Christie Administration Owns Up: FY 2012 Closing Surplus – and Next Year’s Projected Surplus – Will Be Significantly Reduced
In financial documents filed yesterday, the Christie administration has acknowledged that New Jersey’s FY 2012 closing surplus will be significantly lower than the $570 million projected when the budget was signed and that this and other factors will reduce the projected FY 2013 surplus of $648 million.
The information is revealed in the Preliminary Official Statement for school construction bonds that will be issued by the New Jersey Economic Development Authority. These types of statements are certified by the issuer (the Treasurer of New Jersey) and approved by legal counsel for their accuracy, immediacy, and completeness. In fact, New Jersey has a formal agreement with the Securities and Exchange Commission pledging to meet specific guidelines in its filings.
Page I-16 in the appendix of the offering statement states:
“It is anticipated that the ending undesignated fund balance for Fiscal Year 2012 will be reduced. Such reduction may be significant based upon the final determination of revenues and fiscal year-end lapses upon completion of the annual audit.” (emphasis added)
This is the first public acknowledgement by the administration that the FY 2012 closing surplus will not meet its forecast of 75 days ago.
The offering statement details other factors that could further reduce the FY 2013 surplus:
• Current projections indicate that the assumed savings of $60 million in the cost of employer-funded Social Security tax may not be achieved.
• Spending projections do not include the potential impact on the state’s various income maintenance programs for the economically disadvantaged from the possible loss of federal Emergency Unemployment Compensation (EUC) in December 2012. If the existing federal legislation is not extended beyond January 2013, the costs of programs such as Temporary Assistance to Needy Families (TANF) could rise.
• The state became ineligible for the Extended Benefits (EB) program in June 2012 based on federal and state legislation, also potentially adding to state assistance programs.
• Medicaid expenditure trends suggest that costs may exceed the Medicaid appropriation for exceed savings anticipated from fraud prevention in Medicaid and General Assistance.
The administration should be commended for meeting requirements for bond disclosures. However, a more complete filing might have included the following:
• The impact of the $250 million shortfall already reported for FY 2012’s major tax revenues on the revenue assumptions for FY 2013.
• The uncertainty of other tax revenue projections, such as energy-related taxes that the Office of Legislative Services estimated could be $40 million lower than the administration.
• Recognition that, even if the wins the case challenging its diversion of $200 million in housing money to the budget, that the amount available is likely to be only $140 to $160 million.
Disclaimer – During my tenure as State Treasurer, the Security and Exchange Commission investigated the state’s disclosure of pension funding information from 2001 to 2007. As a result, guidelines for reporting the state’s financial status section in bond disclosure statements were adopted in January 2009. These guidelines bind the current administration.
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