Improving New Jersey’s Budget Process Would Make the State More Financially Sound

This afternoon the Senate approved a landmark bill to improve budget-making in New Jersey by bringing more clarity, collaboration and planning to the process. The bill now goes to Gov. Christie’s desk for his signature.

The legislation – the product of several years’ work by NJPP and other organizations, as well as leading legislators – would bring New Jersey into line with best practices implemented in dozens of other states. It would also greatly improve the Garden State’s dismal ranking – third worst – on budget planning.

New Jersey falls far short on budget planning and fixes like these are long overdue. These common-sense reforms will not make New Jersey’s process perfect, but they will improve by leaps and bounds the state’s ability to plan for the future, boosting our ability to prudently invest in transportation, higher education and other building blocks of a strong economy.

The legislation would, among other things, make three key improvements:

consensus forecasting map-01Adopt consensus revenue forecasting

Given the record of New Jersey’s last three budgets and the consequences of flawed revenue projections and last-minute revenue shifts, a change in the forecasting process is long overdue. Currently, both the executive branch and the Office of Legislative Services estimate revenues. But they do their work on separate tracks, and – in the end –the executive branch does not have to even address OLS’s estimates in its own projections.

This makes little sense. Our state budget process would be greatly improved by allowing the executive branch, OLS and a mutually agreed upon third party to come to a consensus about revenue forecasts. This type of process is currently employed in most states (28), and is a common-sense step towards sounder financial practice.

In fact, the credit-ratings agency Moody’s lists consensus revenue forecasting as one of its five financial best practices – and we all know we could use a boost with the credit-ratings agencies.

While this legislation does not change the ultimate authority of the governor to certify revenues, it creates a public process – through a newly created Revenue Advisory Board – to bring more collaboration and transparency to revenue forecasting.

Estimate revenues three years into the future

New Jersey currently projects revenue for just the coming fiscal year in its budgeting process. This leaves policymakers blind to predictable declines (or increases) in state revenue and vulnerable to phased-in tax-cut proposals that balloon revenue losses several years down the line. Projecting how much revenue the state can expect to collect beyond the coming year enables lawmakers to better anticipate and respond to predictable changes in revenue. Many states (22) forecast revenues three years beyond the coming fiscal year.

Create current service baselines

There’s a truism that advocates whose work intersects with state budgets know all too well: Flat funding is really a cut. This phrase reflects a reality that is currently ignored in New Jersey’s budget process: The needs of Garden State residents change each year based on a wide variety of factors, from inflation to policy adjustments to demographic changes.

That’s why this bill’s requirement that New Jersey project three years ahead for what is called “current service baselines” for some central programs is so important: It clearly shows the funding  the state will need just to maintain programs at their present levels. Many states (17 plus D.C.) project current service baselines.