After borrowing billions with interest last year to offset projected revenue losses, Gov. Phil Murphy’s administration said it is now seeing tax collections soar to historic highs, producing a massive, $10 billion surplus.
The latest official revenue forecasts unveiled by the state treasurer Wednesday indicate recent tax payments surged high above prior expectations, helping to add $4 billion to the state’s bottom line with only weeks left in the current fiscal year.
Another more than $1 billion has also been added to the forecast for a new fiscal year that begins July 1, for a total projected windfall of $5.2 billion over the two fiscal years.
Taken together, the updated forecasts represent a remarkable turnaround after the administration last year was preparing for steep losses it expected to be triggered by the coronavirus pandemic. Those projections led to tax hikes and emergency borrowing that Murphy said was needed to avoid massive budget cuts.
The new forecasts also put state fiscal policymakers in the unlikely position of having to decide how to use the unexpected windfall after years of cobbling together budgets that consistently shorted property-tax relief programs and pension contributions to keep spending in line with revenues.
State Treasurer Elizabeth Maher Muoio said in a written report submitted to the Assembly Budget Committee on Wednesday that the administration is now planning to open the 2022 fiscal year in a few weeks with a record, $10 billion in budget reserves to support an updated total of $44.96 billion in planned spending.
“We have not only returned to pre-pandemic levels, but we have jumped past those levels,” Muoio said of the latest revenue totals in her written report.
The new budget numbers were released by Treasury with just three weeks to go before Murphy and lawmakers must agree on a fiscal year 2022 spending plan, and Treasury’s figures largely match up with new forecasts drafted this week by the nonpartisan Office of Legislative Services.
How to use the windfall…
Still, it remains to be seen whether lawmakers will agree with how the administration plans to deploy the expected windfall, including to pad reserves and prepare for the next rainy day, instead of investing more in things like aid to schools and property-tax relief or the paying down of debt.
Assembly Speaker Craig Coughlin (D-Middlesex) and Budget Committee Chair Eliana Pintor Marin (D-Essex) were still reviewing the revenue update on Wednesday, said Cecilia Williams, a spokeswoman for the speaker.
“It is imperative that we produce a budget that reflects our shared priorities and protects our most vulnerable as well as all of New Jersey’s working-class residents,” Williams said.
Also still up for discussion as the governor and lawmakers reach the stretch drive for coming up with a new budget is what New Jersey is going to do with more than $6 billion in COVID-19 relief provided through the federal American Rescue Plan Act that President Joe Biden enacted earlier this year.
Murphy, a first-term Democrat who faces reelection this fall, has yet to provide specifics on how he would like to use that money.
There was also none of the usual give-and-take with lawmakers as the new budget figures were made public Wednesday. The Assembly Budget Committee’s planned hearing to go over the official revenue update in the run-up to the July 1 budget deadline was abruptly canceled Tuesday.
Budget hearings with the treasurer and fiscal analysts from the Office of Legislative Services scheduled for Thursday in the Senate Budget and Appropriations Committee were also canceled Wednesday.
Ducking tough questions?
Republican lawmakers accused the treasurer of ducking tough questions about the administration’s forecast revisions and of withholding information until the last minute about the surge in tax collections. Republicans who serve on the Assembly Budget Committee also sent Muoio a list of 12 questions that would have been asked had Wednesday’s hearing taken place as originally planned.
“Please recall that Republican districts comprise over three-million state residents. Do not continue to disenfranchise them by ignoring their representatives,” the Republicans wrote in the letter.
Treasury spokeswoman Jennifer Sciortino said Muoio had already appeared before both committees twice this year, for a total of four appearances in front of lawmakers.
“Unlike past years when the Treasurer also presented her departmental budget along with a revenue update, today’s hearing had been intended to provide only a straightforward revenue update,” Sciortino said.
“The numbers and testimony speak for themselves, and are almost identical to those from the Office of Legislative Services. The Administration, as always, stands ready to continue answering any and all questions from the budget committee, their staff, OLS, and the press,” she said.
In her written testimony Wednesday, Muoio said New Jersey is not alone in having to revise revenue projections amid the ongoing pandemic. She listed neighboring New York and Pennsylvania among the dozens of other states that have also increased forecasts in recent months.
Muoio also said New Jersey’s total tax collections were off by as much as 5% as recently as November, which is when the administration decided to issue nearly $4 billion in long-term, noncallable debt to finance what was expected to be deficit spending during the current fiscal year.
About a month earlier, the governor and Democrats who control the Legislature had also agreed to hike several taxes, including rates on millionaires and top-earning businesses, to raise more revenue. Those tax hikes will also help support Murphy’s plan to increase year-over-year spending by more than 10% in fiscal year 2022.
Rainy day funds
With its newly discovered windfall, Treasury is also now planning to add about $380 million in supplemental spending before the current fiscal year closes June 30. But much of the expected windfall will go into budget reserves that will total over $10 billion under Treasury’s plan.
The Murphy administration is also now expecting to close out the 2022 fiscal year with a $2.2 billion “rainy day fund” balance after previously planning to leave that account bone-dry a year from now.
The rainy day fund, officially called the Surplus Revenue Fund in budget documents, is intended to serve as a cushion to ensure the state is prepared to deal with major swings in revenue like the one the administration thought would be triggered by the health crisis.
“As a result of the significantly improved revenue situation, the Administration recommends retaining the funds in the Surplus Revenue Fund instead of transferring the balance to the General Fund, as initially proposed,” Muoio said in her written report.
However, Republicans faulted the administration for still planning to balance the fiscal year 2022 budget with a significant share of the budget reserves that will be amassed before June 30. That could mean lawmakers will have to confront a large hole, or “fiscal cliff,” to maintain such spending the following year, they said.
“It appears that spending is over $3 billion more than expected recurring revenue, creating a deficit that will need to be closed in fiscal year 2023,” the Republican members on the Assembly Budget Committee said in a news release.
Meanwhile, advocates for undocumented immigrants in New Jersey who may have lost their jobs or faced other hardships during the pandemic but have been largely disqualified from receiving government assistance have also been calling for a larger share of the state funding in response to the news of the building windfall.
“This is the time and perfect opportunity to ensure that all excluded New Jerseyans receive the same level of pandemic relief that many others have,” said Katy Sastre, campaign strategist for the New Jersey Alliance for Immigrant Justice.
“New Jersey won’t see a full and equitable recovery until all communities who call it home have the same level of support to deal with the economic upheaval of the past year,” she said.