Budget’s Bottom Line: Christie Needs Revenue Bonanza
Governor has to bet on high tax-growth in FY14 to bridge $3 billion structural deficit.
Gov. Chris Christie plans to talk about his commitment to rebuilding New Jersey after Sandy in his budget address Tuesday.
But no matter what Christie focuses on, Wall Street analysts and Democratic leaders will head straight for the numbers to scrutinize the revenue projections that underpin Christie’s Fiscal Year 2014 budget.
Christie faces a $3 billion structural deficit heading into next year’s budget that will be difficult to bridge without projecting revenue growth of at least 8 percent for the fiscal year that starts July 1 -- and that number will have to be higher if state revenues don’t soar over the next five months to make up a combined shortfall of $473 million in Christie’s FY12/FY13 revenue projections.
To put Christie’s challenge in perspective, state revenues grew just 3.9 percent in the first seven months of the current fiscal year -- even with a 9 percent surge in income tax revenues fueled by a booming stock market and a federal fiscal cliff that led wealthy taxpayers to push as much income as they could into 2012 to avoid increases in the top income tax rate and capital gains tax rates.
For the past year, Christie has been battling with Democratic legislative leaders and with the nonpartisan Office of Legislative Services over his insistence that “our fiscal house is in order,” and that his New Jersey Comeback would create a $2.2 billion (8.3 percent) increase in revenues that would enable the state to afford the first $183 million down payment on a four-year income $1.4 billion income tax cut.
It was one of the most ambitious revenue growth projections in the nation, and it was for a state that had ranked 47th in economic growth the previous two years and had one of the highest unemployment rates in the nation.
Christie’s New Jersey Comeback never materialized. Three months after Christie’s budget address, his treasurer, Andrew Sidamon-Eristoff, was forced to concede last May that revenues were already coming in $676 million behind projections -- a significant setback for a popular governor who was angling for the Republican vice presidential nomination.
The Endless Summer
Christie’s single-minded focus on passing a tax cut at any cost prevented him from enacting spending cuts or lowering his revenue estimates, which would have been the usual response. Instead, he plugged in more than $450 million of additional one-shot revenues to fill the gap and vowed to badger Democratic legislative leaders to cave in on the tax cut with an “Endless Summer Tax Relief Tour.”
Nevertheless, balky Democrats packed Christie off to the Republican National Convention without a tax cut, even when he agreed to abandon his own income tax cut that would have benefited the rich in favor of a Democratic property tax deduction aimed at the middle class.
Christie was lucky that Senate President Stephen Sweeney (D-Gloucester) and Assembly Speaker Sheila Oliver (D-Essex) stubbornly stuck to their insistence on waiting for Christie’s ambitious revenue projections to materialize before enacting a tax cut.
If the Democratic leaders had bowed to Christie’s pressure, the governor's built-in structural deficit heading into the FY14 budget would be about $730 million larger. The the state would have spent the $183 million in FY13 surplus set aside for the first stage of the tax cut, and there would have been an expectation that the state would come up with the $550 million scheduled cost of the second year of the tax cut phase-in in FY14.
As it is, Christie will have to lay out in his budget address tomorrow how he plans to fill a $3 billion structural deficit, and whether he is sticking to his original FY13 revenue projections and/or plans to cut current-year spending to make up all or part of that gap.
Christie’s built-in budget challenge falls into four major categories: + One-Shot Revenues: Christie’s current budget includes $1.115 billion in nonrecurring revenues, a problem that Standard & Poor flagged in lowering the state’s budget outlook from stable to negative in September. That does not include an additional one-shot of $250 million or so caused when wealthy taxpayers shifted income into 2012 to avoid future federal income tax and capital gains tax increases.
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