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3-28-12 In the News - State Budget FY2012-2013
Philadelphia Inquirer - NJ budget officer challenges Christie on revenues

NJ Spotlight - Newly Defiant Democrats Slam Governor’s Budget…Nonpartisan OLS analysis projects $537 million less revenue than Christie’s treasurer…”With Christie seemingly auditioning for a spot on the Republican ticket for vice president, and with his reelection bid just 19 months off, yesterday’s Senate Budget Committee hearing focused more on the political implications of the governor's fiscal policies than it did on the treasurer’s revenue forecasts...”

Philadelphia Inquirer - NJ budget officer challenges Christie on revenues


The Associated Press

TRENTON, N.J. - The research arm of the New Jersey Legislature estimates that the Christie administration will take in a half-billion dollars less than it has projected over the next 15 months.

If the Office of Legislative Services' more conservative revenue estimate proves accurate, it could affect the increases Gov. Chris Christie has budgeted in aid to college students and a tax credit for the working poor.

OLS and the Treasury Department reported separately to the Senate Budget Committee on Tuesday, presenting their annual revenue projections before the Legislature begins its consideration of Christie's $32.1 billion budget for the fiscal year that starts July 1. A balanced budget must be approved by the Legislature and signed into law by the governor before the start of the fiscal year.

Legislative budget officer David Rosen said he anticipates robust economic growth in New Jersey in the year ahead , after two years of steep declines , but his economic forecast isn't quite as enthusiastic as the 7.3 percent growth on which Christie based his fiscal year 2013 budget. Rosen's estimate of the amount of taxes and fees New Jersey will take in is about 1 percent less than the administration's projection.

Christie dismissed the OLS forecast when asked about the estimate after an event Tuesday in Atlantic City.

"There are two things OLS has proven in this area: One is being wrong, and two is following whatever the agenda is of the majority of the Legislature," Christie said. "Last year when the Legislature wanted to spend more, they said I said we didn't have enough money. They turned out to be wrong about that. Now this year when I want to cut taxes, they say we don't have enough money."

The biggest difference between the two revenue estimates is in the amount of gross income tax that will be collected. OLS believes the amount will be $157 million less than the administration's projection this fiscal year and $308 million less next year.

Treasurer Andrew Eristoff, who was questioned by the Democratic-led panel for about three hours, said the state's gross income tax collections will rise more than those of other states as the economic recovery gains strength because of the unique way in which the tax is structured.

Overall, Eristoff said the governor's budget proposal reflects an economically stronger state than the past two budgets.

"Although we are by no means `out of the woods,' the governor's budget proposal for fiscal year 2013 reflects the fact that, together, we have begun to stabilize our finances," Eristoff said.

Christie's budget would restore more than $200 million in aid to public schools, increase grants to poor college students and put more than $1 billion into the public worker pension system.

However, Sen. Paul Sarlo, a Bergen County Democrat who chairs the budget panel, said New Jerseyans are still living with the results of Christie's first two budgets , layoffs of police and firefighters forced by cuts in municipal aid, less aid to schools, and less for the poor.

"The funding in this budget does help," said Sarlo, "but it doesn't make up for the harm that's already been done."

Sarlo became irate when questioning Eristoff about the administration's use of non-recurring revenue, derisively called one-shots, to balance the budget. It's not considered sound budgeting practice to build a budget based on revenue sources that cannot be counted on year after year.

Christie's proposed budget would divert $200 million from a clean energy fund and $200 million from an affordable housing fund into the general fund. In all, $1.6 billion, or about 5 percent of the budget, is made up of so-called one-shots.

"This governor made it clear that the days of one-shot gimmicks are over," Sarlo said. "Why today am I sitting here two years later looking at $1.6 billion in one-shots?"

Eristoff said the administration had cut the percentage of one-shots significantly , to 4 percent of the current budget and 5 percent in the proposed budget , while Christie's predecessor, Democratic Gov. Jon Corzine, relied on non-recurring revenues to fund 13 percent of his final budget.

The Democrats led by Sarlo summed up their concerns with the governor's proposal this way: Is proposed spending relying too heavily on one-shots? And, are the administration's revenue projections too rosy?

There are also differences between the parties over how best to provide tax relief to New Jerseyans starting with next year's budget. Christie has proposed a 10 percent income tax cut, phased in over three years. Senate President Steve Sweeney, a Democrat, has proposed a 10 percent tax credit , through state income tax returns , to homeowners who earn up to $250,000. The credit, also phased in over three years, would be on a maximum of $10,000 in property taxes paid. The only way to get the credit is through income tax returns, but it's based on how much people pay in property taxes.


NJ Spotlight - Newly Defiant Democrats Slam Governor’s BudgetNonpartisan OLS analysis projects $537 million less revenue than Christie’s treasurer…”With Christie seemingly auditioning for a spot on the Republican ticket for vice president, and with his reelection bid just 19 months off, yesterday’s Senate Budget Committee hearing focused more on the political implications of the governor's fiscal policies than it did on the treasurer’s revenue forecasts.”

It looks like Senate President Stephen Sweeney (D-Gloucester) meant it when he vowed that the Democratic-controlled legislature would stand up to the nation’s most popular Republican governor.

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Four days after Democrats on the Senate Judiciary Committee took the unprecedented step of rejecting one of Christie’s state Supreme Court nominees, Senate Budget Committee Chairman Paul Sarlo (D-Bergen) and his colleagues sharply questioned Treasurer Andrew Sidamon-Eristoff not only on revenue projections, but also on net property tax increases, school and municipal aid cuts, one-shot revenues, the size of the surplus, and who would benefit from Christie’s proposed income tax cut.

The unusually contentious three-hour hearing followed a morning session in which David Rosen, budget director for the nonpartisan Office of Legislative Services, predicted that lagging income tax revenues would leave the state with a $144.9 million hole in the current budget and that the administration’s optimistic projection of 7.3 percent revenue growth in the upcoming fiscal year would come up $392 million short.

As to Christie’s repeated public assertion that he and Sweeney can easily find room for compromise on their rival tax cut proposals because “we’re both talking about cutting income taxes,” Sweeney was dismissive.

“My proposal is clearly tied to the property tax -- to giving average New Jerseyans a credit based on their property tax bills -- not to the income tax,” Sweeney said.

“Christie says he wants an income tax cut because when he goes to Chicago and Massachusetts and Wyoming, they all understand what a 10 percent income tax cut is, and that ties into his national agenda," Sweeney added. "But in New Jersey, the problem is property taxes, and his plan does nothing to solve that.”

With Christie seemingly auditioning for a spot on the Republican ticket for vice president, and with his reelection bid just 19 months off, yesterday’s Senate Budget Committee hearing focused more on the political implications of the governor's fiscal policies than it did on the treasurer’s revenue forecasts.

Sarlo laid out the Democratic case against Christie’s record both for a national and a New Jersey audience by pointing out that the governor’s budget proposal “would spend $32.1 billion, the second-largest budget in state history. It assumes a growth in state revenue of 7.3 percent. This is both the most optimistic assumption in the country and a rate more than 50 percent higher than the rates that our neighboring states are using as the base of their budgets.”

Sarlo noted that “the governor proposed this nearly record-breaking spending level only weeks after he once again proudly told a national audience that he had cut $13 billion in spending when he came into office back in 2010.”

But “it is obvious that you can’t claim you cut $13 billion and increase spending by almost 13 percent over two years,” Sarlo insisted, pointing out that state spending rose from $28.5 billion in Christie’s first budget in FY2011 to $32.1 billion in his proposed budget for Fiscal Year 2013.

Sidamon-Eristoff steadfastly defended Christie’s $13 billion spending cut figure.

“If we had attempted to fund all of the commitments we inherited," he said, "we would have had to spend much more than we originally ended up spending. Those commitments were hard-wired into the state budget before this administration took office.”

The treasurer added that Christie should not be criticized for a budget that increased partly because he paid $1.1 billion into the pension system after years of governors failing to make the actuarily required payments.

Sidamon-Eristoff, who cut his political teeth as New York City finance commissioner under Rudy Giuliani and as commissioner of the New York State Department of Taxation and Finance under Republican Governor George Pataki, invoked New York’s new Democratic governor in defending Christie’s proposal for a 10 percent across-the-board income tax cut.

“As New York Governor Cuomo said last October before reducing his state’s top rate below New Jersey’s top rate: ‘The competitiveness of this state is hurt when you’re one of the highest-taxed states in the nation, and businesses and people are more mobile than ever,’” Sidamon-Eristoff noted. “We agree with Governor Cuomo: Rates do matter, especially if, like New Jersey, you have the most progressive tax structure and the highest marginal rates in your region.”He contended that Cuomo’s phased-in cut in New York’s top marginal rate from 8.97 percent to 8.80 percent makes it imperative for New Jersey’s Democratic-controlled legislature to go along with Christie’s plan to cut New Jersey’s 8.97 percent top rate to 8.07 percent, and to provide the same 10 percent income tax cut to all New Jersey taxpayers.

Sarlo, however, countered that “those earning $250,000 or less pay more in property taxes than income taxes. Only the richest 10 percent pay more in income taxes than in property taxes.” Christie’s plan, he noted, “would provide an average tax cut of $218 per year to [the 95 percent of New Jersey] families earning under $250,000,” while the top 5 percent “would get an average cut of $4,632 and the top 0.6 percent will save an average of $22,577.”

Sweeney’s alternative proposal would provide a phased-in 10 percent property tax credit on income taxes of up to $1,000 for taxpayers making up to $250,000 by providing a 10 percent tax credit on up to $10,000 in property taxes.

A competing Assembly Democratic plan championed by Assembly Majority Leader Lou Greenwald (D-Camden), would provide a 20 percent property tax credit up to $2,000 by adding a “millionaire’s tax “ surcharge that would hike New Jersey’s top income tax rate to 10.75 percent for the 16,000 New Jerseyans who make over $1 million.

Sidamon-Eristoff warned that such a proposal would be counterproductive because “it would take 34 taxpayers at 100,000 to make up revenue of one million dollar filer if that person chooses to leave New Jersey. It’s all about the competitiveness.”

The treasurer and his chief economist, Charles Steindel, did not back off their projection that income tax revenue would grow by 6.3 percent in Fiscal Year 2013 -- the equivalent of 8.4 percent in income tax growth without subtracting $183.3 million for the first phase of Christie’s proposed income tax cut.

“We believe we are in an economic expansion that follows the contours of Fiscal Year 2006 and 2007, which saw income tax increase by 10 percent or more in each of those two fiscal years,” Steindel said.

Sidamon-Eristoff added that New Jersey’s highly progressive income tax structure -- under which the top 1 percent of taxpayers pay 38 percent of the income tax -- provides “a faster acceleration of income tax growth” when Wall Street is booming, Further, said that New Jersey also gets more income tax growth because its tax is based on gross income, rather than on a percentage of adjusted federal income tax payments, which provide higher deductions for taxpayers.

Rosen, the OLS budget director, agreed that New Jersey income tax revenues will rise rapidly, but his nonpartisan team of analysts was not as bullish as Christie’s Treasury Department. In fact, $464 million of the total $537 net forecasting difference between OLS and Treasury is due to lower OLS expectations for income tax projections.

Overall, Rosen noted, “our forecast is an optimistic one. The principal driver is the national economy. If it rebounds, we will. If it doesn’t, we won’t. If it happens, our [progressive income] tax structure gives us an extra boost."

But Rosen stressed, "our employment isn’t back up, and our corporate profits are still considerably below their peak.”

Rosen said in an interview that the $464 million difference in income tax projections between OLS and Treasury reflects a difference in opinion on how much money will be collected from the wealthiest taxpayers -- those who pay their taxes in estimated quarterly filings, rather than primarily through weekly withholding, which is easier for analysts to track.

“Because of our highly progressive rate structure in New Jersey, when higher-income taxpayers do better, we do better,” he explained during the hearing. “States with higher volatility like New Jersey and California see higher rates of growth, particularly in income tax, if there is a stock market-driven recovery.”

While Sidamon-Eristoff is banking on an wealthy taxpayers to bring New Jersey’s lagging income tax collections up to the $11.132 billion level he projected when they make their payments in April, Rosen expects income tax revenues to continue to be flat and to come in $157 million lower than the Treasury Department anticipated when the governor certified the final revenue projections last June.

“What troubles us this spring is that the fourth quarter estimated payments due by January 15th took a real dip this year -- down 8 or 9 percent compared to last year,” Rosen said.

“This is troubling because it suggests what will happen in April. The three other quarters were more positive. We’ve talked to our colleagues in similar states and they saw similar patterns; it’s not a New Jersey thing, it’s national," Rosen asserted.

"My hunch is it’s because of what happened to the stock market last summer. When it dropped 20 percent, liability calculations went down” for high-income taxpayers. The only tax revenue that is more difficult to predict than the income tax is the corporation business tax, and while OLS is projecting a 7.6 percent growth rate that mirrors the state average over the past two decades, the Christie administration expects 10.9 percent growth -- which would represent a $76 million difference in revenue.

Another major area of disagreement is in casino tax revenue, which has been declining steadily for the past decade due to increasing competition, first from Mohegan Sun in Connecticut, and then from racinos in Delaware, Pennsylvania, and New York.

The Christie administration is projecting a 16 percent revenue increase from $40 million based principally on the opening of the new Revel casino in Atlantic City next week, while OLS is projecting a more modest 7.9 percent revenue of $20 million.

“Of all our forecast numbers, that’s the one I’m most worried about,” Rosen said.

Rosen also noted that the budget is balanced through an increased use of “one-shot” nonrecurring revenues, including a $200 million increased transfer from the Clean Energy Fund, a $200 million transfer from the Affordable Housing and Neighborhood Preservation fund, $75 million from the Mortgage Services Settlement Fund, $45 million from the Unclaimed Personal Property Trust Fund, and -- most important -- $288 million taken out of the current year’s $588 million surplus.

Asked by Sarlo whether the $537 million difference in revenue projections between Treasury and OLS is significant, Rosen replied, “It’s certainly a significant number in a budget with just a $300 million surplus.”

Mark J. Magyar is an editor-at-large for NJ Spotlight.


Garden State Coalition of Schools
160 W. State Street, Trenton New Jersey 08608