Analysis: Christie’s Fiscal Cliff -- $3 Billion and Counting

Even robust FY14 tax growth won’t be enough to cover pensions, revenue shortfalls, overreliance on one-shots, and other fiscal needs.

It’s a problem no governor wants to face in a reelection year budget, even a governor like Chris Christie riding a post-Sandy wave of 70 percent approval ratings.

With less than a month to go before his annual Budget Address, Christie is facing a structural deficit of at least $2.5 billion that could top $3.5 billion by the June 30 end of the current budget year.

The gap is too large to cover even with record revenue growth, as NJ Spotlight shows.

For the past six months, Democratic legislative leaders have focused on the growing budget gap created by the Christie administration’s failure to meet its aggressive revenue targets -- a shortfall that stood at $548.8 million as of Jan. 1.

Fearing that the revenue shortfall would grow to $1 billion or more by the end of the year, Senate Budget Committee Chairman Paul Sarlo (D-Bergen) called upon Christie’s treasurer, Andrew Sidamon-Eristoff, to explain the shortfall and lay out a contingency plan for midyear budget cuts. Sidamon-Eristoff refused, saying the Legislature would have to wait for Christie’s February 26 Budget Address.

Treasury Department officials failed to respond to requests for interviews last week.

But the $548.8 million revenue shortfall is actually only a fraction of the looming fiscal crisis facing Christie and Sidamon-Eristoff as they seek to balance the current $31.2 billion Fiscal Year 2013 budget and craft a spending plan for Fiscal Year 2014, which begins July 1.

State revenues would have to grow $2 billion in FY14 just to cover the increased cost of the state’s pension contribution, the next stage of Christie’s business tax cut, and the various one-shot nonrecurring revenues built into this year’s budget. And even with a huge income tax surge in December, state revenues only grew $147 million in the first six months of this fiscal year compared with the same July-December period in 2011.

Christie’s combined structural deficit for the current and upcoming fiscal year falls into four categories:

  • Making Up The One-Shots: Christie’s current budget is built on $1.115 billion in nonrecurring revenues, including such controversial one shots as spending down $280 million out of an already meager surplus and commandeering $261 million in New Jersey Turnpike toll money to replace state matching funds that were shifted from the Transportation Trust Fund to plug a budget gap.

  • Fulfilling Budget Obligations: Christie has to increase funding for the pensions by $690 million under the terms of the law he signed in 2011, find $194 million for the third year of his business tax cut, and come up with an extra $110 million for built-in transportation debt service increases and the pay-as-you-go transportation capital program he has promised. That does not include any increase in the school funding formula, normal inflationary increases in government expenses, or any money to fund the immediate income tax cut he was pushing for last year.

  • Covering the Revenue Shortfall: Tax revenues came in $123 million short for the FY12 fiscal year that ended June 30 and are currently down $425.8 million through December, which was the first month since last February that revenues actually met or exceeded Christie administration projections. Income tax revenues are likely to continue strong through the spring, which means that the final revenue shortfall will probably be closer to $500 million than the to $1.2 billion to $1.5 billion that Democrats projected.

  • Managing Current-Year Budget Problems: The Christie administration has acknowledged in bond documents that as much as $200 million in anticipated savings in Medicaid and Social Security costs may not come in. In addition, the $200 million in affordable housing money the Christie administration planned to take away from municipalities is down to a contested $142 million. And the administration is awaiting high-court rulings on the legality of its elimination of the Council on Affordable Housing and the transfer of the money to the general budget.

It all adds up to a $2.5 billion to $3.5 billion structural deficit that clearly exceeds logical revenue growth projections for next year, and Democratic legislative leaders are increasingly frustrated by the Christie administration’s refusal to discuss the fiscal crisis.

“We’ve heard nothing at all,” Senate President Stephen Sweeney (D-Gloucester) said impatiently. “We’ve asked. We’ve tried to talk about it, but they say we have to wait for the budget speech.”

“They have not given us any glimpse on what they’re planning to do,” Assembly Speaker Sheila Oliver (D-Essex) added.

Sweeney made it clear, however, that two options are off the table. “Honestly, we don’t want to see any of the Sandy relief money diverted by the governor to balance the budget, when so many people and businesses need help,” he said. “And that pension payment has to be made. It is required in the legislation, and I won’t do anything to change it.”

Continue reading on NJSpotlight.com.

NJ Spotlight is an issue-driven news website that provides critical insight to New Jersey’s communities and businesses. It is non-partisan, independent, policy-centered and community-minded.

Chief Wahoo February 05, 2013 at 11:20 PM
Forget the pension Ponzi black hole. And don't take a penny of the Sandy money , like you took the foreclosure money for homeowners , that wasn't yours to take.


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