Governor Murphy, ECONOMIC OPPORTUNITY FOR ALL
NJ.com: Murphy’s dire predictions on how coronavirus would wreck N.J. finances far from what’s actually happened so far
By Samantha Marcus
The dire warnings began when New Jersey was most vulnerable.
Starting in March and continuing over the turbulent weeks that followed, Gov. Phil Murphy predicted the coronavirus pandemic would plunge the state into fiscal and economic peril.
New Jersey could lose $20 billion in revenue, maybe even $30 billion, the governor said. The state could run out of cash by fall. Two-hundred thousand public workers might be laid off. And, in the absence of a second federal stimulus package, funding for public schools may be slashed by $1 billion.
There was reason for New Jerseyans to be concerned. With hundreds of thousands of workers losing their jobs each week, most in-person shopping banned, and a crackdown on indoor and outdoor dining, the state’s largest sources of tax revenue were shrinking.
But nine months into the crisis, some of the governor’s alarming prophecies — forecasts that helped his administration win approval to borrow up to $9.9 billion — have proven wrong.
Even viewed in the most generous light, Murphy’s initial prediction for the state’s revenue loss was four times higher than what’s transpired to date. His administration’s cash flow projection missed the mark by billions. The number of public workers known to be laid off so far is a fraction of what the governor warned. Murphy’s threat that he could be forced to slash $1 billion in school aid? Mentioned once and seemingly never again.
“Not only did they not happen, they weren’t even close,” state Sen. Declan O’Scanlon, R-Monmouth, said of the administration’s predictions.
Forecasting the pandemic’s effect on any state’s bottom line is extremely difficult, in part because economic fallout is linked to the unpredictable spread of COVID-19, fiscal experts say.
Yet state lawmakers from both parties have been puzzled by the math behind the governor’s bleak outlook.
Some suggest Murphy threw out big numbers to get Washington’s attention and ratchet up pressure for more federal aid. Republicans on the Senate Budget and Appropriation Committee accused the governor of exaggerating the pandemic’s impact in order to borrow more money than necessary, helping bolster the state’s short-term finances in time for his 2021 re-election campaign.
Murphy’s administration contends the projections were made with the best intentions. The fiscal maneuvering really did improve New Jersey’s financial position, and success limiting COVID-19 outbreaks over the summer contributed to better than expected financial performance, officials said.
“It has been incredibly challenging to forecast in this environment because the health of the New Jersey economy, and thus tax revenues, has depended on the path of a novel coronavirus that we knew little about last March and April and that we are still learning about,” Treasurer Elizabeth Muoio said in a statement to NJ Advance Media.
Senate President Stephen Sweeney, D-Gloucester, thinks the administration was being characteristically cautious and planning for the worst-case scenario.
“You can’t plan for half a catastrophe,” Sweeney said. “If you don’t plan for the worst and the worst happens, then you’re really in trouble … the way the pandemic had hit, you could see things going south real fast.”
New Jersey isn’t out of the woods yet. Muoio said the “big question” is how badly the virus’s second wave will hurt the state’s coffers.
“The uncertainty behind what a winter surge will look like and how it may affect businesses that are already hurting has been a driving factor behind our cautious revenue forecasts throughout this crisis,” she said.
Yet even if New Jersey’s finances worsen, several of Murphy’s most high profile predictions still seem unlikely to come true, critics said.
New Jersey’s financial outlook seemed to reach peak crisis level when Murphy met with President Donald Trump at the White House on April 30.
Murphy, who had already predicted a crippling revenue loss, raised the stakes, now saying New Jersey could lose up to $30 billion over two years. Such a blow would be a knockout punch to a state with an annual budget of less than $40 billion.
“As with all of our budgetary projections, we considered everything we knew at the time, along with projections we had of the future of both the virus and our economic condition,” said Darryl Isherwood, a spokesman for Murphy.
Trenton insiders cocked their heads. The pandemic and state-mandated shutdown would blunt tax collections, no doubt. But $20-$30 billion? To some, the appraisal was stunning.
“I think they were disingenuous,” said State Sen. Steven Oroho, R-Sussex. “We did try to point that out. Unfortunately, when you’re talking about budgets, it’s hard to get across to the general public. They see $20 to $30 billion. They see $10 billion. And they got them afraid.”
When the Treasury Department painted a more detailed picture of the revenue loss in May, it had lowered its forecasts to a still-whopping $9.9 billion shortfall over two fiscal years. That included a $2.7 billion shortfall for the fiscal year that ended June 30 and a $7.2 billion shortfall for the fiscal year beginning July 1.
To offset the feared $2.7 billion shortfall in the last quarter of the fiscal year, when much of the state’s money has already gone out the door, Murphy’s administration cut some spending and dipped into surplus.
Tax revenues — sales taxes propped up by federal stimulus measures in particular, and personal income tax withholds — came in higher than expected. The worrisome $2.7 billion shortfall for the fiscal year that ended June 30 wound up being $1.4 billion.
O’Scanlon said the administration should have recalibrated and changed its tune after the stronger revenue numbers came in.
“The thing is, they continued to misrepresent revenue numbers even when we had revenue numbers that refuted what they said,” O’Scanlon said.
When Murphy introduced a revised budget proposal in August, the shortfall for the next fiscal year was now $5.6 billion. Murphy proposed resolving it with tax increases, cuts and $4 billion in borrowing.
By the time Murphy signed the budget into law at the end of September, after raising taxes, making cuts and increasing spending, he certified a nearly $4.7 billion shortfall. It would be plugged by borrowing.
In November, the administration’s latest shortfall estimate: about $4.3 billion — a nearly $3 billion improvement over Murphy’s initial projection.
While those projections proved off so far, Sweeney argued Murphy was right to prepare for the “absolute worst.”
“Here’s the other side of that: the same people that are saying it’s wrong, say he planned for half of it and then it went beyond? They’d be yelling: “You over-underestimated (revenues),’” Sweeney said.
There are also questions about how Murphy calculated the budget shortfall.
The administration did not compare how much money New Jersey would get this year to how much revenue it took in last year or the year before in figuring out the shortfall.
Instead, it used as its baseline Murphy’s pre-pandemic February budget, which predicted a booming economy and revenue from new and increased taxes that had not yet been approved by the Legislature.
“To compare what we really think is going to happen to what a wish list was back in February was completely disingenuous,” Oroho said.