Meager surplus leaves NJ budget extra vulnerable to virus shock
TRENTON — Like all states, New Jersey’s state finances will feel the effects of the novel coronavirus – and just like the disease doesn’t affect all patients to the same extent, its budget will suffer particularly because of its pre-existing condition.
The Pew Charitable Trusts says New Jersey is just one of two states to run annual deficits in their overall finances each of the last 15 years. It says New Jersey was one of the last states to finally recover from the Great Recession’s toll on tax collections and has a rainy-day fund that would last just four days.
States are counting on federal help to assist with spending for emergency response and safety-net programs like Medicaid, but that aid might not cover all of the costs. States also face drops, maybe severe ones, in tax revenue due to the disrupted economy.
But Barb Rosewicz, a state fiscal analyst for Pew, said the pandemic will cause a strain on budgets not seen since the Great Recession more than a decade ago.
“It’s too early to say what the magnitude is going to be compared to the Great Recession,” Rosewicz said. “Let’s hope that it’s shorter. The Great Recession stood out not only by how deep it was but also by how long it was. It went on for 18 months.”
New Jersey’s revenue collections peaked at the end of 2007. Two and a half years later, they had plunged more than 18%, adjusted for inflation, and it took until spring 2019 for revenues to finally exceed their pre-recession peak – 10 years after the recession ended and slower than all but five states.
Because New Jersey’s revenues didn’t recover, it hadn’t been putting any money into its ‘rainy day’ surplus until last fiscal year, when it deposited $421 million.
Across all states, Pew says, rainy-day funds are at their largest point in at least two decades. They amount to 7.7% of spending, just under 28 days’ worth of operating expenses.
“New Jersey’s rainy day fund, we calculated with the new deposit that they had made would give the state approximately four days’ worth of operating expense money,” Rosewicz said. “New Jersey is one of only five states that can run for less than a week on the savings they have set aside.
“So that means New Jersey does not have the type of cushion that many other states may have to meet whatever’s coming down the road at us,” she said.
New Jersey’s 2020 budget could also face a timing issue because income-tax and corporate-tax payments that usually arrive in mid-April are going to be delayed. A bill passed by the Legislature, although not yet signed by Gov. Phil Murphy, would extend the filing deadline to June 30, the last day of the fiscal year.
Rosewicz said Pew research covering the 15 years ending with fiscal 2018 finds New Jersey is one of nine states where revenue hasn’t met overall spending, according to yearly Comprehensive Annual Financial Reports. Of those nine, New Jersey and Illinois are the only ones with deficits every year.
“So New Jersey is going into this economic shock in a less strong place than some or all other states,” Rosewicz said. “We’ve just gone through the longest economic recovery in U.S. recorded history on these things and the situation did not improve.”
Michael Symons is State House bureau chief for New Jersey 101.5. Contact him at email@example.com.