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Optimism, but restraint, ahead of budget fight

Industry confident that Christie is on their side

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Chris Christie delivers his State of the State address. His budget speech Tuesday will be critical to businesses, who say they are confident the governor has their interests at heart.
Chris Christie delivers his State of the State address. His budget speech Tuesday will be critical to businesses, who say they are confident the governor has their interests at heart. - (Aaron Houston / NJBIZ)

Gov. Chris Christie is known for keeping his cards close to the vest, but as he prepares to give his 2014 budget address, questions are swirling not just about his intentions, but also about whether he's got the fiscal flexibility to make his plans a reality.

David Brogan, first vice president at the New Jersey Business and Industry Association, said he knows the governor faces a complicated balancing act, "but we definitely want to make sure that the phase-out of certain taxes continues."

Those taxes include the phase-out of the Transitional Energy Facility Assessment, the 25 percent reduction of the minimum filing fee for S corporations and the continued phase-in of the new single sales factor tax formula.

Brogan said he's confident Christie remains committed to business, but he said it's important to remain diligent at a time of fiscal constraint.

Michael Egenton, senior vice president of the New Jersey State Chamber of Commerce, said when it comes to Christie, business owners "don't have fears and concerns like with past administrations," he said.

Still, Christie must explain away significant hurdles when he takes the podium Tuesday.

As of December, the last month for which data are available, the state was $426 million — 4 percentage points — behind the revenue targets included in the state's fiscal 2013 budget. On the plus side, December was the first month all year that monthly revenue beat expectations, in this case by $25 million.

Assemblyman Vincent Prieto (D-Secaucus) said the revenue shortfall isn't a surprise.

"We talked about the budget shortfall early on," he said.

But that's far from the only question. Take the lottery, a billion-dollar economic driver that makes up some 3 percent of the state budget. Christie wants to privatize its sales and marketing, but only one bidder submitted a proposal to take on the contract.

On top of that, Prieto said, there's the question of federal aid from Hurricane Sandy.

"This is really supposed to be outside of our budget — but is any money going to be within the budget?" he said. "We need to get these questions answered."

Even if Sandy aid isn't calculated in next year's budget, the storm is likely to impact revenues, for both good and bad.

For instance, federally funded hiring and reconstruction could boost sales and income taxes — the two largest revenue categories. As of December, gross income tax revenue is one of only three categories ahead of projections, and sales taxes are only 5.5 percentage points behind goal — making it a relative bright spot compared to, say, casino revenue, which as of December was 26.3 percentage points behind plan. The sales tax figure is for the first five months of the fiscal year, since those statistics are released one month behind the other figures, so the busy Christmas shopping season isn't counted.

Conversely, many businesses remain sidelined or diminished due to damage from Sandy, and it could be months before they're back up and running.

Deborah Smarth, chief operating officer and associate state director for the New Jersey Small Business Development Centers, said Sandy has greatly increased the workload at her agency's 11 offices.

"Since November, our offices, especially in the hardest-hit areas, have been inundated, besides doing our regular core mission activities," she said.

NJSBDC has been working with the U.S. Small Business Administration and New Jersey's Business Action Center to help out businesses affected by the storm. Smarth said that role is likely to continue in the coming months.

That work has put additional strain on the NJSBDC's already-tight budget. The centers are allotted federal SBA funding each year, but must match that money with funds from the state and private donors. Under Gov. Jon S. Corzine, the agency's annual state funding was cut from $1 million to $250,000. Both Corzine and Christie proposed budgets ending state funding for the agency, but eventually reversed course.

"I would be cautiously optimistic that at least we would be at stable state funding, given that we've taken so many cuts," she said.

Smarth said the federal stimulus package included some additional money for SBDCs, but that money ran out in December. She'd like to see the center's funding gradually restored to $1 million, but given New Jersey's fiscal constraints, it's unclear whether that's feasible.

Egenton, meanwhile, said he's not given up hope that Christie could propose new initiatives or additional funding for programs aimed at the business community. He also expects to find out more about the governor's small-business grant program during the budget address, even if the money for that program doesn't come from the state budget itself, but from federal coffers.

Another major question circling the budget has nothing to do with revenue, and everything to do with the election cycle.

"This is a political year," said Assemblyman Anthony M. Bucco (R-Randolph), a member of the Assembly Budget Committee. "I mean, you can't avoid that. The governor and the entire Legislature are up for re-election, so we'll see how the budget process goes."

Egenton echoed those concerns, saying he hoped New Jersey would continue to avoid gimmicks like the federal government's automatic "sequestration" spending cuts, which were intended to be a compromise-inducing time bomb, but instead may end up imploding the economic recovery.

"Don't even look to Washington for examples," Egenton warned Trenton lawmakers. "That's just chaos."

E-mail to: jaredk@njbiz.com
On Twitter: @jaredkaltwasser

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