The Legislature’s nonpartisan fiscal experts say revenue losses caused by the coronavirus pandemic won’t be as bad as Gov. Phil Murphy’s administration has been forecasting, a sign the state’s economic outlook may be improving, or at least better than many feared.
New projections issued Thursday by the Office of Legislative Services forecast a revenue gap about $500 million smaller than the estimate the Murphy administration released just last week in a proposed rebalancing of state spending.
Lawmakers heard that new estimate the same day they formally introduced an emergency borrowing bill to cover the expected tax shortfalls brought on after Murphy ordered a near total lockdown of the state to prevent the spread of a virus that has killed more than 11,000 people here.
While $500 million is not a huge sum for a state that spends nearly $40 billion annually, every dollar that isn’t lost to the health crisis could give lawmakers an opportunity to claw back at least some mid-year spending cuts that Murphy is now proposing to rebalance the budget. Those proposed cuts include slashed property-tax relief funding for seniors and only flat overall state aid for K-12 school districts.
Members of the Assembly Budget Committee pressed Treasurer Elizabeth Maher Muoio to explain the logic behind many of the administration’s budget changes in her first appearance before lawmakers since the administration’s latest budget plans were made public.
Muoio: No easy decisions
“None of these decisions were made lightly,” Muoio said. “It’s an incredibly tough time because of when this (pandemic) fell in the budget cycle.”
New Jersey has been among the states hit hardest by the pandemic, with nearly 160,000 positive cases of COVID-19, and 11,401 deaths reported as of Thursday. The pandemic has also taken a toll on the state economy, and more than 1 million New Jersey residents have lost their jobs in recent months as the pandemic has spread across the state, according to the latest figures from the state Department of Labor and Workforce Development.
Earlier this month, the Department of Treasury issued new revenue forecasts that predicted tax collections through the end of June — when the state’s fiscal year typically comes to an end — would be down by nearly $2 billion below the forecast that was made when the original spending bill for fiscal year 2020 was enacted last June.
Treasury officials last week also proposed a series of spending cuts, deferrals and other fiscal adjustments to keep the budget in balance, which is required by the state Constitution.
Meanwhile, Treasury has also proposed a $7.6 billion spending plan for July through September in response to last month’s decision by Murphy and lawmakers to extend FY2020 by three months because of the pandemic. New Jersey is the only state in the country to extend its fiscal year, and Muoio defended that decision on Thursday as lawmakers questioned whether it was a wise move.
“It allowed us to have a clearer window into what we can expect in terms of revenues,” she said. “We will have a better idea of what we have to work with.”
A less pessimistic view
But the forecasts put forward earlier in the day by the OLS suggested the depths of the revenue losses won’t be as bad Treasury has estimated, at least through the end of September.
Between now and the end of June, the OLS is forecasting tax collections will come in about $383 million above the Murphy administration’s latest projections. And the OLS forecast for July, August and September is about $104 million higher than the administration’s latest projection for the same period.
Much of the difference shows up in the sales tax, with the OLS experts taking a more optimistic view of the potential for an economic recovery than Treasury has.
The sales tax is the second-largest source of revenue for the state budget behind the income tax, and June is typically a big month for the sales tax in a normal fiscal year. What remains to be seen is how successful the state’s ongoing reopening will be as a series of tight restrictions on business activities that were ordered by the governor have begun to be lifted.
“No doubt, having more retailers open is going to give consumers more opportunity to spend their money,” OLS senior fiscal analyst David Drescher said.
The borrowing bill that was introduced in the Assembly on Thursday would give the Murphy administration legislative authority to exercise emergency borrowing powers that are written into the Constitution to help the state respond to major crises such as a war or natural disaster.
Murphy has called on lawmakers to grant him such powers to help offset revenue losses that his administration is projecting will continue into FY2021, which will begin this year in October. The borrowing bill allows for at least $5 billion in new debt to be issued in response to the pandemic, and also permits refinancing the debt with a maturity of up to 35 years.
Worried about Wall Street
Several lawmakers asked Muoio to make the case for borrowing during Thursday’s hearing, suggesting it could only add to the state’s budget woes down the road if the borrowed funds run out, but revenues haven’t yet fully rebounded. Others raised concerns about the response it could generate from major Wall Street credit-rating agencies that have already been questioning the state’s fiscal practices in recent weeks.
Muoio said the borrowing legislation, if enacted, would give the administration more flexibility, including the ability to take advantage of a new lending program offered by the Federal Reserve in response to the pandemic.
But Assemblyman Harold Wirths (R-Sussex) urged the treasurer to first consider cutting some of the spending increases that Murphy, a Democrat, has enacted since taking office in 2018. He also questioned whether some of the strict limits on business activity that Murphy enacted in response to the pandemic may have unnecessarily cut into the state’s revenue stream.
“My point is, there’s a lot we could have done to increase revenue,” he said.
And on the issue of reduced or deferred funding for property-tax relief, such as for the state Homestead and Senior Freeze programs, Assemblywoman Serena DiMaso (R-Monmouth) said many residents who receive those benefits are already struggling even before they lose their expected tax relief.
“Why are we doing that?” DiMaso asked. “It’s so difficult a time to have those items cut or frozen.”