NJ Faces Projected $767 Million Shortfall

With income tax collections lagging, New Jersey Gov. Chris Christie’s administration proposed an additional $92 million in overall spending cuts to the current year’s budget on Tuesday as updated revenue figures became available.

Overall, income tax collections, the state’s largest revenue source, were off by roughly $300 million from earlier projections this year and are projected to fall $130 million short for the fiscal year that begins July 1.

State Treasurer Andrew Eristoff told lawmakers that the administration was able to move money around and realize savings that account for $232 million this year.

Eristoff said that compared to the administration’s forecast in March, when the governor proposed his $29.3 billion budget, sales tax revenues came in $58 million less than expected and corporate business taxes were $44 million short.

“Our latest revenue estimates reflect the fact that New Jersey continues to suffer the lingering effects of a deep national recession,” Eristoff told members of the Senate Budget and Appropriations Committee on Tuesday.

Over the next 13 months, New Jersey faces an estimated revenue shortfall of anywhere from $522 to $767 million, depending on projections. The nonpartisan Office of Legislative Services reported the larger number while Eristoff presented a slightly rosier picture.

“We don’t think the difference is material,” Eristoff told lawmakers.

Since taking office in January, Christie has made nearly $2.4 billion in adjustments to the 2010 budget, including cuts and the deferment of various payments.

For 2011, Eristoff said that the administration would use part of a $500 million reserve set aside to make up a projected $197 million gap.

Some lawmakers questioned whether using the reserve would hurt the state’s credit rating with bond agencies, but Eristoff said he hoped to find more savings as the year progressed to get the reserve back up to $500 million.

Budget committee chairman Paul Sarlo, D-Wood-Ridge, said he was pleased not to see any further proposed cuts to funding for public schools, but was troubled by the inclusion of $70 million for business employment incentives in a list of ways the administration would either make cuts or achieve saving by delaying payment.

“Are raids of these funds a good thing?” Sarlo asked.

Eristoff replied: “They are a hard choice, senator.”

Lawmakers have five weeks before they are constitutionally required to pass a 2011 budget.

Rosen said one the reason the income tax projections were so far off may have been that New York state recently created new income tax brackets for high earners; those making $300,000 to $499,000 now pay 7.85 percent and at $500,000, they pay 8.97 percent.

“Frankly we didn’t know about this particular provision of New York state tax law,” Rosen said.

That’s a problem because New Jersey residents who work in New York pay income tax there and get a credit against their New Jersey tax bill. As a result, New Jersey lost out on about $300 million more tax dollars to New York this year, Rosen said.

Eristoff, a former New York state tax commissioner under Gov. George Pataki, said New Jersey may have failed to estimate the full impact of New York’s tax code change.

One looming unknown is a lawsuit filed by Perth Amboy that other school districts may join challenging the governor’s order to freeze $475 million in school aid payments in 2010 by requiring districts to use their excess surplus instead of state aid.

Democrats asked Eristoff if he had a backup plan if the courts rule against the state. Eristoff said he did not.

“I have every reason to expect a successful resolution to the litigation,” Eristoff said.

There was some good news in the figures. Sales tax collections last month had grown by more than 8 percent from April 2009 levels, although they started to grow five to six months later than projected, according to OLS.

Sen. Jeff Van Drew, D-Cape May, asked Rosen if he thought revenues were “done dropping.”

“I think so,” Rosen said.

Meanwhile, Democrats were quick to point out that the Christie administration’s projections were off, noting that Christie has lobbed similar criticism at former Gov. Jon Corzine’s administration.

“It just goes to show this is not an exact science,” said Assemblyman Lou Greenwald, D-Voohrees, chairman of the Assembly Budget Committee. “The time for criticizing previous administrations is over. That comes back to bite you pretty quick.”

Speaking from the Meadowlands, where it was announced on Tuesday that the Super Bowl will he held there in 2014, Christie seemed confident that the budget would be signed on time and without any tax increases.

“We all know we have a problem we have to solve here together,” he said, “and I’m going to work with both parties to solve New Jersey’s problems.”

{AP/Noam Amdurski-Matzav.com Newscenter}