New Jersey heads into April in need of a big revenue month to make up for lagging tax collections.
The Department of Treasury announced on March 14 that New Jersey’s total revenues grew 3.7% year-over-year, falling behind its revised forecast for 5.5% growth.
April gains are likely, Moody’s Investors Service analyst Baye Larsen wrote in a report last week, but any shortfall will make it harder to meet revenue targets in Murphy’s $38.6 billion 2020 fiscal year
“It is uncertain whether New Jersey will achieve that growth, although some improvement in April is likely, given the shift in timing of payments as a result of federal tax law changes that took effect in 2018,” Larsen wrote in the March 20 report. “If fiscal 2019 revenues are lower than expected, it is likely that the fiscal 2020 revenue forecast would be cut, as has occurred in prior years.”
Despite a lag in PIT receipts and sales taxes, New Jersey did raise its yearly revenue forecast slightly by $327.3 million because of higher-than expected corporate tax collections aided in part by one-time revenue from a tax amnesty program. Larsen noted that Murphy’s 1.7% budget increase is balanced by $1.1 billion of planned expenditure savings, $558 million of projected new revenues and “reasonable” 3.5% baseline revenue growth over estimated fiscal 2019 revenues.
Murphy's budget plans assume passage of a millionaire’s tax that would net an estimated $447 million. The Democratic governor is also pushing to
“These revenue proposals face uncertain legislative support, especially in the wake of the 2017 federal tax law limits on the deductibility of state and local taxes, which raises their effective cost to state taxpayers,” said Larsen. “In addition, if these tax increases are adopted, the revenue outcome may be difficult to predict and lead to some midyear budget risk.”
Half of the budgeted spending growth is for a $554 million increase in the general fund pension contribution. The $3.8 billion contribution would bring the state to 70% of its actuarially determined contribution level and keep the state on its schedule for full ADC funding in 2023.
High pension liabilities and past structural imbalanced budgets have sunk New Jersey’s general obligation debt to the second lowest ratings of all U.S. states ahead of only Illinois. The Garden State's GO bonds are rated A3 by Moody’s, A-minus by S&P Global Ratings and A by Fitch Ratings and Kroll Bond Rating Agency, all with stable outlooks.
Larsen said that if the state holds to its $3.8 billion pension contribution and limits use of one-time resources to 1.7% as proposed, structural budget imbalance would decline to 6% of revenues from 8.7% the prior year. She cautioned that an estimated $465 million of $1.1 billion in projected savings from health benefit reforms factored into the budget are “somewhat uncertain” because they still require collective bargaining agreements, contract rebidding and further implementation.
