Budget plan that became a washoutRevenue up, but costs from hurricane could contribute to shortfall
The first half of fiscal 2013 hasn't exactly gone as expected.
State revenue is trailing the lofty projections included in the annual budget — and that was before Hurricane Sandy washed ashore in October, burying conventional wisdom in a wave of uncertainty.
"This is the first time we've ever experienced this, so there's no way we can model or predict based on previous storms," said David Brogan, senior vice president at the New Jersey Business and Industry Association.
The budget Christie signed June 30 relied on a 7.2 percent increase in state revenue, with Democrats saying they'd consider a midyear income tax cut if that target were met.
So far, the results have been disappointing — at least compared to Christie's projections. Through October, revenue was up 3.4 percent compared to the previous fiscal year, or $263.8 million behind the budget plan.
David Rousseau, budget and tax analyst at New Jersey Policy Perspective, said if you add that number to the $250 million gap left at the end of the fiscal 2012 budget, the state has nearly eaten through the $650 million surplus built into the budget.
Rousseau said the state's balanced budget requirement often forces midyear adjustments by governors, which typically are timed with governors' February budget addresses — but Rosseau said New Jersey might need a cash infusion sooner than that.
"By February, when the governor does his budget message for 2014, he's got to true up 2013," said Rousseau, who was treasurer under Gov. Jon S. Corzine. "The question becomes, will he have to do something earlier than that?"
The answer to that question could depend a lot on Sandy. In its initial tally of storm-related expenses, the administration totaled lost revenue at $90 million, Rousseau said.
Joseph Seneca, an economist at the Bloustein School of Public Policy at Rutgers University, said sales tax revenues likely took a big hit when the storm brought economic activity in much of the state to a halt for days.
"It's a significant blow to the state that will show up in sales tax and may show up in income tax revenues, because people were out of work," he said.
As the recovery takes hold, Seneca said the state could see a bump in taxes due to new car sales, home repairs and other services.
"The net effect is probably going to be a boost to tax revenue — but that lies ahead and the immediate impacts are probably on balance negative," Seneca said.
Seneca said the state could see revenues increase in the first and second quarters of next year due to rebuilding-related expenditures, and that rebuilding bump may extend into the next fiscal year, as well.
The storm could also potentially affect one bright spot thus far this fiscal year — income tax revenue.
"As I read it, income tax revenues have been pretty solid, but again, that's going into the hurricane," Seneca said. "You have effects from (the hurricane) on employment and income and then this unknown effect of anticipating the fiscal cliff."
Even if the Sandy rebuilding process proves an economic boon in the long term, it's not yet clear what effect it will have on the prospects for an income tax cut in the current fiscal year.
Michael Egenton, senior vice president for government relations at the New Jersey State Chamber of Commerce, said he's still holding out hope that a tax cut could materialize.
"We've been supportive of the income tax cut, and we remain hopeful and optimistic that there still may be something that develops," he said. "Because certainly businesses can use it, and the economy is still sputtering along."
Brogan, at NJBIA, said his group is hoping the murky revenue picture doesn't derail implementation of hard-fought victories like the reduction in minimum filing fees for S corporations and the phase out of the Transitional Energy Facilities Assessment, which could save companies 3 percent to 4 percent on their energy bills.
"What's here today can be gone tomorrow," Brogan said. "What we don't want to happen is any backtracking."
Egenton said the rebuilding process will be a long one, with many questions and proposals. He said decisions going forward need to be made with one eye on the bottom line.
"The best way to move forward is listen to the suggestions or recommendations and weigh them as to what's more important, what's critical to get the state up and running," he said. "And then, of course, everything needs to be in the context of what we can afford."
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