If the 2015 Budget Dance Plays Out as Predicted, Will the Crisis Be Over? Not at All.

June 23rd, 2014  |  by  |  Published in Budget and Tax Policy, NJPP Blog: As a Matter of Fact ...

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With just one week left to adopt a 2015 budget and sharp differences between the Democratic legislative leadership and Gov. Christie on how to balance that spending plan that begins July 1, one might think that we’re in for a week of chaos and even that the state might miss its constitutional deadline to balance the budget.

But with the governor’s veto pen at the ready and the Democrats’ apparent inability to override any gubernatorial vetoes, the outcome of this budget dance may well be preordained.

Here’s how things will likely play out.

The Senate and Assembly will pass a party-line budget that fully funds the $2.25 billion 2015 pension payment and may include funding for other priorities like restoring the 2010 cut to the Earned Income Tax Credit. The legislature will also pass revenue-raising bills including one increasing the income tax for upper-income households and one enacting a new surcharge on the corporate business tax to help pay for this spending plan.

The governor will veto the bills that increase taxes, reducing the revenue available for the budget. He will then use his line-item veto to reduce spending in the budget to match the lower revenue level – most likely by reducing the pension payment. Since the governor’s line-item veto is limited to reducing spending levels, he lacks the ability to increase spending in any areas that the legislature may have reduced (like the proposed one-year suspension of payments under BEIP, one of the state’s business tax subsidy programs).

Meanwhile, the courts will ultimately decide whether or not the governor has the legal authority to cut the pension payments, and once the ruling comes down – particularly if the decision invalidates the cuts – additional budget adjustments may have to be made.

But even with the court case unresolved, on July 1 New Jersey will most likely have a balanced 2015 budget on the books. But of course, this does not mean the state’s budget crisis is over. If the process plays out as suggested here, most of New Jersey’s structural budget issues will simply be kicked down the road to 2016, where they will become even more pressing.


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