State tax collections ticked up last month even as COVID-19 infections started to spread more rapidly across New Jersey, but Department of Treasury officials are warning the pandemic’s full impact on the revenue stream is likely still to come.
A report on March tax collections that was released by Treasury on Wednesday indicated the state enjoyed a year-over-year increase in revenues of over 3% last month, even though strict social-distancing measures and restrictions on business activity were in effect across the state as the month came to a close.
Total tax collections for the current fiscal year, which began on July 1, were also up year-over-year by 6% compared with the same point last year, according to the report.
But Treasury urged caution in a statement issued along with the report, noting a number of state taxes, including the sales tax, are counted with a one-month lag in New Jersey. A wave of new unemployment filings across the state also didn’t come until March was already well underway, and the statement suggested the full economic impact of the pandemic is still looming.
Treasury keeping close tabs on situation
“Treasury is closely monitoring factors such as the closure of businesses across New Jersey, the sharp increase in unemployment insurance claims, and the decline in the stock markets, which are expected to have a significant impact on tax revenue collections in the coming months,” the statement said.
Meanwhile, Gov. Phil Murphy also foreshadowed a darkening fiscal outlook during a daily coronavirus media briefing that was held in Trenton on Wednesday.
“It’s expenses going this way and revenues going that way,” Murphy said as he gestured up and down with his arms.
More than a dozen states have put out updated revenue forecasts in response to the growing pandemic, according to the National Association of State Budget Officers, but the Murphy administration has yet to do so.
Still, the impact is expected to be significant since New Jersey has been among the hardest-hit states, trailing only New York in reported COVID-19 infections and fatalities.
New Jersey has also been among the states with the most aggressive social-distancing policies, including a curtailing of retail hours and then the forced closure of many businesses deemed “nonessential” by the governor last month.
Treasury has already frozen nearly $1 billion in planned spending in response to the pandemic, and earlier this week, Murphy signed into law a measure that established a three-month extension of the current state fiscal year.
That move was designed in part to give Treasury officials more time to assess the economic impact of the coronavirus on the state’s finances. The legislation calls for a full update on the state’s economic condition to be provided to lawmakers by the middle of May.
The measure also officially delayed New Jersey’s state income and corporate-business tax filing and payment deadlines from April 15 to July 15, matching a similar extension announced by the federal government last month. But that will undoubtedly mean April tax collections will fall off last year’s pace in New Jersey this year as a result.
Also baked into some of Treasury’s expectations is the likely impact of the pandemic on revenues that are not tabulated immediately due to the state’s tax-collection cycle. They include the realty transfer, motor fuels, petroleum products and casino taxes, in addition to the sales tax, which is one of the state’s largest sources of revenue.
“Treasury has been warning for weeks that the economic impact of the COVID-19 pandemic would not be immediately apparent on the State’s finances because many of the major revenues report with a one-month lag,” the statement said.
During the coronavirus briefing, Murphy, a first-term Democrat, was asked by a reporter about the health of state tax collections, and he said they were “falling off the cliff.” But it wasn’t clear whether the governor was referring to in-house projections or other sources of data that have not yet been released publicly since the report on March revenues indicated a slight uptick.
Still, he went on to make a pitch for “direct cash assistance” from the federal government to help alleviate expected budget pressure for states like New Jersey as there are concerns funding from the $2 trillion coronavirus relief measure that was passed by the Congress in recent weeks may not be able to be used by states to simply plug their budget holes.
Meanwhile, a group of Republicans who serve on the state Senate Budget and Appropriations Committee, urged the governor on Wednesday to be more proactive on fiscal matters than he has been so far. The GOP senators cited as one example the likelihood that ambitious state-aid figures for K-12 districts that were issued by the Murphy administration before the pandemic took hold will need to be revised before many school districts strike their own budgets in just a few weeks. But a formal announcement has yet to come from the governor.
“We all support the needs of our students, teachers and towns, but it’s irresponsible to let them advance the adoption of local budgets built upon huge increases in state aid that we cannot afford,” added Sen. Michael Testa (R-Cumberland).
“If the administration doesn’t act immediately to shift funds to where they are needed, we are likely to see economic harm that New Jersey hasn’t witnessed since the Great Depression,” he went on to say.