One day after Standard & Poor’s lowered New Jersey’s fiscal outlook from stable to negative, the Christie administration confirmed the bad news. The latest revenue figures show that state tax revenues are running $99.873 million -- or 4.9 percent -- below the governor’s projections for the first two months of the fiscal year.
While Governor Chris Christie is banking on a 7.2 percent increase in state revenues to fund a midyear tax cut heading into his reelection campaign, tax collections in July and August were actually $5.5 million – or 0.3 percent -- lower than for the same two months in 2011.
“Unfortunately this is not a surprise considering all the poor economic indicators and warnings by numerous financial experts that the governor’s numbers aren’t going to add up,” said Assembly Budget Committee Chairman Vincent Prieto (D-Hudson), whose committee held a hearing on the status of state revenue collections yesterday morning.
David Rosen, the budget officer for the nonpartisan Office of Legislative Services, told Prieto’s committee that the estimated $254 million shortfall in the budget for the fiscal year that ended June 30 means that state revenues will now have to grow 8.2 percent to hit the $31.7 billion in budget revenues that Christie certified in June. Rosen made that projection four hours before the state Treasury Department announced the $100 million July-August revenue shortfall.
The August revenue numbers capped a week of bad headlines for Christie, as Moody’s Investor Service, Fitch’s Ratings, and Standard & Poor’s all questioned his revenue projections and issued warnings about the precarious state of New Jersey’s short-term and long-term finances.
For Christie, who is up for reelection in 2013, the political stakes involved in hitting his revenue numbers are enormous. Christie’s optimistic revenue estimates were the basis for his demand that the Democratic-controlled Legislature enact anin June.
Democratic legislative leaders balked at Christie’s demand, questioning how he could anticipate the highest revenue growth in the nation when the state ranked 47th in economic growth the previous year and. Instead, Senate President Stephen Sweeney (D-Gloucester) said he would consider enacting an income tax cut in December or January -- but only if Christie’s revenue projections prove accurate.
With the recent spate of bad news, Prieto and his Democratic colleagues on the Assembly Budget Committee yesterday questioned whether they should be looking for budget cuts rather than tax cuts.
Assemblyman Declan O’Scanlon (R-Monmouth), the Assembly Republican budget officer, denounced yesterday’s committee hearing as nothing more than political theater. “These are volatile and unpredictable times,” he acknowledged, ”but to call today’s hearing anything more than political opportunism by the Democrats would be disingenuous.”
Treasurer Andrew Sidamon-Eristoff infuriated Prieto by declining his invitation to appear before the committee. He reportedly kept a previous commitment to speak to a convention of New Jersey government finance officers instead and did not release his August revenue report until after the committee hearing had ended.
Sidamon-Eristoff chose to emphasize the positive in his report, noting that corporate tax collections were up and that “this was the highest collection of income tax in state history for the month of August.”
But Sidamon-Eristoff’s charts told a different story: Income tax collections in August, while an all-time high, were still $31.5 million -- or 4.5 percent -- below the Christie administration’s projections for the month.
Even more ominous, sales tax collections in August were $42.8 million lower than the Christie administration’s projections for the month, continuing a worrisome trend of subpar sales tax collections in recent months.
“Sales tax collections were always among the steadiest revenues,” noted David Rousseau, a former Democratic state treasurer who analyzes budget issues for New Jersey Policy Perspective, a liberal think tank. “You could count on 2 percent growth just about every year and 5 percent in good times. But sales tax revenues have been essentially flat for months.”
Dr. Charles Steindel, the Treasury Department’s chief economist, acknowledged disappointment with the sales tax numbers. “Nationally, consumer spending has been weak, and unfortunately, that seems to be reflected in New Jersey’s sales tax returns,” Steindel said.
Rosen noted that Christie’s budget anticipates 6.0 percent in sales tax growth this budget year -- higher than the long-term average growth rate of 4.5 percent and well above last year’s 2.3 percent increase. He also noted that the 5.4 percent increase in casino revenue is still far short of the Christie administration’s expectation that casino taxes will end a seven-year decline by soaring 18.5 percent in a single year.
Only about 7 percent of total state revenue collections come in during the first two months of the fiscal year, but the subpar July and August revenue reports continue what is now a six-month string in which revenues have come in below Christie administration projections, stretching all the way back to March.
During that time, despite Christie’s characterization of Rosen as the “Doctor Kevorkian of the numbers,” the OLS budget expert’s forecasts have proved to be more accurate than those of the Christie administration. And the gap between Rosen’s estimates and Christie’s original projections has been growing
As Rosen reminded the Assembly Budget Committee yesterday, he projected that revenue collections for this year would come in $473 million below the Christie administration’s estimates.
That was before revenues for the last fiscal year came in $254 million below estimates. That shortfall lowered last year’s tax base and could eat up as much as half of. It would be common budgetary practice, Rosen said, to lower revenue estimates for the current fiscal year by a corresponding $254 million. That was not done, however, so now the Christie administration will have to achieve 8.2 percent growth in the current budget year, rather than the 7.2 percent growth originally projected at the time the budget was signed.
All in all, Rosen’s expectations for state revenue collections are now almost $1 billion less than what the Christie administration was projecting in May -- the $473 million difference in revenue projections, the $254 million projected shortfall in last year’s budget, and the corresponding $254 million that this year’s revenue projections would have been lowered by under common budgetary practice.
“It’s important to remember that I considered my own revenue estimates to be on the optimistic side,” Rosen added.