New Jersey’s trailing revenue as budget season fast approaches has one of the three main Wall Street rating agencies worried about the fiscal health of the state, and whether New Jersey might finish this year in the red.
S&P Global Ratings, in a Feb. 25 analysis said the slow growth of New Jersey’s revenue – about half of what the $34.7 billion budget calls for – could mean a budget shortfall when the current fiscal year ends on June 30.
Gov. Phil Murphy is scheduled to unveil his budget address Tuesday, and in recent months has said more tax increases are still “on the table.”
Last year’s budget included roughly $1.5 billion in new taxes, something Senate President Stephen Sweeney, D-3rd District, and Assembly Speaker Craig Coughlin, D-19th District, have both vowed not to repeat come budget talks this year.
Murphy is expected to make a push for more investment into the state’s pension obligation, as well as expanded Pre-K and his “community college for all” proposal, according to S&P.
The state treasury reported earlier this month that revenue growth was at three percent, rather than the 7.5 percent lawmakers and Murphy agreed on when signing the budget last year.
Most of the growth so far, 1.7 percent, was from a one-time tax amnesty program which injected $282 million into the state budget. The 1.3 percent growth includes an increased corporate business tax and increased income tax on earners above $5 million.
Sales tax revenue targets have not been hitting their targets either, S&P analyst David Hitchcock wrote.
The treasury attributed the slow revenue growth to changes in taxpayer behavior following the federal tax cuts of 2017.
Many taxpayers rushed to file their taxes in December 2017 to take advantage of the state and local property tax deduction before the federal government capped it at $10,000, which in many cases is less than half of what many property taxpayers in New Jersey owe.
The state treasury said it should expect to see the majority of its revenue come in by April as more residents begin filing their taxes.
“While a major portion of income tax is received in April and potentially reduced refunds could make up some lost ground, the extended revenue shortfalls in the first half of the year will make catching up by the end of the year more difficult, even if currently slow revenue trends reverse,” Hitchcock wrote.
And lackluster numbers the treasury reported in January “might be harder to explain,” Hitchcock added.
New York has faced a similar situation to New Jersey, but state officials suggested those residents migrated out of the state, meaning New York has lost those revenue sources.