New Jersey sales-tax collections remain on a roll despite the state’s fiscal troubles and the ongoing effects of the coronavirus pandemic.
The Department of Treasury reports October monthly revenues from the sales tax were up by nearly 7% over the same period last year, marking the third straight month of year-over-year improvement despite the ongoing health crisis.
The sales tax is one of the largest sources of revenue for the state budget, and it is being closely watched this year because of the potential for losses triggered by the pandemic.
Still, despite the promising monthly sales-tax figures reported by Treasury on Wednesday, total revenue collections for October were down by roughly 5% compared to the same month last year, demonstrating the continued drag on tax collections the pandemic has caused since it began to hit New Jersey in March.
Winter revenues: Outlook is poor
Treasury officials say they expect overall tax collections to remain disappointing through the winter before a period of growth forecast for the spring.
Before the pandemic struck, overall state tax collections had been running ahead of last year’s pace and Treasury officials had upgraded their revenue forecasts as late as February.
But the outlook deteriorated markedly in April as much of the state was shut down in an effort to prevent new COVID-19 infections.
The sales tax showed signs of a rebound in August when monthly collections beat the previous year’s total for the first time since the onset of the pandemic. Since the state reports sales-tax figures with a one-month lag, the August performance actually represented economic activity that occurred in July.
The year-over-year improvement continued into September, when the monthly sales-tax collections remained ahead of 2019’s monthly total by a narrow margin.
October sales tax, best since February
The October tax-collection report released by Treasury Wednesday afternoon indicated monthly sales-tax collections surged ahead of last year’s monthly total by 6.9% — the strongest growth in the sales tax since February, Treasury officials said.
For the months of July, August, September and October, the sales tax is up by nearly 4% compared to the same period last year. That puts the sales tax on pace to surpass a 1% growth rate the Murphy administration has projected for the full fiscal year that ends on June 30, 2021.
Realty-transfer collections also performed well in October, outpacing last year’s monthly total by more than 36%.
“While this revenue typically lags economic activity by at least two months, an improving housing market is also consistent with the positive Sales Tax collections,” Treasury officials said.
The Lottery, a bright spot
Another bright spot appears to be state Lottery revenues, which are dedicated to funding the public-employee pension system.
Lottery collections lagged during the initial months of the pandemic as many retailers were forced to close. But monthly Lottery revenues were up by nearly 6% in October, and nearly 8% for the months of July, August, September and October.
Still, despite some of the promising signs reflected in Treasury’s latest report, income-tax collections remain a continued source of concern, although the state’s overall unemployment rate has decreased by several percentage points in recent months.
Over the months of July, August, September and October, income-tax collections fell off last year’s pace for the same period by more than 12%. Moreover, year-over-year monthly losses during October appeared to be over 15%, although Treasury officials chalked a significant share of that underperformance to a quirk in this year’s employer-withholding calendar.
“Collections were artificially held down due to the fact that this October had only four weekly employer withholding payments whereas last October had five,” the officials said.
Borrowing billions to shore up budget
Accounting for the difference in the withholding schedule results in a monthly decline of just over 1% year-over-year, they said.
While total state revenues remained off last year’s pace for July-October, by 7.7%, that represents a slight improvement. Last month, the revenue figures for the first quarter of the state’s traditional 12-month fiscal year reflected a year-over-year decline of nearly 9%.
To help offset a revenue decline of about 5% that is projected to hold for the full 2021 fiscal year, Gov. Phil Murphy and fellow Democrats who control the state Legislature have authorized more than $4 billion in borrowing without voter approval to sustain a year-over-year spending increase that was approved in late September.
Treasury officials finalized the general-obligation borrowing issue during a public meeting on Wednesday after the pricing of 12-year bonds occurred a day earlier than had been expected. The tax-exempt debt issue is expected to generate $4.28 billion, with a true-interest cost of 1.94%, Treasury officials said during the meeting.