The unprecedented lockdown of New Jersey’s economy has severely impacted the state’s tax revenues, but by how much is becoming an increasingly contentious debate.
Few were all that surprised when New Jersey Treasurer Elizabeth Maher Muoio said on May 22 revenue collections left the state with a budget shortfall of about $10 billion through the next fiscal year. The problem is that estimate was made two months and two critical tax payment deadlines ago.
“It’s pretty clear that tax collections have improved greatly against original expectations even with the state’s slow reopening pace and steep restrictions on business operations,” said NJBIA Vice President for Government Affairs Chris Emigholz. “Don’t get me wrong; the budget deficit confronting lawmakers is huge, but I doubt that it’s still $10 billion.”
Legislative Republicans recently challenged the estimates in a letter to Muoio. They said sales tax collections for June were 3.7% less than June 2019, compared to the 30% Muoio forecast in May.
Additionally, with the July 15 income tax deadline passed, it appears that actual tax collections from the income and corporate business taxes have significantly outperformed estimates. (can we link to the letter online?)
“Even if the May 22 revenue forecast were still reasonable (which it is not) State revenues for 2020 would now be forecast to be $900 million less than that amount,” the four legislators wrote.
“Characterizing the $10 billion estimate in the May 22 revenue forecast as ‘lost revenue’ has been misleading and exaggerated from the beginning, and it is becoming more so with every passing day.”
The estimates not only influence what gets funded in the budget but have played an outsized role in influencing other policy initiatives.
Lawmakers recently authorized the state to borrow up to $9.9 billion for operating costs, something that’s never been done before. Existing state debt, in the form of bonds and pension and healthcare liabilities, is already among the highest in the nation at $215 billion and growing.
Emigholz estimates that if the governor borrows the full $9.9 billion he is now authorized to, New Jersey taxpayers will have to pay $500 million to $700 million in debt service every year.
Additionally, Gov. Phil Murphy has started hinting that he may seek a tax increase for FY 2021, which in the revised budget schedule, now begins Oct. 1.
“In no reasonable plan to get out of whatever revenue shortfall we do have are tax increases necessary on top of the improving revenue expectations and on top of the borrowed $9.9 billion” Emigholz said.