Despite billions of dollars in extra cash blowing expectations for how the state budget would fare amid the COVID-19 recession, top budget lawmakers and state financial analysts are warning of a steep drop in money in the years to come.
“This is in my opinion, a two- to three-year budget cycle,” said Senate Budget Chair Paul Sarlo, D-36th District, during an April 6 budget hearing.
Sarlo continued that “It’s incumbent upon us to work with this administration… to pay down debt and… make sure that we make these investments strategically… that we plan for the next two or three fiscal years.”
On April 6, the non-partisan Office of Legislative Services said the state will close its books at the end of next year with $550 million more than predicted by state treasury officials in February, which is $3 billion more than initially projected last year.
David Drescher, who heads revenue, finance and appropriations at OLS, says this significant delta was due to the timing when OLS and the state Treasury compiled their predictions, and not as a result of the substance of their projections.
“I don’t want to get caught up over the $550 million, I don’t think in the scheme of things… I don’t think it’s a big number,” Sarlo said.
Gov. Phil Murphy proposed a record-high $44.8 billion spending plan to cover finances between July 1 and June 30, 2022.
During his February address, Murphy raised the state’s revenue forecast by more than $3 billion to the state’s June 30 closing balance.
OLS – an office in the state Legislature with no political affiliation – projected the state will close with a year-end total of $44.6 billion, up from the $44.1 billion Murphy’s office projected.
Additionally, the state is slated to have a major infusion of $6.3 billion in its surplus. That’s driven by the $4.2 billion in COVID-19 bonds, which lawmakers and the OLS argue was most likely not necessary, and an infusion of $7.9 billion under the Trump-era federal COVID-19 plan, according to Thomas Koenig, the legislative budget and finance officer for OLS.
“The borrowing reflected revenue and spending projections that were defensible at the time,” Koenig added. “But from today’s vantage point, the borrowing was not essential to balancing the FY 2201 budget.”
That’s become a target of the state’s Republicans, who unsuccessfully argued last year in the state Supreme Court that New Jersey should not be able to borrow any of those funds.
Although Murphy warned of collapsing finances for the state and deep budget cuts, the worst that could have happened would have been $165 million less in the state’s closing balance come June 30, according to Koenig.
Sarlo chalked up the stellar finances to a combination of the borrowed money and federal stimulus, coupled with “consumer pent up demand” that’s bound to continue as the state winds down from the existing COVID-19 restrictions.
State Treasurer Elizabeth Maher Muoio ascribed these conditions to cash infusions to New Jersey consumers, ramped up COVID-19 vaccine efforts, and the fact that many business closures during the wintery second wave never materialized.
But Sarlo said he was worried about the uncertainty with state revenues in the next three years, and the prospect of a lack of future federal relief, hence the need for much longer-term financial planning.
“Clearly, we have a fiscal cliff… that we are headed for in fiscal 2023, if nothing else changes,” Koenig told lawmakers.
State officials have not released any analysis on how the state’s upcoming spending plan would be affected by President Joe Biden’s $1.9 trillion American Rescue Plan, which includes $6.4 billion directly to the state government, over $4 billion to county and municipal governments, $2 billion to New Jersey Transit, and hundreds of millions to the state’s airports and public universities.
Some of the state’s largest business groups are suggesting that the state must use some of those funds to pay down upwards of billions of dollars in debt, thereby getting some of the state’s financial affairs in order while the money is still available.
“Let’s get ourselves back on a steady platform that we can move forward with,” said Ralph Albert Thomas, chief executive officer and executive director of the NJ Society of CPAs. “Let’s use it to pay down other debt that we can get rid of and get that addressed.”
That was a proposal echoed by Sarlo during the hearing. Muoio said that although the administration would certainly consider such a plan, it’s ultimately up to the guidance put out by the Biden administration.
Editor’s note: A previous version of this story indicated OLS said the state would close its books at the end of next year with $550 million more than state treasury officials predicted in October; however that prediction was made in February. The post was updated at 9:54 a.m. EST on April 7, 2021.