Gov. Phil Murphy’s budget relies on the highest amount of nonrecurring revenues in a decade, “one shots” he has criticized in the past and worked as governor to reduce.
He is counting on more than $4 billion in deficit spending backed by proposed borrowing. And that would help push the reliance on nonrecurring revenues up to about 13% of total spending, according to Treasury officials.
The last New Jersey budget that relied on such a large portion of nonrecurring revenues, according to Treasury records, was for the 2010 fiscal year. That budget was adopted amid the economic turmoil caused by the Great Recession and relied heavily on federal assistance.
One-shots can include fund raids and diversions, legal settlements, and tax increases or spending reductions that are only in effect for one budget cycle.
Warning against one-shots
Major Wall Street credit-rating agencies and other fiscal-policy experts generally caution against relying too heavily on such revenues because they upset the structural balance of the budget by creating a hole that has to be filled the following year. Instead, they prefer to see budgets in which annual expenditures are backed up by recurring revenues.
New Jersey in recent years had been making steady progress reducing what had been a longstanding reliance on-one shots, including after Murphy took office in 2018. And Murphy himself had urged lawmakers during budget talks in 2018 to “finally end the days of one-shots and revenue gimmicks.”
Last year, Murphy, a first-term Democrat, budgeted for less than 2% of annual spending to be backed by one-time revenue sources.
COVID-19 wreaks havoc on economy
But that was before the onset of the coronavirus pandemic, and a series of economic restrictions were enacted earlier this year that virtually put New Jersey on lockdown as part of broader efforts to slow the rate of new infections.
In the wake of the health crisis, Murphy’s administration has been projecting steep revenue losses, at least through the middle of next year.
The budget plan Murphy proposed Tuesday counts on savings of roughly $1 billion, including by reducing departmental budgets. But overall full-year spending would also increase to over $40 billion, up nearly $1.5 billion from the $38.7 billion budget the governor signed into law for the 2020 fiscal year.
To help support his spending ambitions, Murphy is asking lawmakers to approve about $1 billion in tax increases. They include a higher income-tax rate on earnings over $1 million and up to $5 million, as well as increased taxes on cigarettes, boat sales, and guns and ammunition, among other items.
$4B in borrowing
Murphy is also asking lawmakers to approve a total of $4 billion in borrowing to help sustain spending during the pandemic. The state Constitution generally prohibits such deficit spending, but it allows for exceptions, including to help the state respond to a war or major emergency.
The proposed borrowing and tax hikes, and Murphy’s budget plan itself, are now subject to a review by state lawmakers, who have only a few weeks to draft an appropriations bill and send it to the governor for final consideration. A new budget must be in place by Oct. 1.
Earlier this year, Murphy’s original budget plan for the next fiscal year called for reducing the state’s reliance on one-time revenue sources to less than 1%. During a budget address in the State House in late February, Murphy told lawmakers one-shots “may help balance the books for one year, but always — always — lead to a mad scramble to close an even bigger hole the next.”
Former Republican Gov. Chris Christie also highlighted New Jersey’s reliance on one-shot sources of revenue as he bragged during his final year in office about whittling such revenues down to 2% of the total budget.
Christie dismisses one-shots
As he addressed lawmakers in the State House in 2017, Christie said that before he took office one-shots had been used “in a desperate attempt to make New Jerseyans believe that the state was on solid ground.”
Under the revised budget plan Murphy is now proposing for fiscal year 2021, one-time sources of revenue would increase to 13% of the full year’s budget, Treasury officials said on Wednesday during a briefing with reporters.
A detailed breakdown of the proposed one-shots was not immediately available, but Treasury officials said those unrelated to the proposed borrowing equaled about 3.5% of Murphy’s revised budget.
Asked about the new budget proposal during his own media briefing held later in the day, Murphy suggested he is trying to use a balanced approach to managing the state’s finances during the ongoing pandemic. He pointed to the recent efforts made to address the state’s structural budget issues, and said the latest budget should be viewed as a “one-off.”
The governor also said he is planning to meet on Thursday with officials from credit-rating agencies and would be making the case that his revised budget plan represents a “balanced solution to an extremely challenging reality.”
“We had made a lot of progress, chopping through our structural deficits, and I view this as a moment in time that is not (a return) back to old habits,” Murphy said.