Gov. Phil Murphy is planning to sign into law today legislation that will officially delay New Jersey’s income-tax filing deadline and also extend the term of the state’s fiscal “year,” all in response to the ongoing coronavirus pandemic.
Murphy’s pending action on the legislation — which he signaled in a statement issued late Monday — sets the stage for New Jersey to become the only state in the country to delay the closing date of the current fiscal year in the wake of the still unfolding pandemic.
New Jersey is also on course to become the last state in the country that levies a state income tax to officially approve a filing extension beyond the traditional April 15 deadline. The new filing deadline is July 15.
Lawmakers rushed both proposed fiscal-policy changes to Murphy’s desk in a matter of days, citing the urgency of the growing pandemic.
State’s credit rating outlook takes a hit
The final votes held in both the Assembly and Senate on Monday also coincided with a move by Moody’s Investors Service, a major Wall Street credit-rating firm, to lower the state’s rating outlook from “stable” to “negative.” The impact of the pandemic on the state’s finances and the likelihood of “elevating already-high liabilities” were cited as key factors by Moody’s.
Murphy also joined on Monday with the governors of several Northeast states to announce the launching of a formal planning process that is intended to generate a coordinated approach to resuming normal activities once the worst of the pandemic has passed.
“An economic recovery only occurs on the back of a health-care recovery,” Murphy said on a conference call with the governors of Connecticut, Delaware, New York, Pennsylvania and Rhode Island.
The Murphy administration has yet to release a formal analysis of the impact they expect the pandemic to have on the state’s revenue stream, but the fallout is likely to be significant since New Jersey has been among the hardest-hit states, trailing only New York in reported COVID-19 infections and fatalities.
The Department of Treasury has already frozen nearly $1 billion in fiscal year 2020 spending in response to the pandemic, but the state entered into the economic downturn with limited budget reserves compared with those of many other states, leaving very little margin for error as the revenue losses and new expenses have started to pile up.
Easing burden on residents
The move to extend the state tax-filing deadline by three months is intended to help ease the economic burden many residents face as they contend with illness or financial hardship caused by the loss of a job. The state tax extension will apply to both the income and corporate-business taxes, as well as any quarterly payments due on April 15, and it follows a similar move for federal income taxes that was announced last month by President Donald Trump’s administration.
“As we continue to battle the COVID-19 pandemic, it is imperative that we give both the state and our residents every opportunity to endure financially,” Murphy said in the statement issued Monday.
In a typical year, April income-tax payments are a major source of revenue for the state budget that helps to keep spending in balance in the run-up to the fiscal-year closing, which occurs at the end of June. The state Constitution also prohibits the governor and lawmakers from carrying over any deficits into a new fiscal year, reducing flexibility to manage an ongoing fiscal crisis.
The measure Murphy is planning to enact today — which has enjoyed broad bipartisan support — attempts to alleviate at least some of the state’s cash-flow pressure by delaying the end of the current fiscal “year” to September 30. It also gives Murphy until August 25 to come up with a spending proposal for what will be a truncated FY2021 that will run from October 1, 2020 to June 30, 2021.
More time for taxpayers, state officials
“The extensions will give taxpayers more time to calculate and manage their finances and will provide state officials a workable timetable to craft a budget that addresses our critical needs,” said Senate Budget and Appropriations Committee Chair Paul Sarlo (D-Bergen).
“This legislation will provide taxpayers a much-needed pause and give the state additional time and data to rework the upcoming budget to meet emergent needs within the confines of a rapidly changing revenue situation,” said Sen. Steve Oroho (R-Sussex), who also serves on the budget panel.
In the notice issued by Moody’s on Monday that announced New Jersey’s ratings-outlook downgrade, analysts said the shift to a “negative” outlook “reflects the impact of the coronavirus crisis on the state and our expectation that the crisis will have substantial impacts on state finances and the economy, straining its ability to structurally balance its budget and elevating already-high liabilities.”
“The rating action also incorporates the mitigating impacts of substantial federal emergency assistance, which will stabilize near-term liquidity needs and bolster household income and spending and therefore tax revenue,” Moody’s said.
“State and local governments across the country are facing unprecedented budget challenges right now, which is why Governor Murphy continues to fight for direct federal assistance for New Jersey. The change in Moody’s outlook today comes as little surprise,” said state Treasurer Elizabeth Maher Muoio.
One key factor for restoring the state’s fiscal stability could be when general economic activity will return to normal in the Northeast. A number of states, including New Jersey, have enacted strict social-distancing measures that have resulted in many businesses limiting their hours or closing down altogether, severely stunting economic activity.
The announcement made by the governors of the six Northeast-region states on Monday calls for the establishment of a working group to come up with a plan to eventually lift the social-distancing restrictions once the health-care crisis eventually wanes. The group will comprise health-care and economic-development policy experts from each state, as well as the respective chiefs of staff for each governor. And joining the multistate planning effort later in the day Monday was the governor of Massachusetts, pushing the group’s roster to seven states.
“A coordinated, regional approach, informed by a multistate council of experts, will help us avoid a major setback with potentially disastrous consequences,” Murphy said. “I look forward to the day when the facts on the ground allow us to ease our restrictions and move our regional economy forward.”