The bill would require Treasury officials to test how New Jersey’s budget would respond to economic shocks to better prepare for emergencies. (Illustration by Alex Cochran for New Jersey Monitor)
A Senate panel unanimously advanced a bill Monday that would require Treasury officials to stress test the state’s budget after the pandemic injected uncertainty into New Jersey’s tax collections.
The bill would require the Treasury to project revenue performance and economic conditions in the near– and long-termonce every three years in a publicly posted report that must also include analysis of state spending and how it’s likely to change.
“A critical lesson we must learn after facing this pandemic is to implement cautionary measures for unprecedented and unpredictable circumstances,” said bill sponsor Sen. Shirley Turner (D-Mercer). “This legislation will provide that the economic condition of the state remains well-prepared for any unforeseen crises or economic downturns.”
New Jersey faced a series of uncertain budgetary years as work and markets realigned during the pandemic. Early in the crisis, forecasters predicted revenue would tumble amid shutdown orders that appeared would strike at the state’s income, business, and sales taxes — its most major revenue sources.
Fearing the worst, Trenton Democrats moved to borrow $4 billion to plug the budget hole. Only that budget hole never materialized. Instead, revenue surged as residents received stimulus checks, vaccines were deployed, and stock markets soared.
In June 2021, Treasurer Liz Muoio described the trends as “a year-long revenue forecasting roller coaster ride of deep drops and rapid reversals,” and the good times continued until they didn’t.
The stock market tumbled at the tail end of 2022, driving the erasure of more than $2 billion in expected revenue, according to the Treasury’s May 2023 forecasts. And though officials presented lawmakers with more stable predictions this year, New Jersey’s spending outstrips its tax collections.
“Anything we do to shed more light on our budget process, more light on our spending and revenue situations, I think, is good for all taxpayers and good for you as legislators to give you more information and ammunition as you go through the process so you can best serve your constituents,” Chris Emigholz, vice president of government affairs for the New Jersey Business and Industry Association, told the Senate Economic Growth Committee.
The bill would also require Treasury officials to present methods to defray the impact of recessions in the triennial report. Those methods could include spending cuts or potential revenue raisers, and the forethought is likely to aid policymakers in times of crisis.
Sen. Shirley Turner said the state must implement “cautionary measures for unprecedented and unpredictable circumstances.” (Courtesy of New Jersey Governor’s Office)
“It’s great that they have the options in there because one of the things that occurred during COVID was the Murphy administration had to think of options on the fly,” said Mark Magyar, director of Rowan University’s Steve Sweeney Center for Public Policy.
Magyar added that after the housing crash of 2008, then-Gov. Jon Corzine “had to think about things on the fly.”
Magyar was Senate Democrats’ deputy executive director until early 2022.
The report must also include information about how the state’s major revenue sources perform in economies of varying health. This information might, for example, prevent lawmakers from raising the sales tax amid drops in consumer spending because such hikes might generate less revenue than expected or further depress consumer spending.
The bill is a step toward multi-year budgeting, a budgeting best practice observers have called on New Jersey to adopt as it faced revenue shocks over recent years. It sees officials forecast revenues and expenses out across multiple fiscal years to better understand how decisions made in the current budgetary year will affect state finances in out-years.
“If you think about it, the requirement in the NJ Transit reform legislation that they do multi-year budgeting is one of the reasons everyone was so focused in advance on addressing NJ Transit’s upcoming shortfall when the federal aid runs out,” said Magyar, whose center issues some multi-year forecasts.
Though the bill advanced with resounding support among lawmakers and those who testified, some said the stress tests should happen annually instead of once every three years.
“If we were going to take a projection from 2021 and try to see if that stress test was applicable today, I think we’d say that economic conditions have changed really substantially, so narrowing that timeframe is something that makes sense,” Peter Chen, a senior policy analyst at New Jersey Policy Perspective, which supported the bill, told the panel.
The bill has not advanced in the lower chamber.
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