Revenues for the first quarter of the 2013 fiscal year have been tallied and the trend that started in February continues: they fall short of the administration’s aggressive forecasts. It’s not too early to think about the cuts or accounting contrivances that may be required to meet the constitutional requirement for a balanced budget.
Last week, the Christie administration and the Office of Legislative Services (OLS) issued their reports on September collections of the 18 taxes that make up about 87 percent of the state’s revenues. Even if the prose in the two reports is quite different, the numbers are about the same.
The administration naturally put a positive spin on revenues, even while acknowledging the receipts are $175 million (4 percent) short of the revenues certified by the governor in signing the 2013 budget in June. Press reports led with the shortfall, even though it wasn’t mentioned in the administration press release.
Here are the major points to be gleaned from the two reports:
• Total cash collections for the first quarter total $4.227 billion, an increase of approximately $80 million (1.9 percent) above the amount collected last year.
• The administration release ignores that the September 2011 amounts were reduced by the two-month filing extensions granted because of Tropical Storm Irene. OLS estimates that at least $60 million in estimated income tax payments due in September 2011 were not collected until November. Accounting for this fact reduces the actual year-over-year increase in cash collections to $60 million (0.5 percent). Since other taxes were also not paid in September 2011, the final year-over-year increase is likely even lower.
• When the $175 million is added to the shortfall of $265 million in last year’s budget, the administration is in the hole $440 million against its forecast, which just about wipes out the $465 million surplus accounted for in the FY 2013 budget.
• When adjustments are made for the payment extensions granted last year, one can assume that all of the taxes being reported are below the administration’s projections.
• Tax collections will now have to grow by 9.9 percent over last year in the remaining nine months of FY 2013 if the administration is to reach its forecasted revenues. To put that number in context, the actual growth rate for all of FY 12 was 2.9 percent, the growth rate for the first nine months of this calendar year is 2.6 percent and there has been practically no growth in the last three months.
• If the 4 percent shortfall in revenue continues for the entire fiscal year, the administration would be short approximately $1 billion ¬– plus the $265 million shortfall from the FY 2012 closing surplus. To this one should add potential reductions in energy tax revenues and a $60 million lag in collections in the housing fund that is being raided.
It is disappointing that the administration did not acknowledge the effect of the Irene payment extensions on September’s year-over-year comparison, even after OLS cited it in its September report. On his first day in office, the governor ordered the treasurer each month “to explain with respect to each revenue source, any significant variance between the actual amount received … and the amount forecast in the State Budget.” The public deserves a transparent “apples-to-apples” report that it did not receive.
The governor claims not to focus on monthly reports. Or, apparently, quarterly reports. No wonder: after setting the most aggressive revenue projections in the nation, no monthly report since the governor’s February budget message has hit the target. It is a safe bet that, if collections were above forecasts, the governor and his press operation would focus on the reports with exclamation points!
This recalls the governor’s statement in early July criticizing the Democratic insistence that a tax cut be contingent on revenues meeting his forecast by January or so. His message: why wait?
“I think January will be an important month to look at, but we’ll see what happens in June,” Christie told the Record. “I’m relatively optimistic. But, you know, they [Democrats] said we’re not going to hit our numbers in June,” he said. “If we hit our numbers in June, maybe it’s time for them to shut up.”
Alas, the June numbers fell short and the trend has continued through September. Yet the governor continues to tell residents all across New Jersey that the state can in fact afford to give them a tax cut that will eventually cost the state $1.5 billion.
It’s worth noting that Democratic legislative leaders are not innocent bystanders. In fact, they are co-conspirators due to their silent acceptance of the administration’s estimates in crafting their FY 2013 budget – despite the warnings from OLS and others. There were no legal obstacles to the legislature using the lower OLS estimates, or even some middle number between OLS and the administration. But accepting lower (and more realistic) revenues would have forced them to find cuts in the governor’s budget, defer the new spending they added, or come up with new revenues. It was a clear political calculation to avoid making tough decisions on spending and revenues, knowing that when revenues fall short it is the administration that has to deal with the consequences.
Regardless, the Christie administration has yet to recognize publicly a crucial fact: there is already a significant budget shortfall, and that shortfall is likely to grow. It is simply not credible that tax collections will explode from a growth rate near zero to 10 percent suddenly and persistently between now and June 30, 2013.
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