State Budget Season Underway as State Treasurer and OLS Provide Economic Forecasts

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This week, the State Legislature’s Budget Season continued in earnest with the annual revenue projections and economic forecast by the nonpartisan Office of Legislative Services (OLS), followed by that of State Treasurer Ford Scudder.  The Assembly Budget and Appropriations Committee received this important testimony on April 5 and the Senate Budget Committee did so on April 6 as they considered Governor Christie’s proposed $25.5 billion budget proposal.  The committees charged with the development of the State Budget also hear from OLS and the State Treasurer in May before the Appropriations bill is finalized and voted upon by July 1st.

Frank Haines, Legislative Budget and Finance Officer for OLS and Catherine Brennan OLS Finance Section Chief presented the annual OLS “Tax and Revenue Outlook” for the State.  In making its revenue forecasts, OLS reviews current state revenue collections, historical revenue patterns, changes in the law such as the recently increased gas tax and decreased Inheritance/Estate taxes, economic data, revenue trends in neighboring states and their professional judgement.  This year’s Outlook showed some differences in revenue forecasts with the Treasurer’s Office, but they were minor in comparison to prior years where conflicting numbers made headlines.

In the aggregate, over two fiscal years (FY 2017 and 2018) OLS’ forecast differed from the Christie Administration’s estimates by less than one percent of budget revenues, although more significant variations occurred among individual taxes.  The Gross Income Tax (GIT) estimate by OLS was $140.3 million below the Treasurer’s for example.  OLS Sales Tax estimates were more closely aligned with the Treasurer’s over the two fiscal years at issue.  Noting the complexity of the issue, OLS revised its estimates for the Corporate Business Tax receipts (CBT) downward this year and is assuming growth below the 5% anticipated by the Administration for FY 2018 (165.5 million below).  OLS also discussed the revenue impacts of the Petroleum Products tax (gas tax) and changes to our State Inheritance laws.

During the questioning that followed the OLS presentation, Haines noted that the Governor’s proposal makes some significant assumptions on revenue sources in the upcoming fiscal year that contain potential financial risk.  In addition to the potential budgetary shortfall of $436 million over FY 2017 and 2018 combined, the Christie Proposal includes assumptions of $325 million in revenue from the sale of state assets that has not yet occurred (sale of radio spectrum before the Federal Communications Commission) and assets from legal settlements that are pending (worth $215 million).  On the spending side, Haines noted that the Christie Proposal also assumes $100 million in savings from not-enacted changes to employee health care benefits, $15 million in tort claims and a concededly shorter fund for winter transportation work.

Other issues discussed by OLS included the relatively low surplus in the budget, the recent downgrade by Moody’s of our state financial status (11th downgrade during the Christie years) and potential losses in federal aid in light of significant funding cuts proposed by President Trump.

Following the OLS presentation, State Treasurer Ford Scudder defended the Administration’s budget proposal citing “significant progress in the structural integrity of the Budget,” the highest dollar amount in an annual payment to the public employee pension system ($2.5 billion in FY 2018), a reduction in debt issuance and property tax growth, the enhanced stability of the Unemployment Trust Fund and a well-funded Transportation Trust fund (resulting from the increase in the gas tax.)  Scudder cited two primary reasons the Administration continues to support its budget forecast – “stock market growth and efforts to reduce tax refund fraud which should yield tens of millions of dollars in savings.”

In response to questions about the potential $471 million budget shortfall of June 2016 projections, the Treasurer cited the “forward trajectory” of the  State’s finances, dismissing the recent Moody’s downgrading of our State’s fiscal rating yet again.

On the issue of pension funding, Scudder told the Committee he expects to make the State’s quarterly payment on schedule.  Governor Christie signed a law in 2016 requiring such quarterly payments as one positive reform to the longstanding concerns of public employees about state funding of their pensions.  Although Scudder failed to discuss the related issue of assumed health benefits savings contained in the Budget with the Committee, his written comments cite the need for further health benefits reforms to contain costs to state taxpayers.  Specifically, he recommended that the School Employees Health Benefits Program instituted cost saving plan design changes that were made by the State Health Benefits Program last year.  He also discussed the need for transparency for out-of-network charges to better inform employees and thereby reduce their out-of-pocket expenses of public employees resulting in further savings to taxpayers.   In the Budget Proposal, more than $81 million — would come from savings related to an out-of-network billing “transparency” measure that has yet to be shared with the Legislature.  Last year, the Legislature considered, but failed to enact, a budget proposal to cap charges for out-of-network procedures at 100% to 250% of the Medicare rate.

On the hot topic of school funding, the Treasurer cited an increase of $523 million in FY 2018 with $9.2 billion within the $35.5 billion Budget Proposal representing direct aid to schools in the state budget.  Each district is to receive at least the same K-12 funding in FY 2018 as it did this year.   In his Budget Address, Governor Christie encouraged the Legislature to develop funding recommendations to address certain funding inequities within 100 days of his speech.  To date, no agreement has been reached on changes to our state funding formula, the School Funding Reform Act (SFRA).  Last week, the Senate Republican Office did issue a proposal for consideration which addressed special education and other funding concerns.

Upon questioning about the Governor’s plan to take the reserves of the Horizon Blue Cross Blue Shield reserve funds to fund his Opioid Addiction Plan, the Treasurer could provide no detailed answers to legislator questions.

NJPSA will keep you advised of any developments on the State Budget as the process continues.