NJ learns it needs cut spending by $600 million by June 30

For the fourth time in the past six years, New Jersey has missed Gov. Chris Christie’s tax-revenue projections, setting off another scramble for money during the final weeks of the state’s budget year. This latest gap totals $600 million.

Weaker-than-expected tax collections announced by Christie’s administration yesterday are also forcing a revision of the budget plan the governor has proposed for the next fiscal year, with the total impact rising to $1 billion spread over the two budgets.

But while some of his proposed solutions are familiar, like raiding the surplus account and diverting money from the Clean Energy Fund, this time around his administration says it has no plans to touch funding for public-employee pensions.

For Christie, the last-minute revisions to his budget are all the more difficult since most of the spending has already occurred at this point in the fiscal year.

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Only 2014’s $1 billion gap was larger than the one being confronted in 2016, and the latest forecast revisions are raising new concerns among lawmakers about the possibility of another state credit-rating downgrade. It also remains to be seen how the now-shaky fiscal picture will impact talks among legislators who are trying to find a way to renew the state’s tapped-out Transportation Trust Fund.


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Acting Treasurer Ford Scudder outlined the $603 million revenue shortfall that’s now projected for the current fiscal year for the first time yesterday during an Assembly Budget Committee hearing. He said that although overall revenue collections are up, money coming in from the income tax and some other sources of revenue did not fully meet the administration’s estimates, leaving a gap.

“I want to emphasize the revenues in New Jersey continue to grow; however, the growth is less than previously projected,” Scudder said.

Earlier in the day the nonpartisan Office of Legislative Services shared a similar view, saying a weakened Wall Street deserves blame. But withholdings from the paychecks of average workers also played a role in the forecast miss, even as New Jersey added thousands of jobs last year. That suggests those new workers aren’t earning high wages.

To help close the $603 million gap before the current fiscal year ends on June 30, new budget documents show the Christie administration is planning to make a series of spending cuts across nearly two dozen programs. That will save $364 million, and another $239 million will come out of the budget’s surplus account. Those actions have to be taken because the state constitution requires the budget to be balanced at the end of each fiscal year.

Scudder also went over a series of changes the Christie administration is proposing to make to the $34.8 billion budget that the governor put forward in February, including about $300 million in spending cuts. They include $25 million in reduced charity-care aid for hospitals.

The administration is also planning to divert another $20 million from the Clean Energy Fund, which will let it lower the planned state subsidy for New Jersey Transit by the same $20 million without affecting NJ Transit’s bottom line.

Jeff Tittel, director of the Sierra Club in New Jersey, said the new raid of the Clean Energy Fund guarantees the total tab diverted during Christie’s more than six years in office will be over $1 billion once the 2017 fiscal year closes. The fund is supported by a surcharge on utility customer bills and is supposed to be used to promote energy efficiency and cleaner ways of producing power.

“The Clean Energy Fund is this administration’s ATM,” Tittel said. “It means people will be paying higher energy bills and wasting more energy.”

To raise more money to help the budget, the administration is also asking New Jersey’s business community to take another hit by delaying the payment schedule for tax credits offered to promote hiring through the state’s Business Employment Incentive Program. That program has already been affected before by prior budget problems, and lawmakers tried to make businesses whole by passing a bill allowing them to convert unpaid grants into tax credits.

But now the Christie administration is proposing another change to the program, seeking to reduce how much of a credit the companies will be able to take during the 2017 fiscal year. The proposal would save the state an estimated $135 million.

Another $25 million would be realized by changing the way the state withholds income taxes from those who win large lottery jackpots, Scudder said. Right now, all winnings over $10,000 face a 3 percent withholding rate, which is far below the state’s top-end income tax rate of 8.97 percent. The change will mean those who win large jackpots will face the top-end rate immediately.

That won’t change how much is collected by the state over the course of the fiscal year, but it should get the revenue from lottery jackpots into the budget faster than the current withholding policy.

“This is not a tax increase, but only a way to ensure enforcement and collection of existing liabilities,” Scudder explained yesterday.

The 2017 fiscal year would also end with a surplus fund of $613 million, according to the budget documents, which would be smaller than the $790 million that Christie originally planned when he proposed the budget in February.

Left untouched by the Christie administration is the $1.3 billion contribution to the public-employee pension system that’s expected to be paid by the end of June, and the proposed $1.86 billion pension payment that Christie has budgeted for the 2017 fiscal year.

That marks a change from 2014, when Christie was facing a $1 billion shortfall andchose to cut planned pension payments rather than make other budget adjustments to bring spending back into balance. And since Homestead property tax relief payments went out in May this year, the latest rebalancing actions won’t impact that part of the budget this time around.

Still, lawmakers yesterday raised concerns about running the state with a surplus fund that will equal only a small percentage of total spending during the 2017 fiscal year. They also noted Christie’s original 2017 budget proposal banks on $250 million in savings from changes to public-employee healthcare benefits that have yet to be identified. And they questioned whether New Jersey is now risking another credit-rating downgrade.

New Jersey’s debt grade has already been lowered on three occasions by three credit-rating agencies during Christie’s tenure, leaving it with one of the lowest ratings of any state. That can make it harder and more expensive for the state to borrow money for capital projects that can’t be completed in one fiscal year.

“Is there any concern on Treasury’s behalf that these budgetary numbers could further decline New Jersey’s ratings,” asked Assembly Budget Committee Chair Gary Schaer (D-Passaic) during the hearing yesterday.

But Scudder said that the state has been budgeting more prudently than in past years and that the increase in revenues projected for the next fiscal year is still very modest and largely in line with what the OLS is forecasting.

“Nothing is ever guaranteed, but I do believe that a further downgrade would not be warranted. In fact, I think one of things they’re looking (at) is how we’re able to handle changes in revenue forecasts,” Scudder said.

After the hearing ended, Assemblyman Declan O’Scanlon (R-Monmouth) said the Christie administration deserves credit for keeping its promises on pension funding. After walking away amid the 2014 shortfall from a state law enacted by Christie that called for the administration to follow a seven-year payment schedule until making the full pension contribution required by actuaries, the governor put forward a less aggressive pension-funding schedule that spread out the payments over 10 years.

Keeping the $1.3 billion payment planned for this year in place, and maintaining the $1.86 billion payment budgeted for the 2017 fiscal year, will keep the administration on that schedule through years three and four.

“It shows the administration’s dedication to keeping its word first and foremost to our public workers,” O’Scanlon said.

But liberal advocates responded to the news yesterday by saying any talk of cutting New Jersey’s estate tax — which is one of the proposed tax changes that have come up as lawmakers try to come up with a broader “tax-fairness” deal to fix the Transportation Trust Fund — should be put on the shelf given the newly reduced revenue projections.

Raising the gas tax, which is something Democrats have called for, would replenish the transportation fund, but none of that money could be used for other purposes. But cutting taxes in exchange for a gas-tax increase — which is something Democrats are dangling before Republicans to win their support for a broader deal — would directly affect the state budget.

“At a time when the state can’t meet its obligations, adequately invest in its true economic assets, or provide a strong safety net for the millions who need it, pushing through a $550-million-a-year tax cut for a few thousand of New Jersey’s wealthiest families is beyond imprudent,” said Gordon MacInnes, president of New Jersey Policy Perspective, a liberal think tank based in Trenton.

“It’s reckless and irresponsible,” MacInnes said.

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NJ Spotlight, an independent online news service on issues critical to New Jersey, makes its in-depth reporting available to NewsWorks.

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