NJPP Testimony: Revenue Certification Reform is Long Overdue

This testimony, on SCR-132, was delivered to the Senate Budget and Appropriations Committee on Monday, July 23, 2018.

Good afternoon.  My name is Gordon MacInnes, President of NJ Policy Perspective. I appreciate this opportunity to testify on this very important change to New Jersey’s Constitution.

NJPP – along with our national partners at the Center on Budget and Policy Priorities – has long supported the adoption of a consensus process for estimating state revenues. We are heartened to see the Senate President and his colleagues propose this first step toward establishing a joint legislative and executive branch Revenue Certification Board. More than half of the states – 28 – have adopted this sensible budget forecasting framework, which ensures both greater financial discipline and more robust and relevant debate about a state’s true financial condition.

Given the shaky record of New Jersey’s budgets, its second-lowest credit rating and the consequences of flawed revenue projections, a change in the revenue forecasting process is long overdue. Consensus forecasting is much more likely to mitigate the negative impact of short-sighted politics on budget-making and it may improve New Jersey’s prospects among the major bond rating agencies – an important priority following 11 credit rating downgrades in just eight years.

Take Connecticut as an example, one of the states to most recently adopt consensus forecasting after years of wasted time arguing over the best revenue estimates. Since new rules took effect in 2009, the legislature and governor have come to a consensus before the mandated deadline of November 10 each year and have used updated estimates to make mid-year appropriations adjustments.

Now consider current practices in New Jersey. Here, budget-making is an opaque and unnecessarily dramatic affair. Year after year, the Governor delivers the budget message in the winter.  The Legislature holds 30+ hearings in the spring summoning each cabinet officer and inviting interested organizations and citizens to offer their pleas and suggestions of the Governor’s proposal.  Then, the real budget negotiations take place behind closed doors in small rooms frequently in the very last hours of the fiscal calendar, and deals are struck without sufficient understanding of the agreements and their expected impact. The final budget is not even available for review and inspection by the legislators who must approve it, never mind interested citizens and lobbyists.

Adopting responsible and shared forecasting is a model of good governance and a smart framework for restoring sensible practice to budget-making. It is a key characteristic of states with high bond ratings, and Moody’s even includes the measure as one of the five “Financial Best Practices” it uses to rate states.

While we are heartened to see the concept of a revenue forecasting board being proposed, we strongly oppose the notion that such an important change requiring an amendment of the state constitution should be adopted with such scant notice or public review. The proposed change cannot possibly serve its meritorious purpose in New Jersey’s down-to-the-wire, secretive budget-making tradition.

Consider for a moment the adoption of this year’s budget.  After months of public hearings, the 2019 budget’s proposed revenue increases were tossed aside in the backroom negotiations. The legislature’s alternative budget was introduced on June 18 and passed by both houses on June 21. Following 9 days of negotiations, the governor’s line-item vetoes were accepted on July 1.

Now, consider how a three-person revenue board would manage to serve the purposes of SCR-132 if their first glance at substantial changes in proposed revenues was not possible until June 18.  Yes, the treasurer’s representative and OLS budget and finance director could work full-time around the clock to try to determine the longer-term consequences of a temporary corporate tax increase, but would they and the public member have sufficient time to prepare a helpful analysis that would be given any consideration by the legislative leadership in time for the July 1 deadline to be met? Obviously not.

Legislative leadership should slow this sudden and historic shift in the constitutional budget directives until next year so that the unanswered issues and questions can be addressed with calm deliberation. Otherwise, the same practices that have put New Jersey in such a deep financial hole will undermine and prevent any benefits expected from SCR-132.     

In the meantime, we recommend enacting a comprehensive roadmap for sound long-term budget planning including not only a thoughtfully designed revenue certification board, but also multi-year revenue and spending projections and greater transparency. In fact, the legislature passed a bill in late 2015 that incorporates these very budget practices: A4326/S2942 made it to Governor Christie’s desk where he vetoed it. It is a sound bill that deserves to be sent to the governor’s desk once again and we urge the legislature to do so.

We support bringing transparency to the budgeting process because it may raise questions and issues that one-year budgeting intentionally avoids and provides an opportunity to finally break the cycle of accounting games and gimmicks that have contributed greatly to New Jersey’s financial crisis. But pushing for a resolution that changes our constitution and demotes the governor’s revenue certification authority requires a comprehensive evaluation process that also values the participation and input of the public before moving forward to the ballot.

Thank you for your time.