New Jersey residents are driving a surge in state taxes unlike anything in modern history, and budget analysts are set to unveil another historic revenue update in front of lawmakers in Trenton on Monday.
The New Jersey Office of Legislative Services will tell the Senate Budget Committee it now wants the state to collect Nearly $4 billion more than last month’s estimate For the current and upcoming fiscal year, according to an email obtained by NJ Advance Media. State Treasurer Elizabeth Muoio will then update tax and revenue estimates.
“Over the two fiscal years combined, the OLS forecast for all state revenues is approximately $3.7 billion higher than our April estimate,” OLS Division Chief David Drescher said in an e-mail to lawmakers Friday. said in the email. “This increase was mainly due to the unprecedented surge in total income tax payments in April.”
when governor Phil Murphy When unveiling his $48.9 billion budget proposal on March 8, his administration said it expected to collect nearly $5 billion more than its initial estimate last summer. This adjustment alone cemented a place in the record books.
Analysts at OLS now expect New Jersey’s revenue to be close to $51 billion by the end of June, about $8 billion more than Murphy recognized at the beginning of last year’s fiscal 7 and $12 billion above its pre-pandemic peak. .
To put this in perspective: New Jersey’s tax revenue this year will be higher than the total government spending of all European countries combined in 2020, according to a survey. GlobalEconomy.com Analysis World Bank data.
Now, the challenge of figuring out what to do with all the extra funding falls to Murphy and lawmakers, who must agree on a state budget before the new fiscal year begins on July 1. The decisions they make in the next six weeks could have financial implications far beyond next year.
Republican policymakers said they were concerned that the unexpected windfall would lead to a last-minute behind-the-scenes process beyond the normal public scrutiny process.
Declan O’Scanlon, the Republican budget officer, told NJ Advance Media: “Traditionally, if governors and treasurers make meaningful changes, they come in and say how we plan to allocate those funds. “We are completely blind to this administration at this point.”
With consumer prices rising at their fastest pace in 40 years, some believe billions of dollars have been wasted by inaction. In addition to the tax surplus, the Murphy administration is sitting on more than $3 billion in federal coronavirus relief funds that remain undistributed.
“At the same time, inflation is destroying the value of the currency,” Senate Minority Leader Steven Orojo told NJ Advance Media. “It doesn’t make sense to take money out of our residents’ pockets and let it be eaten by inflation and government inaction.”
Both O’Scanlon and Senate Budget Committee Chairman Paul Salo (D-Bergen) said the state needs to choose carefully and conservatively how to spend billions of dollars in surplus revenue, and for good reason.
In testimony last month, OLS Budget and Treasurer Thomas Koenig warned lawmakers that Murphy’s spending plan cannot be sustained by taxes in the long run because it relies on surplus revenue to balance the budget.
“A budget that relies on a $1.7 billion surplus to balance is unsustainable in the long run when the surplus is $4.6 billion,” Koenig said.
That surplus is likely to increase given the recent boost to revenue forecasts, but economists and budget experts have repeatedly warned state leaders to tread carefully when negotiating state budgets this year.
Most states across the country are experiencing double-digit revenue growth that won’t last, said Lucy Dadayan, senior fellow at the Urban-Brookings Tax Policy Center and director of the state tax and economic review program.
Over the past few years, a The vortex of short-term acceleratorsDadayan told NJ Advance Media that including unprecedented federal stimulus and soaring consumer prices “appears to have temporarily boosted state tax revenues.”
Dadayan said there are a number of headwinds that could hamper a quick recovery in the U.S. economy, and the indicators “are all worrisome and point to a recession on the horizon.”
Salo said he agreed with economists that “we need to be careful.”
“We need to make sure we don’t create or spend on projects that we can’t sustain in the long term,” he said.
Salo recently said the state should use a significant portion of the billions in excess tax revenue to boost New Jersey’s surplus to a record $6 billion or more to protect the state from a recession next year.
State leaders have a unique opportunity to significantly improve the fiscal health of New Jersey, which has been among the worst in the nation for years. Setting aside substantial emergency funding will help the state stay afloat in an economic downturn like the one in 2020.
But a long list of business groups, advocacy groups and policy experts has been calling on state leaders for months to do more to make New Jersey more affordable and help the state’s most vulnerable residents.
Republican members of the Senate Budget Committee, already expecting higher taxes than previously estimated, called on Murphy last week to expand tax breaks in his budget proposal. In a statement, they highlighted their “give back” program, which aims to return $4.5 billion to New Jersey taxpayers through direct rebates of $1,000 and $500.
“When did you collect so much money that you finally said, ‘Okay, I’ll give it back to you,'” Oscanlon said. “Furthermore, taxpayers are now being killed by inflation and skyrocketing fuel prices. Giving them some relief with their own money should be everyone’s priority.”
Meanwhile, Murphy spent a day last week promoting his budget plan to offer a property tax rebate to renters for the first time and expand the rebate to homeowners of up to $250,000.
Murphy said his administration plans to expand the program over three years, with state investment increasing to $1.5 billion a year and an average rebate of $1,150 per eligible household by 2025.
The governor said at last week’s event that he would be willing to fully fund the program sooner if revenue is strong enough. But when asked by NJ Advance Media, Murphy acknowledged that maintaining funding for the project “is one of the challenges” if the economy is in a downturn.
“You don’t want to start something, as we’ve done so often as a state for decades, and then suddenly not fund it or stop it. We’re not going to do that,” Murphy said. “I also think we have to prepare for the challenging times ahead.”
Salo said in April that the governor’s property tax relief plan is something that lawmakers should scrutinize because it would add annual charges to New Jersey’s balance sheet.
“That’s something we need to look at carefully,” Sarlo said. “We need to make sure we can sustain it.”
Monday and Wednesday’s revenue updates from the parliamentary budget committee will cap off a series of departmental budget hearings in recent weeks and mark the start of negotiations on Murphy’s spending proposal, which must be approved by the legislature before the new bill and Signed by the Governor. The fiscal year begins on July 1.
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Derek Hall reachable [email protected]. Follow him on Twitter @dereknhall.
