Governor, Treasurer Release Plan to Address COVID-19 Revenue Declines

Christopher Emigholz, NJBIA Vice President of Government Affairs

Gov. Phil Murphy and Treasurer Elizabeth Maher Muoio met their new statutory deadline on Friday to release more information on the financial condition of the current FY20 State Budget, which must close out balanced. They also provided an update on the FY21 State Budget that Governor Murphy proposed back in February, which has since been reset by COVID-19 and will become a nine-month budget.

The state estimates there will be a combined $9.9 billion gap over the remaining months of FY20 and through the end of FY21 on June 30, 2021. The FY20 shortfall is estimated to be $2.7 billion, while the FY21 preliminary revenue gap is $7.2 billion. This plan also includes a $7.6 billion appropriation to meet the new three-month appropriation requirement because of the legislated extension to FY20. This roughly includes one-quarter of the annual funding needs for state aid, social service programs and operating accounts not otherwise reduced.

In New Jersey’s three major state taxes, they estimate the following revenue declines from what was initially budgeted:

• Income Tax:
  • 5.4% lower in FY20
  • 22.2% lower in FY21
• Sales Tax:
  • 10.9% less in FY20
  • 14.2% less in FY21
• CBT:
  • 11.6% decrease for FY20
  • 32% decrease for FY21

To balance both budgets after these massive revenue declines, Treasury has taken several steps:

• Review of spending across all branches and a freeze of approximately $1 billion
• Transfer of $421 million Rainy Day Fund to the FY20 General Fund to balance the budget
• Statewide hiring freeze except for COVID-19 needs
• Over $5 billion in decreased spending
  • $1.3 billion in proposed deappropriations
  • $3.2 billion in cut or delayed first quarter appropriations
  • Withdrawal of $849.7 million in spending priorities proposed by Governor in February’s FY21 budget speech

Highlights of some of these difficult decisions include:

• Homestead property tax credit cuts in FY20 and no Homestead credit and senior freeze payments in the upcoming three-month appropriation
• No NJ Transit subsidy in the three-month budget (made easier by NJ Transit’s large federal CARES Act funding)
• Eliminating the proposed FY21 increases of $336 million for school aid and $132 million for NJ Transit
• Higher education aid cuts in FY20 and the extended budget
• Delaying school aid, municipal aid and pension payments from the new end of FY20 to the beginning of the new FY21
• Transferring additional funds form the Clean Energy Fund and the Affordable Housing Trust Fund

These are scary numbers and decisions, but there is good news. The FY20 budget solution appears to be manageable, and Treasury now estimates closing out what would have been that fiscal year on June 30, 2020 with a $344 million surplus instead of the original $781 million. Governor Murphy’s buildup of our Rainy-Day Fund was fully used up to accomplish this, but that is what it was intended for, and taxpayers should be thankful for the Governor’s efforts there. The three-month budget seems able to fund the bare-bones operations of state government as well as the needs of local governments and providers that depend on it. There are also no tax increases proposed to do all of this.

The new FY21 State Budget that begins in October will be a more challenging story. Governor Murphy alluded to his desire for borrowing to help the State and thanked Speaker Coughlin for support there. Hopefully, federal assistance for state budgets will come before then, making that FY21 budget less difficult. We will get more information on August 25, 2020 regarding that new nine-month FY21 budget that begins in October. Governor Murphy and Treasurer Muoio both talk of the “extremely difficult decisions” required to manage this fiscal crisis, and NJBIA hopes those tough choices continue to include spending cuts and do not overly rely on tax increases and long-term borrowing.

NJBIA looks forward to working with the Murphy administration and the Legislature to properly use the multiple fiscal tools at our disposal, including Federal aid, spending cuts and borrowing to balance these budgets in a responsible manner to avoid as much pain on our New Jersey business community as possible.

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