Gov. Phil Murphy warned Monday that even though New Jersey avoided some of the draconian spending cuts feared during the spring because of COVID-19, the sluggish tax collections and second wave of the virus mean the state could still need up to tens of billions of dollars in federal relief to avoid those austerity measures.
The governor, during a Monday morning press conference with Pennsylvania Gov. Tom Wolf, warned that between “mid-to-late spring of this year to the end of 2021, the need between lost revenues and increased expenses could get as much as $20 billion or more.”
“I stand by that, sadly,” Murphy added.
The COVID-19 pandemic cratered tax collections and virtually every form of revenue for the state. Mass business closures and surging unemployment meant that the state saw steep drops in income tax and corporate business tax.
With New Jerseyans tightening their belts, sales tax collections plummeted. Stay-at-home orders and work-from-home mandates across New Jersey and its neighboring states meant a loss in toll collections and NJ Transit fares.
Casino closures between March and July meant their income dried up to a fraction of what it was the year before.
Reduced capacity for businesses, along with increased costs for personal protection equipment and social distancing and the looming prospects of new COVID-19 restrictions, have all paralyzed the state’s economic recovery.
Meanwhile, state and local governments have shelled out money for social services and unemployment, health care, and their collective efforts to contain the pandemic.
The cost of administering millions of vaccines over the next six months could be enormous, Murphy continued. Wolf cautioned that efforts could be limited without federal COVID-relief aid for state and local governments.
“This is a very complicated, very challenging number of months in front of us,” Murphy said.
S&P cited the financial hit the state has taken because of the COVID-19 recession, and the mass infusion of $4.3 billion in debt to make up for those losses.
“The downgrade reflects our view that New Jersey will continue to have a significant structural deficit that will be difficult to close in the coming years because of decreased revenues as a result of the COVID-19 pandemic, combined with high and increasing debt, pension, and other post-employment benefit liabilities,” David Hitchcock, a credit analyst with S&P, said in the Nov. 6 report.
The added $4.3 billion of new debt,- which Murphy and the legislature agreed to in September to avoid mass budget cuts through July 1, 2021, was particularly worrying for a state still struggling to pay down other debt, like the unfunded public retirement system liabilities, Hitchcock said.
Tax collections have not been as dire as the state initially projected, but state treasury officials warned that a wintery second wave could wipe out any gains.
And Murphy warned that although “tax receipts may be a little bit better than we thought,” there was still little reason to celebrate.
“If we don’t get the [federa] money, this is about continuing to employ the very frontline essential workers that we desperately need in our hour of need… fire, police, educators, health care workers, EMS.”