854