‘Financial Crisis’ Arrives as New Jersey Projects Revenue Shortfall of $10 Billion

New Jersey is facing a revenue shortfall of nearly $10 billion through the 2021 fiscal year, according to officials in the Murphy Administration.

“As I’ve said many times before, we’ve been approaching a fiscal cliff. But today we get our first glimpses over its edge, and it isn’t pretty,” said Gov. Phil Murphy on May 22. “We have two choices. We can toss our state into that abyss, or we can take measures that will allow us to slowly back away from that edge and keep our feet on solid ground.”

The declaration comes as State Treasurer Elizabeth Maher Muoio delivered a budget update to the Legislature forecasting the impact COVID-19 has had on New Jersey’s finances that included cuts and spending deferral to balance the budget for the remainder of the extended fiscal year 

Unchartered Territory

“This report is designed to serve as a road map to help New Jersey begin to navigate what is essentially unchartered territory,” said Maher Muoio.  “We are not alone. All across the country, states are facing similar challenges that seemed inconceivable just a few short months ago.”

“Managing this unprecedented fiscal crisis will require extremely difficult decisions in the weeks and months ahead, and will necessitate a combination of budget and appropriation adjustments, critically needed borrowing, and more robust federal assistance.”

The report projected gross income tax for the rest of this financial year declining 5.4% to about $910.9 million, sales tax 10.9% to $1.1 billion and corporation business tax 11.6% to $451.9 million.

Financial Crisis

The news for FY2021 is even more direr, as gross income is expected to plummet 22.2% to about $4.0 billion, sales tax 14.2% to $1.5 billion and corporation business tax 32.0% to $1.2 billion. 

State officials noted the budget shortfall does not take into account the expenditures the state needs to make in dealing with the coronavirus.

“I have been clear since March that we are facing an unprecedented public health crisis that would soon be followed by a similarly unprecedented fiscal crisis,” said Murphy. “Suffice it to say the hard choices I predicted are now at our doorstep. Since March, I’ve also made clear that to bridge this fiscal gap, we desperately need more federal financial assistance. We’ve had some, but not nearly what we’re going to need.” 

Budget Moves

In light of the revenue issue, among the measures being made is the transfer of the entire $421 million Surplus Revenue Fund  to the undesignated General Fund balance to help offset the anticipated shortfall; implementation of a statewide hiring freeze with the exception of COVID-19 related needs and deferral or elimination of planned department spending.

Additionally, to help offset the anticipated billions in lost revenue, the administration is proposing significant cuts across nearly all sectors of government. The report proposes decreasing planned spending by over $5 billion, including:

•       $1.3 billion in proposed appropriations;

•       $3.2 billion in cut or delayed first quarter appropriations; and

•       Eliminating $849.7 million in proposed spending priorities.

Budgeting Balance

“As we work toward our new Sept. 30 deadline for enacting a fiscal year 2021 budget, the challenge we face in balancing our wants and needs is going to be enormous,” said Murphy. 

The governor reiterated his call for federal assistance, an issue he frames as bipartisan and across the U.S.

“Every day it seems this becomes a more and more bipartisan endeavor, and that’s because more and more people, in both parties by the way, are seeing what this support means,” said Murphy. 

McConnell Knock

And the first-term Democratic governor again did not pass up a chance to take a shot at Senate Majority Leader Mitch McConnell (R-KY).

“But there are also just as many minds that remain closed and intractable, and one of those closed minds controls the Senate agenda,” said Murphy. “Some of the closed-mind folks call this a bailout. I’m not sure what they mean, other than they’re trying to use charged words for partisan gain.”

Murphy outlined the federal funds would go to pay key personnel, including police, fire, EMS, first responders, teachers and healthcare workers.