Last Year’s Revenue Shortfall Could Mean Trouble for This Year’s Budget
Last year’s major tax revenues came in $104 million short of the amount used by policymakers to build this year’s budget, putting an already slim surplus at risk of disappearing. It’s further proof that New Jersey’s budget remains fragile and would be harmed by broad tax cuts that would drain revenues essential to education, public safety and other public services.
That’s the key takeway from last week’s report by the Office of Legislative Services (OLS), which tallied up the major tax collections for the budget year ended June 30 (FY 2013).
While $104 million is tiny in the context of a $33 billion budget, it takes on a larger importance when the surplus mandated by the state constitution is also very small.
With last year’s major revenues coming in $104 million under, this – assuming no further adjustments in the final audit – would reduce the surplus carried forward to this year’s budget by the same amount, turning the slim $300 million starting surplus into one of $196 million.
Next, assuming that the moderate growth projections assumed in this year’s budget are accurate, then this year’s revenue projections would also be off by $104 million. That would bring the surplus down to $92 million.
And if internet gaming revenues come up short of the budget’s $160 million target, the courts block the administration’s use of $164 million in affordable housing funds for general till or the budget underestimated the income tax spike from wealthy taxpayers trying to beat the federal capital gains increase by loading up on 2012 income, then the surplus will disappear, forcing the administration to rebalance the budget in the middle of the year – a maneuver that becomes more difficult as a smaller percent of the budget is considered discretionary.
The final tally sheds some light into the acrimonious revenue projection discussions we’ve seen in New Jersey over the past year or so. When the administration introduced the budget back in February 2012, its revenue estimate was too optimistic by $589 million while OLS ended up being short $197 million. When the budget was signed in June 2012, the administration projected $380 million too much and OLS $40 million too much. Looking at the final numbers, the administration was $104 million too high while OLS was $139 million too low.
What is disguised by looking at all major tax sources is the role New Jersey’s income tax plays in preventing a major meltdown in public services. Because of the state’s progressive rate structure and the continued good fortunes of the top five percent or so of New Jersey taxpayers (as well as behavioral changes due to federal tax changes), the income tax beat the administration’s 2012 estimates by $88 million above the original estimates and the OLS’s by $396 million. All the other major taxes were $677 million below the administration’s original estimates and $593 million below the original OLS estimates.