New Jersey’s revenue streams are stagnating after years of surging growth fueled by high market returns, the experts told lawmakers Monday. (Illustration by Alex Cochran for New Jersey Monitor)
The Office of Legislative Services presented lawmakers Monday with a picture of state revenue that largely aligns with the cautiously optimistic one proffered by Gov. Phil Murphy, even as they warned the state is on a path to drain its reserves by July 2027.
Representatives of the nonpartisan office said New Jersey’s revenue streams are stagnating after years of surging growth fueled by high market returns, with tax refunds and delayed payments impacted by a stock market tumble in 2022 dragging down revenue forecasts for the upcoming budgetary year.
“To those of you who, based on my testimony in recent years, might remember me as a messenger of ever-leaping revenue collections and surpluses, I will have to give a fair warning: Cheerfulness is not usually a hallmark of presentations by budget officers, and it will not be today,” Thomas Koenig, the legislative budget and finance officer, told the Assembly Budget Committee.
While the office’s forecast of $54.1 billion in revenue for the fiscal year that begins July 1 exceeds the administration’s own estimate by just $49 million — a rounding error in a budget of that size — Koenig and others warned the state’s expenditures have not slowed to match its revenue.
Murphy has proposed the state spend $1.8 billion more than it takes in during the coming fiscal year. The structural deficit would be the second the Garden State has seen in as many years.
Spending in the state’s current budget was forecast to exceed revenue by close to $1.6 billion when Murphy signed it last June, though the state’s revenue raisers are now expected to miss their targets by roughly $500 million, expanding that deficit to roughly $2.2 billion.
Koenig cautioned lawmakers that continuing to outspend the state’s revenue would drain New Jersey’s roughly $8.1 billion surplus down to near nothing by July 2027, though he said that trend is not yet cause for alarm.
In large part, officials said, outsized tax refunds dating back to 2022, when the S&P 500 shed roughly 20% of its value after nearly two years of uninterrupted and soaring growth, have continued to impact tax collections in the present
Treasurer Liz Muoio, who presented her department’s revenue estimates later in the hearing, said gross income tax refunds had jumped 20% compared to the prior fiscal year over the first seven months of the current one, rising from $1.2 billion to $1.5 billion.
Refunds under the corporate business tax surged even higher, rising 74% from $648 million to $1.1 billion.
“Absent these refunds, we would be talking of another record-breaking year in terms of state collections,” said Oscar Mendez, an Office of Legislative Services revenue and economic policy analyst.
At the same time, officials said the fiscal aftershocks of the pandemic are finally starting to resolve and could be a thing of the past once the new fiscal year begins. Mendez said he hopes the next fiscal year is “more predictable.”
“This is the year in which, in all likelihood, we finally see some normalization after the tumultuous last few years,” Mendez said.
Health insurance premiums to rise again
Muoio warned the state could see another significant increase to premiums paid under the State Health Benefits Plan and its school equivalent, raising echoes of the steep hikes seen in 2022, when premiums for the state-sponsored plans jumped more than 20% for most workers.
Officials said a rise in emergency room visits, more frequent outpatient surgeries, and a growing number of prescriptions — new-to-market obesity drugs are partly to blame — have driven costs up for the plan, raising the possibility of a significant increase that could once more broach into the double-digits.
“We are seeing trends that are looking at increasing rates. We could see them in the double-digit area, but it’s too early to tell. We still only have partial data,” said John Megariotis, acting director of the state’s pension and benefits division.
The state has budgeted $120 million for increased health benefit costs in the coming fiscal year, a figure that assumes those costs increase by just under 3% year-over-year. Muoio said those numbers may need a second look following a mid-March report by the state’s actuary that warns of steep increases.
“I think that’s what the majority of folks are thinking,” said Assemblywoman Eliana Pintor Marin, the Assembly budget chair. “If it’s going to be double-digit, then that 3% is no good.”
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by Nikita Biryukov, New Jersey Monitor
March 25, 2024
by Nikita Biryukov, New Jersey Monitor
March 25, 2024
The Office of Legislative Services presented lawmakers Monday with a picture of state revenue that largely aligns with the cautiously optimistic one proffered by Gov. Phil Murphy, even as they warned the state is on a path to drain its reserves by July 2027.
Representatives of the nonpartisan office said New Jersey’s revenue streams are stagnating after years of surging growth fueled by high market returns, with tax refunds and delayed payments impacted by a stock market tumble in 2022 dragging down revenue forecasts for the upcoming budgetary year.
“To those of you who, based on my testimony in recent years, might remember me as a messenger of ever-leaping revenue collections and surpluses, I will have to give a fair warning: Cheerfulness is not usually a hallmark of presentations by budget officers, and it will not be today,” Thomas Koenig, the legislative budget and finance officer, told the Assembly Budget Committee.
While the office’s forecast of $54.1 billion in revenue for the fiscal year that begins July 1 exceeds the administration’s own estimate by just $49 million — a rounding error in a budget of that size — Koenig and others warned the state’s expenditures have not slowed to match its revenue.
Murphy has proposed the state spend $1.8 billion more than it takes in during the coming fiscal year. The structural deficit would be the second the Garden State has seen in as many years.
Spending in the state’s current budget was forecast to exceed revenue by close to $1.6 billion when Murphy signed it last June, though the state’s revenue raisers are now expected to miss their targets by roughly $500 million, expanding that deficit to roughly $2.2 billion.
Koenig cautioned lawmakers that continuing to outspend the state’s revenue would drain New Jersey’s roughly $8.1 billion surplus down to near nothing by July 2027, though he said that trend is not yet cause for alarm.
In large part, officials said, outsized tax refunds dating back to 2022, when the S&P 500 shed roughly 20% of its value after nearly two years of uninterrupted and soaring growth, have continued to impact tax collections in the present
Treasurer Liz Muoio, who presented her department’s revenue estimates later in the hearing, said gross income tax refunds had jumped 20% compared to the prior fiscal year over the first seven months of the current one, rising from $1.2 billion to $1.5 billion.
Refunds under the corporate business tax surged even higher, rising 74% from $648 million to $1.1 billion.
“Absent these refunds, we would be talking of another record-breaking year in terms of state collections,” said Oscar Mendez, an Office of Legislative Services revenue and economic policy analyst.
At the same time, officials said the fiscal aftershocks of the pandemic are finally starting to resolve and could be a thing of the past once the new fiscal year begins. Mendez said he hopes the next fiscal year is “more predictable.”
“This is the year in which, in all likelihood, we finally see some normalization after the tumultuous last few years,” Mendez said.
Health insurance premiums to rise again
Muoio warned the state could see another significant increase to premiums paid under the State Health Benefits Plan and its school equivalent, raising echoes of the steep hikes seen in 2022, when premiums for the state-sponsored plans jumped more than 20% for most workers.
Officials said a rise in emergency room visits, more frequent outpatient surgeries, and a growing number of prescriptions — new-to-market obesity drugs are partly to blame — have driven costs up for the plan, raising the possibility of a significant increase that could once more broach into the double-digits.
“We are seeing trends that are looking at increasing rates. We could see them in the double-digit area, but it’s too early to tell. We still only have partial data,” said John Megariotis, acting director of the state’s pension and benefits division.
The state has budgeted $120 million for increased health benefit costs in the coming fiscal year, a figure that assumes those costs increase by just under 3% year-over-year. Muoio said those numbers may need a second look following a mid-March report by the state’s actuary that warns of steep increases.
“I think that’s what the majority of folks are thinking,” said Assemblywoman Eliana Pintor Marin, the Assembly budget chair. “If it’s going to be double-digit, then that 3% is no good.”
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Nikita Biryukov is an award-winning reporter who covers state government and politics for the New Jersey Monitor, with a focus on fiscal issues and voting. He has reported from the capitol since 2018 and joined the Monitor at its launch in 2021. The Rutgers University graduate previously covered state government and politics for the New Jersey Globe. Before then he covered local government in New Brunswick as a freelancer for the Home News Tribune. You can reach him at [email protected].
New Jersey Monitor is part of States Newsroom, the nation’s largest state-focused nonprofit news organization.
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