NJ Finances at the Cliff: Down 60% in April, $10B Gap Forecast
State revenues plunged by an unprecedented 60% in April, a $3.5 billion drop that reflects the economic impact of the business shutdowns ordered to deal with the coronavirus pandemic.
The state Treasury Department told lawmakers it projects receiving $10.1 billion less revenue between the 2020 and 2021 state budgets than it had three months ago, not accounting for any tax policy proposals like the $1 billion in tax and fee increases the administration had recommended in February.
“This report shows the fiscal cliff we are now looking over the side of,” Gov. Phil Murphy said of the monthly revenue report.
On one hand, the size of the decline was exaggerated by the delay of the April 15 tax filing deadline. Collections of year-end income and corporate business taxes may just be delayed until July. Final income tax payments were down 90%, estimated quarterly payments were down 75% and employer withholding collections were down 7% for the comparable number of weeks last year.
But on the other hand, some of the April numbers don’t reflect the full economic toll because certain taxes – including sales, gas and realty transfer – lag a month behind, meaning that April collections reflect the economic activity in March, when businesses remained open until mid-month.
“Certainly this is one month,” Murphy said. “But we know the numbers for May, which will encompass all of April, will almost certainly bear similar or worse news.”
“While we are hopeful that we will see much of the losses replaced when those numbers are reported this summer, these numbers are a sobering reminder that the COVID-19 impact is not limited to the health of our people but also to the health of our state’s finances,” he said.
Income tax collections were down 72% from April 2019 at $1 billion. The corporate tax, New Jersey’s second largest revenue source, was down 60% and has now declined in five straight months. The sales tax was down nearly 14% and is expected to be weaker in next month’s report.
Gas tax collections were around 25% less than a year ago, reflecting March activity. Realty transfer fees were down almost 8%, also reflecting March. Among the other notable April declines: Motor vehicles fees and casino taxes were each down 66%, and lottery revenues were down more than 25%.
“This makes direct assistance from the federal government all the more necessary and all the more urgent,” Murphy said.
The governor said the state “cannot sustain a collapse of revenues” without either unprecedented layoffs or gutting economic and social-service programs, unless the state borrows billions through a temporary Federal Reserve program and receives billions more in aid through Congress.
“I cannot be clearer. Unless we have partnerships with and from Washington, I fear for what the budget will look like for our state, for our businesses and most importantly, for our people,” Murphy said.
The updated preliminary revenue projections were provided to legislative leaders and staff Wednesday in advance of an afternoon meeting with Murphy, then included in a voluntary disclosure to bondholders.
The projection assumes that there will not be a resurgence of COVID-19 cases later this year, among other assumptions.
“While there are many moving parts, what is clear is that this decline would be worse than the Great Recession," said state Treasurer Elizabeth Maher Muoio. "As we’ve said before, in order to address this unprecedented fiscal crisis, it will require extremely difficult decisions in the weeks and months ahead, which will necessitate a combination of critically needed borrowing, budget and appropriation adjustments, and more robust federal assistance.”
The Treasury Department's Office of Revenue and Economic Analysis projects that revenues in the current year, fiscal 2020, will be $36.708 billion, which is $2.757 billion, 7%, lower than the updated projection made in February. Revenues for fiscal 2021 are projected at $33.815 billion, which is $7.346 billion, or 17.8%, below the last forecast.
The projection considers the 2020 and 2021 budgets to be regular 12-month fiscal years, spanning from July 1 to June 30, even though the state has extended its 2020 budget to 15 months and shortened its 2021 budget to nine months by adding July, August and September of this year into fiscal 2020. It did that to allow time to receive delayed tax payments and assess the economic impact of the shutdowns.
Each year, the Treasury Department analyzes July tax collections and assigns them to the appropriate fiscal year – either the one that just ended or the one just beginning. So even in an analysis where a fiscal year ends June 30, it is still possible to allocate tax revenues from a July 15 deadline into the prior fiscal year.
The Treasury Department has until the end of next week to deliver updated revenue forecasts for the current and upcoming fiscal years, under a law enacted last month that delayed the tax filing deadline and extended the 2020 fiscal year an additional three months through Sept. 30.
That report is also required to detail spending plans for the current budget for debt service payments, pension payments, spending on capital projects, public transportation, school aid, municipal aid, utility service subsidies, and funding for hospitals, higher education, and emergency relief impacted by the COVID-19 pandemic, as well as assess the potential impact of the economy on the 2021 budget.
Murphy has until Aug. 25 to deliver a revised budget message to the Legislature for fiscal 2021, which is now a nine-month budget year that begins Oct. 1.