Budget experts tell lawmakers revenue projections are up, but there’s no windfall

The state’s fiscal forecasters nudged up revenue projections for the current and coming fiscal year after receiving April tax filings, but the minor shifts reflect predictions of slow growth and broad uncertainty over the future of federal funding.

Officials with the Treasury and the nonpartisan Office of Legislative Services both projected New Jersey would bring in $57.1 billion in the fiscal year that begins July 1, up from the $56.8 billion forecast by the Treasury in early April and roughly in line with the legislative office’s prior estimates. Gov. Phil Murphy’s proposed budget calls for about $58.4 billion in spending for the next fiscal year.

Treasurer Liz Muoio told the Assembly’s budget committee Wednesday that the positives of the spring filing season outweigh the negatives.

“We will enter the new fiscal year with a solid foundation while keeping an eye on national and international economic developments,” Muoio said. “As you are all aware, we continue to face massive budgetary uncertainty at the federal level.”

Revenue projections for the current fiscal year, which ends June 30, rose by similar levels. The Treasury estimates an increase from $54.9 billion to $55.3 billion, and the Office of Legislative Services’ projections increased from $55.3 billion to $55.4 billion.

The increases are too modest to significantly ease fiscal planning in a budget year officials have repeatedly called difficult, though absent later changes to state spending, they will nominally increase state reserves projected for the end of the next fiscal year from $6.3 billion to $6.7 billion.

That level of surplus would again leave New Jersey’s reserves below 12% of spending, which could spell trouble for the nascent tax relief program called Stay NJ, which promises to halve senior citizens’ property tax bills and is set to begin issuing payments in the next fiscal year. Statutory language requires a pause to Stay NJ payments if the state’s surplus dips below 12% of spending, though lawmakers can overwrite that requirement through budget language.

The Treasury has updated costs for certain health care and other programs in Murphy’s budget proposal, nudging them up by a combined $306.8 million.

The state’s deficit — the degree to which spending outpaces revenue — remains a projected $1.2 billion for the next fiscal year.

The boost to Treasury’s current-year revenue projections was attributed largely to strong personal income tax performance in April, particularly on capital gains. Officials cited a 9.9% growth rate for the gross income tax in the current fiscal year but said its growth would moderate to 2.7% in the next.

Muoio said corporate business tax collections were down 18%, year-over-year, with 60% of that decline due to businesses writing off operating losses in line with a 2023 law changing how business income is calculated for tax purposes.

Those declines should taper off in future years, but were expected to reduce collections under the state’s corporate transit fee from $867.5 million to about $814 million in the next fiscal year. Save a 6% constitutional dedication for open space, revenue from the corporate transit fee in future fiscal years is required by law to flow to NJ Transit.

Officials predicted slow growth for New Jersey’s existing revenue sources. The Office of Legislative Services’ projections say existing revenue would increase by only 1.1% in the coming fiscal year, though tax and fee increases proposed by Murphy would bring overall growth to roughly 3.4%.

“Achieving even this modest growth depends on the continued strength of the state’s consumer spending and employment, which thus far have remained resilient. Nonetheless, it is important to recognize that downside risks remain,” said Oscar Mendez, revenue and economic policy analyst at the Office of Legislative Service.

Legislators, including top members on budget committees, have expressed resistance to the proposed tax hikes, which include an expansion of the sales tax to include services at recreational businesses, higher taxes on casinos’ gambling winnings, and larger surcharges on the sale of expensive homes, among other things.

“I want to make it clear to everybody who’s listening to this. There’s no desire from this Legislature to tax those services,” Sen. Paul Sarlo (D-Bergen), the Senate’s budget chair, said at an April hearing. “I think they were a talking point by the governor. I think the governor realizes those will be eliminated.”

Persistent uncertainty about the future of New Jersey’s federal funding amid broad, unpredictable shifts in federal policy left considerable flex in the state’s revenue projections.

New Jersey was set to receive $26.2 billion in federal funding for the next fiscal year, and it’s unclear how congressional Republicans’ proposal to cut more than $818 billion from Medicaid and other programs will affect New Jersey’s federal funds.

Thomas Koenig, the legislative budget and finance officer at the Office of Legislative Services, said things could turn out well, but he added, “We are concerned there is a larger than usual downside risk to our forecast.”