N.J. Among States With Lagging Revenues Following April Tax Collections

New Jersey’s revenues are expected to fall between $840 million and $1.1 billion short of anticipated levels across the current and upcoming fiscal years, according to estimates presented to state lawmakers there Wednesday.

The lowered figures come as states around the U.S. have seen mixed performances in their revenue collections this spring—the season when most Americans pay their income taxes. Turbulence in the stock market over the last year and a slump in the oil and gas sector are among the reasons experts have said revenues are weaker in some places. In the backdrop: a national economy that has been stubbornly slow-growing since the Great Recession.

As they shared revised estimates with the state Assembly’s Budget Committee on Wednesday, an Office of Legislative Services official and the state’s acting treasurer, Ford Scudder, attributed New Jersey’s dampened revenue outlook largely to lower than expected income tax collections.

Scudder presented a slightly rosier set of numbers, with revenues revised downward by $603 million in fiscal year 2016, which ends June 30. Income taxes accounted for $350 million of that drop. For the upcoming budget cycle, the treasurer’s office lowered its overall revenue estimate by $241 million, while chopping the amount of projected income tax collections by $443 million.

Compared to figures in the budget plan Gov. Chris Christie’s office released in February, the new Office of Legislative Services projections tamped down revenues by $486 million for this fiscal year, and by $621 million in the next one.

Christie’s budget proposal for fiscal year 2017 calls for $34.8 billion in appropriations.

The National Association of State Budget Officers pointed out earlier this week in a blog post on its website that the spring tax season can bring both good and bad surprises when it comes to state revenue collections, and that this year has dished out some of both.

“April is always a bit of mix,” John Hicks, NASBO’s executive director, said by phone Wednesday. But referring to the current fiscal year, he added: “It’s more muted than fiscal '15.”

According to a copy of his testimony to the Budget Committee, Frank Haines, budget and finance officer for the Office of Legislative Services, noted that, aside from the state’s gross income tax, most other New Jersey revenues have been close to meeting their marks.

He went on to stress that the revised forecast does not suggest a significant change in the state’s economy and that New Jersey was still on track to see modest economic growth.

Scudder echoed that view. “I want to emphasize that revenues in New Jersey continue to grow,” he said, according to a copy of his prepared testimony. “However, the growth is less than previously projected.”

California, Massachusetts, Mississippi, Montana, Vermont and West Virginia are some of the other states where revenue collections fell shy of projections in recent weeks.

In California, the Department of Finance has revised projected fiscal year 2017 revenues downward by $1.9 billion, amid assumptions of softening economic growth, according to a report Standard & Poor’s issued Monday. Most of that reduction, the report said, is tied to lower capital gains—the profit a person realizes when they sell assets like property and investments.

Louisiana officials declined to adjust revenue estimates there last week, but did lower them earlier this year. The state is contending with a roughly $600 million budget gap in the upcoming fiscal year.

Although Louisiana’s budget troubles are multi-faceted, the state’s oil and gas sector, hit hard by low prices, is a factor. Moody’s Investors Service noted in a report this week that, between fiscal years 2010 and 2014, oil and gas royalties and taxes made up about 16 percent of Louisiana’s direct general fund revenue, excluding money dedicated to specific purposes. In 2016 that figure was down to around 8 percent.

There are other states where revenues showed positive trends in April. In Arkansas, for instance, they were 6 percent higher than expected. New Hampshire took in revenues in line with expectations. And, in North Carolina, they surpassed earlier estimates.

Scudder, the acting New Jersey treasurer, argued Wednesday that the Garden State’s tax structure has been detrimental when it comes to economic activity and the budgeting process.

“I will repeat this as often as I possibly can: our progressive tax code makes us far too reliant upon extraordinary sources of income from our highest income earners,” his testimony said.

Specific examples of this that he offered included taxes on capital gains and bonuses.

Tax codes viewed as progressive tend to rely more heavily on revenue streams such as income taxes—especially when those taxes are directed toward top earners.

A tax structure like this can help states avoid placing higher taxes on things like sales, which can hit people proportionally harder the less money they make. But it can also be prone to volatility, with revenues swinging up and down with changes in the business cycle.

To help offset lower revenue estimates in 2017, Scudder outlined a number of measures Christie would like to undertake.

These include cutting $25 million in state appropriations from a program that assists people who are uninsured or underinsured with paying for hospital care. The idea here is that more people in New Jersey have signed up for health insurance in recent years.

Another proposal from the governor is to up the tax rate on lottery winnings over $10,000 to 8.97 percent from 3 percent. A third plan he backs would involve slowing the implementation schedule for a program to convert certain business grants into tax credits.