New Jersey’s credit has been downgraded a record eleven times and according to Bloomberg is the “worst funded state system in the nation.” Could this budget make matters worse? Business Correspondent Rhonda Schaffler and NJ Spotlight‘s John Reitmeyer were also at the capitol to crunch the numbers.
Schaffler: John, it is a bigger budget and that is because there are increased revenues from taxes. Is it fiscally responsible?
Reitmeyer: Well, I think the idea that there’s more spending is backed up with higher taxes, so we don’t have the scenario that we’ve had in the past where there’s been spending increases and either flat taxes or spending cuts, so in that sense, it lines up well. We’ll have to see whether the Legislature ends up giving the governor these tax increases and then whether these projections hold, so that’s a whole other question. So at least in the foundation, there are higher taxes to support the higher spending.
Schaffler: And if there is neither a millionaire’s tax approved nor an increase in the state’s sales tax approved, what happens to the budget then?
Reitmeyer: We go back to square one almost, because the governor for all of these increases, say, education, NJ Transit, a lot of this increased tax revenue is already sort of spent in his budget. So if he doesn’t get those revenue-increasing bills by the Legislature, they’re either going to have to find a different source of revenue to meet those spending increases or they’re going to have to not make those spending commitments that the governor really pushed for today.
Schaffler: What struck you when you looked at some of the line items in terms of spending?
Reitmeyer: I think education is a big one. I think that’s kind of a twofer, because the idea is that if a dollar goes to education at the K-12 level from the state, that means it doesn’t have to be raised from local property taxpayers. So that’s boosting funding for education, also providing a little cushion for taxpayers. One thing that might be overlooked, but in all of the talk about the federal tax changes that just went into effect, the deduction for property taxes paid to your local government will go from $10,000 to $15,000. It’s not a huge line item in the budget, but for a lot of people who just felt the pain of a cap on their deduction at the federal level, now they get a little bigger one on the state level. I think that’s noteworthy as well.
Schaffler: Could this budget possibly change New Jersey’s credit rating? We heard from the treasurer, there had been a meeting with the credit rating agencies.
Reitmeyer: I think that’s a really good question because again, you have these tax increases sustaining the higher spending. You do have more alignment between revenues coming in and the expenditures. And then you also have a lower reliance on one-shot gimmicks, which is something that’s not going to happen over time but is only happening once, and there is a reduction in that as well. So I don’t know if New Jersey is going to get a credit upgrade because of this because we still have a huge unfunded liability on the public employee pension system, but maybe an outlook change, maybe some improvement in the state’s credit outlook.