TRENTON - The state's revenue situation is "considerably bleaker" than previously thought, with revenue through June 30, 2011, expected to fall $767 million short of projections, a state official told lawmakers Tuesday.
The Christie administration offered a slightly rosier forecast, although it, too, expects revenues to come in lower than previously projected.
The administration plans to address the newly projected $325 million reduction in revenues for fiscal 2010 by moving some money around within the budget, shifting some anticipated revenues from the 2011 budget to the 2010 budget, and making additional spending cuts to leave intact a projected surplus of $501 million.
David Rosen, legislative budget and finance officer for the nonpartisan Office of Legislative Services (OLS), said the state's revenue picture was not pretty.
"I do not recall a year in which the Budget Committee had so much on its plate and where so much of it was unappetizing," he told the Senate Budget Committee.
The gross income tax accounts for $425 million of the $767 million two-year revenue shortfall projected by OLS. Still, Rosen said that OLS was also "seeing signs of an economic recovery."
Rosen said the sales tax and income taxes are starting to recover, although later in the fiscal year than previously expected. OLS is also projecting that inheritance taxes, real estate taxes, transfer fees and insurance premiums taxes will outperform administration estimates through the end of fiscal 2011.
"The overall picture when we look at revenues is, we see signs of economic recovery and that's the assumption going forward," Rosen said.
While OLS is still trying to determine why its estimates were off, one hypothesis is that analysts underestimated the impact of a three-year increase on income taxes in New York, Rosen said. New Jersey residents who work in New York receive a credit in New Jersey for taxes paid to New York, which means income tax increases in New York negatively impact New Jersey's revenues.
Rosen explained that while OLS analysts previously believed New York's tax increases would be applied only to income above certain thresholds, they have since learned the new rates apply to every dollar of taxable income, which translates into less revenue for New Jersey.
Treasurer Andrew Sidamon-Eristoff said Tuesday that "thanks to the painful but necessary actions taken earlier this spring, New Jersey is in a better position than many to manage its ongoing budget challenges and . . . now has a real chance to position itself for renewed growth going forward."
Treasury estimates that revenues through June 2011 will come in $440 million under the previous estimates.
Eristoff downplayed the differences between OLS's estimates and the administration's, saying that overall, the difference between the revised estimates amounts to less than 0.3 percent of the March estimate.
In explaining the administration's more optimistic numbers, Eristoff noted the Federal Reserve had recently improved its economic growth forecast for this year. He said the state is also seeing early signs of a local job recovery, including 10,500 new jobs in April, the largest monthly increase since 2008, and some encouraging signs of a recovery in home sales.
The administration is projecting a surplus of $305 million at the end of fiscal 2011, an amount Eristoff said he would like to see made significantly higher.
Among the areas that will lose funding in 2010 to balance the budget are the Business Employment Incentive Program, which offers grants to businesses that create jobs in New Jersey, and higher education debt service.
Gov. Christie also is proposing taking an additional $25 million from the state disability benefit fund, on top of $75 million it had previously planned to take.
Some of the administration's budget proposals, including taking money from the disability fund, would require approval from the Legislature.
Asked by Senate Budget Chairman Paul Sarlo (D., Bergen) if raiding funds was a good thing, Eristoff said, "They're a hard choice, Senator."
Sarlo and other Democrats on the budget panel said they were disappointed the administration had not given them a complete list of the legislative actions that would be needed to enact the governor's proposed budget.
"The treasurer is taking a very, very laid-back approach," Sarlo said, adding he was frustrated that, as the chairman of the budget committee, he still did not have a list of the proposals that would require legislative approval.
Sarlo said that while Republicans have repeatedly criticized Democrats over the years for taking actions such as raiding various funds to close budget gaps, they were now proposing the same types of maneuvers.
"It's happening here again, today," Sarlo said.
He added that the Legislature is committed to passing a budget by the constitutional deadline of 12:01 a.m. July 1.
"We are not prepared for any kind of government shutdown," he said.