OLS budget chief: drop in sales tax revenue ‘extraordinary’

TRENTON – The state faces anywhere from an $8 to $11 billion structural budget deficit for the next fiscal year, largely as a casualty of a brutal economy, Legislative Budget and Finance Officer David Rosen told the Senate Budget and Appropriations Committee today.

Meanwhile, the current year’s deficit is about $2.2 billion (before taking into account the Corzine administration’s $1 billion in measures to reduce it).  That includes about $180 million more than previously discussed because of increased Medicaid costs.

Most of those numbers, which have been aired before, were not a surprise.  But the meeting was significant because, as the first of the new session, it gave its Democratic and Republican members – and its new chair, Paul Sarlo (D-Wood-ridge) – a chance to set the tone for the impending budget process. 

Committee members of both parties emphasized the need to work together to fix the state in a better fiscal condition, but early disagreements arose as to what factors further aggravated the current problems

What’s clear, according to Rosen, is that 2009 was the worst year in modern budget revenue history.  Not only did income tax decline, which happens in deep recessions, but so did the sales tax.  It dropped by 6% on top of a 9% drop last year, a development Rosen said was “extraordinary.”

“It’s very similar to what our colleagues are seeing elsewhere.  This is not a New Jersey phenomenon.  It’s a nationwide phenomenon,” he said.

The one bright spot, Rosen said, was that the month of December appeared to be the first time sales tax revenues improved in 21 months – but it’s still 10% down from where it was two years ago.

“Hopefully this is the beginning of a more positive trend,” he said.

Sarlo, for his part, started off his questioning of Rosen by noting that the legislature last year managed to resolve an $8 billion structural deficit, which Rosen acknowledged was the same order of magnitude as this year’s.

“So hopefully, without a lot of drama, we all can work together and solve this $8 billion problem… the same way we solved it about a year ago,” said Sarlo. 

State Sen. Anthony Bucco (R-Boonton) disagreed, arguing that delaying paying into the pension fund, cutting vouchers and using federal stimulus dollars (some of which will not be available for next year) is not a solution. 

“I find it difficult to say it’s solved. I find it’s pushed off – continued to be pushed off,” he said

Rosen said that bridging the deficit will be “more difficult” than it was last June partly because Christie is letting a high-end income tax sunset, meaning about $1.1 billion less in revenues than last year.

State Sen. Kevin O’Toole (R-Cedar Grove) took exception to the language that it makes it “more difficult,” but Rosen clarified that he meant it only in practical terms.

“I wasn’t making a recommendation. I was imagining myself sitting in the Office of Management and Budget and figuring out what options could lay on the table in the office of the governor,” he said.

The meeting came the day after the release of a report by the Center on Wealth and Philanthropy at Boston College that concluded that New Jersey had lost $70 billion in wealth because high income people chose to move elsewhere.

Senate Majority Leader Barbara Buono (D-Metuchen) sought to preempt Republicans’ attempts to tie the report in with budget revenue shortfalls by noting that, while fewer wealthier people moved into the state during that time period than in the previous four years, fewer wealthy people left than in the previous four years.

“There’s not necessarily a correlation with revenue?” she asked Rosen.

“I think focusing on migration in or out is probably focusing on a wrong question,” Rosen said.  “… I guess it would be better to have more than 1% moving in than 1% moving out, but what drives our revenue collection is what happens to the other 99% — those who are still here.”

OLS budget chief: drop in sales tax revenue ‘extraordinary’