New Jersey surplus goals dashed by coronavirus struggles

Financial damage from efforts to stem the COVID-19 pandemic forced New Jersey Gov. Phil Murphy to retreat from plans to build up the state’s reserves.

A 2019 mandate that directed the New Jersey Department of Treasury to achieve a $1.28 billion surplus by the end of the current fiscal year was rescinded in an executive order Murphy signed Monday. The order notes the severe impact the health crisis is projected to have on New Jersey finances as a result of lost sales tax from a non-essential business shutdown that began March 21.

Office of New Jersey Gov. Phil Murphy

“We have spent the past two years working nonstop to build surpluses and put money aside for a rainy day fund,” Murphy said in a statement. “However, in the absence of significant federal assistance, we are on the brink of having to make very tough fiscal decisions and a $1.28 billion surplus for this fiscal year is no longer realistic.”

A $38.7 billion 2020 budget signed by Murphy last June projected $1.28 billion in surplus revenues, which would allow New Jersey to make its first rainy day fund deposit — $401 million — in over a decade. Murphy’s initially proposed $40.9 billion 2021 fiscal year budget, unveiled Feb. 25 before the COVID-19-related shutdown, projected another rainy day fund deposit and a $1.6 billion surplus. This amount would have more than doubled the surplus in former Gov. Chris Christie’s last budget in 2018, but the reserves would have remained well below the $2.6 billion level the state had during the heart of the last recession, according to Murphy.

“Building our reserves to responsible new heights was one of our paramount fiscal goals,” New Jersey State Treasurer Elizabeth Maher Muoio said in a statement. “However, COVID-19 handed us an entirely new reality. Absent additional federal funding and a substantive borrowing facility, our foremost priority now is ensuring sufficient cash flow to meet this health crisis head on while also meeting our basic obligations.”

In early April, Murphy and state lawmakers extended the 2020 fiscal year by three months to Sept. 30 to account for virus-related revenue losses and liquidity challenges from a later tax-filing deadline of July 15. The Murphy administration also froze $920 million of spending in anticipation of large revenue drops.

Fitch Ratings downgraded New Jersey’s general obligation bonds to A-minus from A on April 21 citing past persistent imbalanced budgets and a lack of “meaningful reserves” to combat a serious economic downturn. The Garden State has debt ratings of A3 from Moody's Investors Service, A-minus from S&P Global Ratings and A from Kroll Bond Rating Agency. Moody’s and S&P both revised the state to negative from stable last month.