The Star-Ledger’s Samantha Marcus wrote an article today describing the anticipated hit to NJ’s tax collections. Thanks to a strong economy and robust stock markets, NJ’s tax revenues had been running 6% above last year, but with many taxpayers out of work and the market down, NJ’s tax revenues will take a big hit – especially because of our heavy reliance on income taxes. Senate President Steve Sweeney confirmed that he is “very worried” about NJ’s upcoming budget.
Unfortunately, NJ is in the worst condition of any state to meet this budgetary crisis.
As detailed in SPCNJ’s “Beware the Downward Spiral: The Economic Consequences of New Jersey’s Special-Interest-Dominated Status Quo,” according to Pew, NJ has the worst structural budget deficit in the country, with revenues only covering 91.3% of expenditures. Likewise, the Mercatus Center ranked NJ dead last among the states for long-term budget solvency. As a result, according to Truth In Accounting, NJ already has a debt per taxpayer of over $61,000, again the worst in the country. Finally, despite recent additions by Governor Murphy, NJ was ranked the lowest of all the states (along with Illinois) in being ready for a recession due largely to our inadequate “rainy day” funds.
But it’s a double-whammy: NJ also has the worst funded public pensions in the nation, with only 38% of the assets needed to pay off the liabilities. The Teachers Pension and Annuity Fund, the state’s largest pension fund, was only 26% funded. A Pew/Harvard study concluded that NJ (along with Kentucky) was the state “most at risk of pension system insolvency.” But the worst of it is that NJ’s pensions had the highest negative cash flow of any state at -6.6%, which means that the funds must earn 6.6% on their investments to prevent asset depletion. With stock market currently down around -30%, these funds’ assets will be substantially depleted and these funding ratios will plummet. The bond rating agencies will surely take notice.
The Coronavirus outbreak was beyond the control of anyone in NJ’s government and our leaders are working overtime to try to keep us safe. They deserve our thanks and support.
But SPCNJ and others have been trying to warn NJ citizens that our budgetary status quo is untenable and vulnerable to shocks. Now a massive shock is upon us and we are in a very poor position to handle it.
Read the full Star-Ledger article here.