Public Spending, GOVERNMENT THAT WORKS
NJ Spotlight: Pension payments, maintaining a robust surplus, promised tax relief: NJ’s looming budget challenges
By John Reitmeyer
Coming off a year marked by credit-rating downgrades and major revenue losses triggered by the pandemic, managing the state budget will likely not get any easier for Gov. Phil Murphy and lawmakers this year.
For starters, the deadline for releasing a new state budget plan is the end of next month, and many of the same fiscal challenges caused by the coronavirus health crisis last year remain key concerns at the start of 2021.
There are also other, longstanding state budget issues that will also have to be addressed amid the ongoing health crisis. They include the public-employee pension system’s still large, unfunded liability and other long-term debt obligations.
But also putting pressure on the budget are major funding commitments from more recent policy decisions made by Murphy and fellow Democrats who control the state Legislature on the eve of this year’s gubernatorial and legislative elections. That includes a promise to create a costly new state tax-relief program in 2021 at the same time Murphy and the Legislature must close a large structural deficit they created in an emergency borrowing deal that bypassed voter approval.
Here’s a closer look at some of the key state budget issues for 2021.
COVID impact: New Jersey’s unemployment rate was hovering above 10% in November, more than double the rate measured in November 2019, demonstrating the pandemic’s significant economic impact. State revenue collections were off last year’s pace through the end of November 2020 by 5%, despite getting a small boost from recently enacted tax hikes, including a true millionaires tax established by Murphy and lawmakers last year.
The recent authorization of a second round of federal stimulus aid could help boost state tax collections in the near term, but it took New Jersey years to recover all of the revenue and jobs lost during the 2007-2009 Great Recession. How the current second wave of the pandemic plays out in New Jersey before the widespread availability of vaccines remains a key concern for the fiscal policymakers who will be drafting a budget for the 2022 fiscal year.
One-shot revenue: To help sustain state finances last year despite the revenue losses, the Murphy administration issued roughly $4 billion in emergency debt without voter approval in November. The borrowed money is helping to pay for things like aid to K-12 schools and tuition assistance for college and university students through the end of June. But the borrowed money is also a one-time, or one-shot, source of revenue that creates a structural gap heading into the 2022 fiscal year that will have to be offset with other revenue or major cuts.
Read the full report here.