State Revenue Down BY $1.1B For This & Next Fiscal Year

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New Jersey’s top budget official told lawmakers May 18 the state’s revenue predictions for the current and next fiscal year were off by more than $1 billion, but said the difference can be made up without draconian cuts and that there was no need to reduce the state’s pension payment.  The state Office of Legislative Services says its projected shortfall for this fiscal year and the next is partially the result of weak stock market returns in 2015.

OLS Findings

The revised revenue estimate — $946 million lower than the office anticipated in April — finds a $486.8 million gap for the current fiscal year over what’s included in Gov. Chris Christie’s proposed budget. OLS says there is a $621.6 million gap for the next fiscal year.  The primary cause for the revision is lower-than-expected income tax returns, OLS budget officer Frank Haines told the Assembly Budget Committee. He said it was the one “crucial exception.”

“The revised OLS forecast does not suggest a significant change in the economy,” he noted.

“Consensus economic forecasts project continuing slow growth, and the OLS is also assuming slow growth. The revenue weakness stems from the annual variability of revenue collections.”

Haines said other states are also running into similar troubles, with California, Massachusetts, Connecticut and Pennsylvania reporting “spring income tax revenues falling short of expectations.”

Still, an image emerged of a financial situation that would require immediate attention and likely complicate budget negotiations over the next six weeks, adding to a long list of lofty debates playing out in backrooms across the statehouse.

Treasury Agreement

The revenue forecast is worse than was anticipated just a month ago. Both the treasury and the nonpartisan Office of Legislative Services were nearly in agreement about the budget gap, with officials from both branches saying income tax revenue is coming in considerably lower than most people had expected — in New Jersey and elsewhere.

“I would love to be here to report that New Jersey is an outlier to the national phenomenon of reduced personal income tax revenue, which seems primarily attributable to a decline in unearned income. But unfortunately that is not the case,” state treasurer Ford Scudder told the Assembly Budget Committee. “In fact, revenue declines have been largest in those states — like ours — with highly progressive tax systems, the smallest in states with flatter tax structures.”

But even as OLS budget officer Frank Haines called the situation “dire,” Scudder said no one needed to worry: The spending plans for both years could be balanced without painful cuts and without further missed payments into the troubled public employee pension system.

To address the projected shortfall in the 2017 proposed budget, Scudder said, the Legislature should consider reducing charity care by $25 million more than previously suggested. He also said the state could slow the implementation of a tax credit favored by businesses, generating an additional $135 million in revenue.

To find another $25 million, he said, the state can start withholding lottery winnings at the highest tax rate, though he did not suggest increasing the actual rate. Had the change already been in place, he said, the state would have collected that same account from the recent $429 million Powerball jackpot.

Beyond those “three main programmatic changes” Scudder described in his remarks before the committee, the treasury detailed an additional $303 million worth of other “significant changes” that can be made to the proposed budget for next year. Those adjustments include some diversions from dedicated funds, like using $10 million from the Clean Energy Fund to offset state support for NJ Transit.

In addition to the proposed changes to next year’s budget, the state will need to eat into its reserve funds to balance the budget for this fiscal year, which ends June 30. Scudder said there’s a need for a combined $363 million adjustment to the current spending plan — counting $283 million in “lapses” and another $81 million in supplemental reductions.

“This lower level of surplus heightens the need to reach the $250 million in health benefit savings assumed in the budget proposal,” Scudder said.

Health Benefit Changes Called For

As you may recall, Governor Chris Christie in his proposed budget called for $250 million in saving through modifications to public employees health benefits.

The exact changes were supposed to be subject to negotiations by the state’s so-called Plan Design Committees, but Scudder said Wednesday that “union members in the School Employees’ Health Benefits Program committee have made clear they will oppose even reasonable changes to plan design that would lower cost for their members without any corresponding decrease in service or quality.”

Obviously it is unclear what will happen in light of this stalemate.  At the hearing May 18, Republican Assemblyman Declan O’Scanlon said union members should reconsider their position.

“If you’re going to oppose things that both save money and improve health care services, then you’re just being spiteful and that’s not constructive for anyone,” he said.

Revenue Update Prepared Remarks

Original Remarks

Source: PoliticoPro