A closer look at the final FY 2012 major-tax collections report released by the Office of Legislative Services (OLS) reveals some big problems for the administration’s FY 2013 budget. In order to achieve the revenue estimates that the governor certified for this year, major-tax revenue will have to grow by 8.2 percent – nearly three times last year’s actual growth rate.
While there is no argument that state revenue will increase this year, even in this slow economy, 8.2 percent growth is overly optimistic. The growth rates initially assumed by the administration (7.1 percent) and eventually updated in May (7.2 percent) were already the most aggressive assumptions in the nation – despite the fact that New Jersey ranks near the bottom in job growth and economic activity.
One explanation for the administration’s bullishness could be that in the two months since the end of the 2012 fiscal year, there is evidence of explosive growth in job creation, consumer spending and family incomes. If so, the administration should release the evidence so that its revenue projections attain some credibility.
All the available evidence points in the opposite direction – that the state’s economy is still incredibly fragile. Instead of flamboyantly rejecting the OLS report and inferring that other evidence is suspect, the administration should adopt language and tone reflecting concern and great caution.
At a minimum, the administration should acknowledge that 8.2 percent growth is unreasonable and revert to its earlier estimates of 7.2 percent growth. The combination of a lower FY 2012 surplus and reduced revenue forecasts would produce a $500 million budget shortfall. At the very least, the administration should come clean and discuss its plans to offset this shortfall.
A better approach would be to exercise even more caution, and accept the OLS’s growth rate from May (6.1 percent), which is still double FY 2012’s growth rate, and plan for an additional loss of $250 million in FY 2013. (It should be noted that, unlike the administration, OLS always expressed caution that their estimates could be overly optimistic.)
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.
Either way, pushing ahead with a budget based on faulty revenue projections – whether to implement a politically appealing tax cut or to pass the buck on tough fiscal decisions – is not in the best interest of New Jersey. Instead, the administration and legislative leaders need to confront the fiscal realities in an open and honest way, and acknowledge there is still a long way to go before the state’s economy gets back on its feet.
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