This is the sixth – and last – in a series of in-depth examinations of major issues in the recently enacted FY 2014 budget. Click on the links for the first, the second, the third, the fourth and the fifth.
Now that we’ve explored the micro level of a number of specific issues related to the recently passed budget, let’s zoom out and examine the budget’s risk. Every budget contains risk, the extent of which is defined by the underlying economy, the revenue and spending assumptions and the level of surplus.
On the revenue side, it is possible that collections could be short by as much as $600 million to $800 million for this budget. In addition, there are known expenses that haven’t been budgeted, including $24 million for the U.S. Senate primary and general elections, $75 million to $100 million for snow removal, New Jersey Sports and Exposition operating support and the annual tort claims the state settles (the latter three are usually not included in the budget). And other expenses always pop up; those could add $100 million to $200 million to the total. As an offset, some spending areas always come in under-budget.
When combined, the potential revenue and spending risks in this budget could be close to $1 billion – similar to the magnitude of the FY 2013 shortfall.
It’s worth looking back on that budget to see what actions were taken to maintain a balanced budget with a reasonable surplus and how those actions may or may not be relevant to this year’s budget. Since 2001 every administration has had to make mid-year corrections to cover a shortfall; some of the actions have had real policy implications, while most have been accounting shifts.
Based on the administration’s May 2013 presentation, the combination of revenue shortfall and increased spending needs totaled approximately $1.1 billion for FY 2013: $123 million less in opening surplus than projected, $539 million less in certified revenue and $419 million more in spending. The revenue shortfall would have been even greater had the state not collected over $400 million more than it anticipated in the income tax.
This shortfall was offset by reducing the surplus from $648 million to $410 million for a “savings” of $238 million, shifting the payments of the Homestead Benefit Credit from March to August 2013 to save $394 million and spending $449 million less than anticipated. None of these actions had significant policy implications.
But these options aren’t all on the table this year. For starters, the Homestead Benefit Credit can’t be shifted because it will be paid out so early in the budget year. There is also much less of a surplus to reduce because last year’s surplus included $183 million in contingency funds to pay for the first year of a tax cut – funds that were never spent. This year’s thin surplus of $300 million will be hard to reduce by any significant amount until very late in the fiscal year. And on the spending side, 30 percent ($125 million) of the under spending last year was the product of refinancing transportation and school construction debt – an option that looks unlikely this year. Another portion of the under spending came from shifting costs to federal and dedicated state funds that may not be available for FY 2014. Looking to FY2014, if the income tax continues to perform as it has over the past few months, the collections could exceed projections enough to offset shortfalls with other taxes.
Bottom line: If this year’s shortfall reaches $1 billion, the administration will have fewer options to call on to produce a balanced budget and protect the $300 million surplus.
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