The past ten days have been a whirlwind for New Jersey budget watchers, with the kind of constant information flow that is usually reserved for the height of “budget season” in May and June. Here’s a recap of the events of the past 10 days and what they may mean for the larger fiscal picture.
September 10: OLS Warns of FY 2012 Shortfall
Final FY 2012 revenue collections for the state’s major taxes were $254 million below the amounts certified when the governor signed the FY 2013 budget, according to the Office of Legislative Services (OLS). Revenue for the year grew by 2.9 percent, according to the report – significantly less than the 4.8 percent the administration estimated in February. This $254 million shortfall thereby reduces the projected $570 million closing balance for FY 2012 by nearly 45 percent.
The reduction in 2012 tax collections also means that the already optimistic 7.2 percent growth required for in the governor’s 2013 budget must now be stretched to 8.2 percent. Meeting the 7.2 percent growth assumption will produce a hole of about $250 million against the amount certified in the budget.
September 12: The Administration Warns of FY 2012 Shortfall
The Christie administration 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 was certified in a preliminary offering for school construction bonds to be issued by the New Jersey Economic Development Authority, and it marked the first public acknowledgement by the administration that the FY 2012 closing surplus will not meet its earlier forecast.
The administration deflected the issue in the press, stating that this was simply a “routine” update. Looking back at prior disclosures, one can question if the acknowledgement of a “significant” shortfall is routine.
The administration also stated that the actual surplus will not be known until the state’s annual financial statements are available in December. Historically, administrations generally know the ending surplus for the prior year by this time and it usually holds up in the final financial statements.
September 14: Ratings Agencies Weigh In, Part One
Two of the three major rating agencies (Moody’s and Fitch) issued reports that maintained New Jersey’s near-lowest-in-the-nation credit rating. The reports, however, turned up the temperature about the state’s fiscal health – particularly about the use of unrealistically high FY 2013 revenue projections, the use of non-recurring revenues (this issue has been raised by the agencies in most rating reports since the late 1990s), and inadequate funding of pensions and health benefits for retirees.
September 18: Ratings Agencies Weigh In, Part Two
The third major rating agency, Standard and Poor’s, also maintained New Jersey’s relatively low credit rating, but changed the outlook from “stable” to “negative” – essentially a warning to the state that the agency may downgrade the rating within the next two years.
September 19: Assembly Budget Committee Meets
Due to scheduling conflicts as well as issues related to disclosures during period bonds are being sold, Treasurer Andrew P. Sidamon-Eristoff declined to appear before the Assembly Budget Committee to discuss the FY 2012 revenue and closing surplus. Since the state is still in a period of disclosure relative to the EDA bond sale, the treasurer most likely would have simply repeated what was in the offering statement and not provided much new information. Once this bond sale is closed, the Committee should invite the treasurer back so that he can update them – and the taxpayers – on the FY 2012 revenue situation as it stands, and how the FY 2012 results impact the FY 2013 budget. If, in fact, the situation is better than portrayed by OLS et al, there is no doubt that the treasurer would want to get this information as soon as possible.
OLS updated the committee on its report from last week shifting $14 million in income tax revenue from FY 2013 to FY 2012, which reduces the FY 2012 shortfall in the major taxes from $254 million to $240 million. This shift has no impact on the state’s overall fiscal status since it is just a shift between years.
But OLS then added $25 million to the $240 million FY 2012 shortfall number because of lower-than-assumed energy tax revenues.
Committee Republicans, seeking the minimize the significance of the shortfall, correctly noted that $254 million was only 1 percent of the overall projected FY 2012 revenue. However, this ignores that the shortfall represents more than 40 percent of the projected closing surplus, and that the shortfall will likely cause another $250 million shortfall in FY 2013, creating a combined $500 million shortfall that would eliminate all of FY 2013’s $465 million in unrestricted surplus and eat into the $183 million set aside for a potential tax cut.
September 19: Administration Releases August Revenue Report
Late in the day, the administration released the monthly revenue report for August, showing a year-to-date revenue increase of less than 1 percent, nowhere near the 8.2 percent growth the administration is predicting for the fiscal year overall. As a result of this low growth the overall growth for the remainder of the next ten months will now need to exceed 8.2 percent. The $1.9 billion that was actually collected is approximately $100 million, or 4.9 percent, below the administration’s targets.
A more in-depth look at the revenue report will follow after OLS releases its monthly snapshot.
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