A new analysis challenges the claim by New Jersey Gov. Phil Murphy of a $10 billion shortfall in state revenue due to the COVID-19-related economic lockdown.
Murphy told reporters at a May 22 media briefing that the state is expected to fall $10 billion short of revenue estimates from 2020 through 2021, but the NJ Spotlight analysis reveals the actual projected budget deficit is less than half of what the governor claims.
Projections from the state’s nonpartisan Office of Legislative Services (OLS) cast the 2020 shortfall as $2.3 billion, 15 percent smaller than the $2.73 billion forecast by the New Jersey Department of Treasury, which originated the claims of a $10 billion shortfall.
The difference in projections between OLS and the Treasury is much wider for fiscal year 2021, with OLS projecting a gap of only $2.7 billion compared to the Treasury’s $7.21 billion estimate. The new forecast for 2021 compares revenue projections to the new estimated revenue collected at the end of fiscal year 2020, rather than the comparison made by the Treasury to the estimated revenue collection projections made in February.
The difference stems largely from how the revenue projections are calculated, as well as how revenue has been affected by COVID-19, including the governor’s decision to drop a series of tax hikes intended to support ambitious spending plans that were canceled in the wake of COVID-19.
The variation between the two estimates could make the difference in how much lawmakers are able to secure in federal funding and loans. If the legislature continues to use the $10 billion projection boosted by optimistic pre-coronavirus spending and taxation measures, they could approve an emergency-borrowing proposal pushed by the governor that would put the state in at least $5 billion of long-term debt.
“To get up to the administration’s $10 billion combined budget shortfall estimate for the 2020 and 2021 fiscal years, the starting point for the comparison would be Treasury’s most optimistic revenue projections from February,” the analysis states. “It also assumes lawmakers would have approved the proposed supplemental spending in fiscal 2020, and the tax hikes and an additional year-over-year spending increase for fiscal year 2021.”
If legislators look instead to the more realistic projections made by OLS, the potential revenue shortfall is only $5 billion. That missed revenue would reduce the need for federal funding and place the state in a better financial position in the long term by reducing needed borrowing by half.