3 Problems New Jersey Kicked Down The Road With Latest Budget: Study

NEW JERSEY — The cracks are already showing in New Jersey’s recently approved state budget, a watchdog group says.

Earlier this week, nonprofit think tank New Jersey Policy Perspective (NJPP) released a new report about the latest state spending plan, which Gov. Phil Murphy greenlighted in July. Read the full study here.

The bottom line? According to the NJPP, the FY 2024 budget will make it very tricky to pass a balanced budget in future years without making drastic cuts, blowing through the state’s surplus or raising new revenue – potentially through taxes or fees.

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“This year’s budget will largely be remembered for its short-sighted giveaways, while kicking long-term, structural problems down the road,” said Peter Chen, a senior policy analyst at the NJPP and lead author of the report.

“The cracks are already showing, with the state spending more than it’s taking in,” Chen said. “This is unsustainable and will lead to serious shortfalls and hard decisions in the years to come.”

Here are three red flags to consider about the latest state budget, according to the NJPP:

'DECLINING REVENUES, SHRINKING SURPLUS'

“The growing investments in the FY 2024 budget rely on a temporary boost in tax collections that is already declining, leaving the state in a structural deficit,” the NJPP said.

“The report highlights how the budget’s expenditures now surpass revenue collections by $1.5 billion, eroding the state’s historic surplus and exposing the state to future shortfalls if revenue collections continue to decline,” researchers continued.

Revenue collections in May dropped $641.8 million – or 19.6 percent from last May – according to new figures from the NJ Department of the Treasury. The state is projected to collect $1.2 billion less this fiscal year than it did in 2022, treasury officials have said.

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'COSTLY TAX CUTS AND CREDITS'

In addition to declining revenue collections, the FY 2024 budget also includes costly tax cuts and credits that will further erode the state’s revenue collections, the report claims.

“By eliminating the Corporate Business Tax surcharge, paid by the most profitable 2 percent of corporations, the state will lose $1 billion annually starting next year,” the NJPP said. “The budget also includes more than $200 million in new tax credits for profitable Hollywood studios and other industries, as well as an overhaul of the corporate tax code that makes it easier for companies to hide profits overseas.”

Pro-business groups have taken a different stance on corporate taxes in the latest budget, however.

“Our largest employers certainly deserve better than to be demonized daily for the apparent crime of earning profits against the fiscal headwinds often found in New Jersey,” the New Jersey Business and Industry Association (NJBIA) said in its own budget review.

“Rather, they should be appreciated for what they provide to our economy, our workers, our communities and our nonprofits,” the NJBIA said.

• See Related: Bitter Struggle Over New Jersey Corporate Business Tax Heats Up

The NJPP also noted that the budget includes a controversial new property tax credit program for seniors – Stay NJ – that will cost nearly $2 billion annually once fully implemented … with no dedicated funding source to pay for it.

The program initially didn’t include renters, but lawmakers eventually ended up providing some benefits for tenants in the final compromise bill.

• See Related: 'Robin Hood In Reverse': NJ Tax Cut Plan Is For The Rich, Critics Say
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'UNADDRESSED FISCAL CLIFFS'

According to the NJPP report, the FY 2024 budget relies on federal pandemic aid that will soon expire, creating “looming shortfalls” with no plans to address them.

NJ Transit has budgeted $749 million in federal relief for FY 2025 – that funding drops to zero in FY 2026, the group pointed out.

“There are a lot of important investments in public services and infrastructure that are now in jeopardy because of this budget, with NJ Transit as a prime example,” Chen said.

Meanwhile, the child care sector relies on $890 million in federal funding that will expire by September 2024, the nonprofit said.

According to the report, K-12 schools will see $1.2 billion in federal funding expire in September 2023, with an additional $2.7 billion in federal funding set to expire in September 2024.

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