Gov. Phil Murphy and state legislative leaders are planning to delay the end of New Jersey’s fiscal year by three months, an unprecedented step that is designed to give the state more time to navigate turbulent economic conditions caused by the ongoing novel coronavirus pandemic.
In a deal announced on Wednesday that is expected to be finalized in pending legislation, the close of fiscal year 2020 will be pushed out this year from its normal June 30 ending date to Sept. 30, with supplemental appropriations envisioned to fill any gaps.
The budget extension will allow the state to also push back to July 15 the traditional April 15 cutoff for filing state income-tax returns. That’s something many taxpayers have been calling for in recent weeks after the federal government announced its own extension to July 15 for returns last month.
Murphy praised lawmakers during a media briefing in Trenton on Wednesday for working closely with his administration to resolve the state’s significant budget and tax issues amid the ongoing outbreak.
“We simply don’t have the luxury of time,” Murphy said during the briefing.
“There is simply too much economic and fiscal uncertainty at this time,” he went on to say.
Economic slowdown, spike in health care costs
Businesses the Murphy administration deemed nonessential have been shuttered throughout the state, and other economic activity has slowed dramatically as COVID-19 infections have spread into every county, costing the state unknown tax revenue. At the same time, new costs have been heaped onto the budget as the state purchases medical equipment and takes other emergency steps to respond to the pandemic, which has caused 355 deaths in New Jersey as of Wednesday.
In response to the economic impact of the spreading pandemic, the state Department of Treasury recently announced the freezing of nearly $1 billion in fiscal year 2020 appropriations. That should help backstop the roughly $1.3 billion in budget reserves that were written into the $38.7 billion spending bill that Murphy signed into law late last June.
New Jersey is also in line to receive more than $3 billion in federal aid under emergency legislation passed by Congress and signed into law by President Donald Trump late last week. But Murphy said during the briefing that his administration is still trying to figure out exactly how much the state will receive from the federal aid package, and exactly where those funds could be deployed.
Resolving liquidity issues
Although technical in nature, another big fiscal sticking point for the Murphy administration was the federal government’s decision to move its income tax-filing deadline to July 15. The state relies heavily on April income-tax payments to cover its own bills, and pushing the fiscal-year deadline out to Sept. 30 resolves any liquidity issues that the state could have faced as a result of matching the federal government’s own filing-deadline extension. It also means residents who have yet to file their federal or state taxes will not have to deal with the headache of doing their returns separately.
“It was the most logical, and frankly, compelling step to take,” Murphy said.
Still, the plan announced on Wednesday calls for the extension of the state income-tax filing deadline to be done through legislation, and not by executive order or some other administrative action, so technically the state-filing deadline will remain April 15 in New Jersey until such action is taken.
State Treasurer Elizabeth Maher Muoio was the first to publicly raise the notion of extending the current fiscal year for several months during an interview with NJTV that business correspondent Rhonda Schaffler conducted last week.
“I think that is something that’s worth exploring, whether we would want to potentially extend the end of the fiscal year, because there’s so many unknowns at this point,” Muoio said during the interview.
‘Bare bones’ FY2021 budget nixed
Senate Budget and Appropriations Committee Chair Paul Sarlo (D-Bergen) said during an interview with NJ Spotlight on Wednesday that several scenarios were discussed, including passing a stopgap or “bare bones” budget for fiscal year 2021 that would have allowed the state to stick to the traditional June 30 deadline. But Sarlo said there was agreement that moving ahead with FY2020’s temporary extension was the best course of action given the circumstances.
“In a month, literally, the sky has fallen in New Jersey,” Sarlo said. “This is the right thing to do for the state of our economy here in New Jersey.”
The veteran senator said he expects a bipartisan bill to be introduced in the near future that would both extend the state’s fiscal year and the income-tax filing deadline. A spokesman for Assembly Speaker Craig Coughlin (D-Middlesex) also confirmed on Wednesday that the current plan calls for all of the proposed fiscal changes to be made in legislation.
Pushing the constitutional envelope
Still, the decision to turn FY2020 into a 15-month budget seems to push the envelope on what is considered a fiscal year under the state constitution.
The constitution doesn’t explicitly define the fiscal year as being from July 1 to June 30, but numerous constitutional amendments related to taxation and spending do use the July 1 date. Language in the constitution also calls for “one general appropriation law covering one and the same fiscal year.”
The constitution does allow for the fiscal year itself to be changed, and language says “when a change in the fiscal year is made, necessary provision may be made to effect the transition.” But it doesn’t appear to speak directly to the scenario of extending a fiscal year beyond 12 consecutive months.
Still, the governor and lawmakers all said on Wednesday that they see the proposed fiscal-year extension as a one-time event. A spending plan for a truncated FY2021 running from Oct. 1 to June 30 is expected to be enacted by the end of September. They also defended the constitutionality of their proposal to extend FY2020 for another three months.
“The constitution says you have to have an annual appropriations act for a fiscal year, but it accounts for changes in that fiscal year,” said Matt Platkin, chief counsel for the Murphy administration, during the media briefing.
“I think we’re on pretty good constitutional grounds,” said Sarlo during the interview with NJ Spotlight.
FY2021 spending, tax hikes put on hold
It’s unclear right now exactly what will happen to the spending proposal that Murphy put forward for FY2021 in late February, which was well before the coronavirus outbreak took hold across New Jersey. That $40.85 billion budget plan called for spending increases in several key areas, including mass transit and public education, that at this point seem to be on hold. A series of tax hikes the governor proposed, including ones on packs of cigarettes and personal income over $1 million and up to $5 million, also appear to be sidelined, at least for now.
“The world has changed dramatically since the budget address I gave (in February), and so we’re going to have to account for that, and there’s no other way around it,” Murphy said during the briefing. “How exactly we account for that, it’s too early to tell.”
New Jersey was the last state that levies an income tax to announce an extension of its filing deadline, and several Republican lawmakers had been critical of Murphy for waiting until the beginning of April to make a final decision.
Sen. Declan O’Scanlon, a leading Republican for Monmouth County who serves on the Budget and Appropriations Committee, had also publicly questioned the Murphy administration’s decision to make a quarterly pension payment totaling $684 million on Monday instead of holding those funds back to ensure more budget flexibility going forward.
Poor state credit rating
New Jersey already boasts one of the worst state credit ratings in the U.S. and regularly ranks near the bottom in state-by-state comparisons of budget reserves as a percentage of total spending. Bradley Schnure, a spokesman for the Senate Republicans, suggested GOP lawmakers still have some concerns about maintaining the health of the state’s finances even after Wednesday’s announcement.
“Our caucus remains concerned that without an immediate suspension of new programs and spending increases not related to COVID-19, we will be ill-prepared to provide families and businesses with the relief they need,” Schnure said.