New Jersey’s revenue collections have fallen off the pace for the first time this fiscal year, as taxpayers have been given more time to settle up with the state amid the COVID-19 pandemic.
Total revenues were off by about 8% through the end of April, compared with the same 10-month period last year, according to updated tax-collection figures that were released on Wednesday by the Department of Treasury.
For just the month of April, revenues dropped by nearly 60% year-over-year as the pandemic began to take hold, and as the state delayed important tax-payment deadlines in response to the coronavirus.
The slippage was not unexpected as Treasury officials have been warning for weeks that the impact of the pandemic would eventually start showing up in their monthly revenue reports. Even deeper losses may be looming in the coming weeks, they warn, since many of the state’s taxes come in with a lag.
Some self-inflicted damage
Some of the revenue damage was also self-inflicted, after Gov. Phil Murphy and lawmakers enacted legislation that pushed back the typical mid-April deadlines for paying income and corporate taxes to July 15 this year to help individuals and businesses manage any financial problems they may be facing due to the pandemic.
That suggests there could still be a decent tax-revenue windfall looming in July when those payments — which are based on economic activity that occurred in 2019 — will eventually come due.
Still, it remains to be seen just how much of the state’s overall tax haul is being lost to the pandemic instead of simply being delayed into July, adding to the challenges the Murphy administration is facing as COVID-19 continues to unfold in New Jersey.
“While we are hopeful that we will see much of the losses replaced when those numbers are reported this summer, these numbers are a sobering reminder that the COVID-19 impact is not limited to the health of our people but also to the health of our state’s finances,” Murphy said as he discussed the revenue data on Wednesday during a media briefing in Trenton.
Tax collections through the first three quarters of fiscal year 2020 had been ahead of the prior year’s pace up until April, when things took a dramatic turn in the other direction.
Dramatically off the pace
For the income tax — which is the state’s largest single source of tax revenue — only about $1 billion in revenue came in during April 2020, compared with the $3.6 billion that was collected the year before when the payment deadline was April 15, according to Treasury’s latest data.
Corporate business tax collections were also off about 60%, helping to push overall April revenues down by nearly $3.5 billion year-over-year.
But thanks to some of the tailwinds experienced before the pandemic took hold, overall tax collections for the first 10 months of fiscal year 2020 were down about $2 billion. Still, some major tax sources, including the sales and realty-transfer taxes, are remitted to the state with a lag, meaning the April collections may not have reflected the full economic impact of the pandemic and the strict social-distancing measures that have been implemented to slow the rate of infections.
“Because the social and commercial restrictions implemented due to the COVID-19 pandemic were only in place for about half the month of March, the impact of the pandemic on New Jersey’s revenue collections is still not fully apparent,” Treasury officials said in a statement on Wednesday.
Murphy has said in recent weeks that the state’s total economic hit from the pandemic could be as high as $30 billion over the next two fiscal years, a huge sum for a state that spends about $40 billion annually. But a new bond disclosure released by the Murphy administration on Wednesday indicated revenue forecasts have been downgraded by a combined $10 billion for remaining months of fiscal 2020 and for all of fiscal 2021. State Treasurer Elizabeth Maher Muoio discussed the $10 billion revenue forecast downgrade yesterday.
A more complete budget outlook is due to be released by the Murphy administration by May 22 under the legislation that extended the tax-payment deadlines and also pushed out the end of FY2020 from June 30 to September 30.
Murphy, during Wednesday’s media briefing, said the ongoing budget uncertainty buttresses his call for more help to be provided by the federal government, but it remains to be seen whether a divided Congress can settle political differences that are holding up the latest aid package.
“This makes direct assistance from the federal government all the more necessary, and all the more urgent,” Murphy said.
Governor’s emergency borrowing plan
The governor has also been urging lawmakers to approve an emergency borrowing plan to help offset the economic effects of the pandemic, although some have raised concerns that it may run afoul of the state Constitution’s strict limits on spending and borrowing. Murphy has also said he’s considering taking advantage of a new municipal-lending facility that’s being offered by the Federal Reserve to help states and large municipalities during the pandemic.
Unlike the Great Recession, which caused huge losses on Wall Street, Federal Reserve Chair Jerome Powell suggested Wednesday that this one appears to be hitting Main Street particularly hard. Nearly 40% of households with incomes less than $40,000 that had employment in February reported job losses in March, Powell said during an online discussion with the Peterson Institute for International Economics.
As New Jersey readies to pass a supplemental spending bill for the last three months of the current fiscal year, and then another spending bill for the nine-month fiscal “year” that will begin in October, a coalition of liberal groups on Wednesday called for lawmakers to consider hiking a number of taxes to head off the need for massive budget cuts that would undoubtedly impact the state’s more disadvantaged populations. The groups called for hiking the income and sales taxes, and reinstating an estate tax, among other proposals.
“Austerity will not work,” said Sue Altman, state director of New Jersey Working Families. “It will simply deepen inequality.”