Murphy administration officials say they need to pull back $5.3 billion in spending through Sept. 30, as lawmakers and state agencies scramble to balance a budget from which billions of dollars in revenue evaporated amid the COVID-19 pandemic and recession.
“COVID-19 has created … a global economic crisis that the world has not seen since the Great Depression,” State Treasurer Elizabeth Maher Muoio said at a press briefing on May 22. “New Jersey is not alone. States across the country are facing similar fiscal challenges that seemed inconceivable just a few short months ago.”
Here, the challenges include $1.3 billion through the end of June that has been “de-appropriated,” the state Treasury said, meaning it was scheduled to be spent for a specific purpose, but has since been put off. Through Sept. 30, another $849.7 million would be cut outright, and $3.2 billion in other payments will be delayed until at least October.
The administration’s outlook for the state’s finances in the coming 13 months is particularly bleak — New Jersey faces a $10 billion budget hole — as the government’s response to the COVID-19 outbreak halted most economic activity, cratering tax revenue.
Responses to the pandemic by Murphy and other governors nationwide have entailed placing their respective states on near-total lockdown and closing businesses.
The strategy has apparently worked, but in the process ground commerce to a halt—driving up unemployment and causing major reductions in revenue from taxes on corporations, income, sales, gas, casino and lottery tickets along with fares and tolls.
Through the end of the current budget year, which now runs to Sept. 30 instead of June 30, the state is expecting a $2.75 billion shortfall in its tax revenue.
Income tax collections would be down $910.9 million – or 5.4 percent lower than what Murphy anticipated in February 2019. Sales taxes would total $1.13 billion, or 10.9 percent lower than Murphy’s proposal, while the corporate business tax would be $451.9 million lower, or 11.6 percent.
And the 2021 fiscal year, which will now run from Oct. 1 to June 30, 2021, will be far worse, with a $7.2 billion budget shortfall.
Income taxes will likely come in 22.2 percent lower than what Murphy proposed in February, sales taxes could be down 14.2 percent and corporate business taxes off 32 percent.
That means the state budget would come in at roughly $33.9 billion, rather than the $41.2 million that Murphy proposed in February.
“Right now, we are watching revenues fall off the fiscal cliff, with no assurance of additional federal aid in sight, and uncertainties swirling around whether we’ll get legislative authorization to borrow,” Muoio said.
The $1.3 billion in de-appropriated money includes $920 million that the state treasury said in March it would freeze through June 30. That includes $135 million from the Homestead benefit program, $67 million from opioid addiction treatment, $37.9 million for the Economic Redevelopment and Growth incentive program, and $102 million in tuition aid.
State officials plan to defer billions of dollars in payments until at least October, including $950 million in pension payments, $467 million in school aid payments, $354 million in money to local towns and cities and $250 million toward special education.
S&P Global predicted such a scenario in late April; anticipating delays in pension payments to balance the budget. And Fitch — aware of the state’s monetary stressors — dropped the state’s credit rating from A to A minus.
“As long as we make our payments – and that’s what we plan to do – I think we should be okay,” Muoio said.
The $849.7 million that the Murphy administration plans to cut includes $336 million toward K-12 school aid, $132 million for cash-strapped NJ Transit and $82 million toward replacing lead pipes across the state.
Muoio said that none of the projections take into account Murphy’s proposal to borrow at least $5 billion under a Federal Reserve program to cover the state’s short-term cash needs.
“We need legislative approval to borrow,” she said. “That’s why we’ve proposed the bond act legislation.”
The projections also do not account for potential federal aid, which could arrive under another proposed COVID-19 relief package. The prospects for that measure remain uncertain.
Murphy has in recent weeks warned that the state would could see a $20 billion to $30 billion budget shortfall through the end of June 2021 if federal assistance does not pan out.
But he maintained that the $10 billion shortfall is just in revenue, and doesn’t include the “dramatic amount of expenditures on [personal protective equipment], medication, ventilators, beds.” So far, the state has spent roughly $200 million on those expenses.
“It’s a potential long-term number,” said one senior administration official. “All of these costs that we are bearing right now, all of the loss of revenue that we are bearing right now.”
“So we’re not talking about fiscal year. We’re talking over the long run.”