N.J. economy continues to lag behind nation's

TRENTON - After once scorning the Legislature's top budget analyst as the "Dr. Kevorkian of the numbers," Gov. Christie is now projecting revenue growth that closely tracks with the nonpartisan aide's estimates.

Budget analyst David Rosen's projections of New Jersey's growth have proved more accurate than Christie's, and Wall Street ratings agencies say the Republican governor's overly optimistic numbers have increased pressure on the budget and weakened New Jersey's credit.

On Monday, Rosen told lawmakers that Christie's projections for fiscal year 2015 and the next one, which begins July 1, were in line with Office of Legislative Services figures - more so than any other administration's in 21 years.

For the two-year period, OLS estimates that the state will collect $16.1 million more than the administration projects, a difference of just 0.02 percent, Rosen said.

"Without the distraction of whose numbers to believe, we have the opportunity to look at important budget trends and issues," Rosen told the Assembly Budget Committee.

New Jersey's economic recovery continues to lag the nation's, as the sales tax is the only major revenue source that has returned to its prerecession peak, Rosen said.

Christie, who is considering a run for president in 2016, in February proposed a $33.8 billion budget for the next fiscal year, which assumes revenue growth of 3.8 percent.

State revenue has grown an average of 2.4 percent since fiscal year 2010, Rosen said. "We're clearly underperforming" the nation, he said. The industries that used to drive economic growth in New Jersey, such as telecommunications and pharmaceuticals, have slowed.

New Jersey's tepid revenue growth has strained the budget. For example, income tax collections fell short of Christie's projections last April, resulting in a two-year shortfall of nearly $3 billion.

To balance the budget, as required by the state constitution, Christie in June slashed payments to the pension system for public employees.

New Jersey's 1 percent budget surplus would cover only three days of expenditures and ranks 47th among the 50 states, Rosen said, pointing to a Pew Charitable Trusts report.

"When revenues do not match expectations, we are forced to make significant midyear spending cuts," he said.

Christie's treasurer, Andrew Sidamon-Eristoff, told the budget committee later Monday that the state remained on target to reach its revenue projections for the current fiscal year. Sidamon-Eristoff said the state had reduced its expectations slightly from the $32.5 billion budget the governor signed in June.

Recent credit downgrades to New Jersey's debt have had a "negligible" impact on the budget, he said. "I think we've done better than our ratings would suggest."

Christie's budget for fiscal year 2016 was "built around the governor's core objective" of making a sustainable contribution to the pension system without "imposing unacceptable impacts" on state services and programs, Sidamon-Eristoff said.

The governor wants to overhaul the pension and health benefits systems for public workers.

Christie proposed a $1.3 billion pension payment, which Rosen said was about $1.8 billion short of what was required by law.

Public-sector unions are suing to seek a full payment. A state judge ruled in February that Christie's $1.6 billion cut to the pension system for the current fiscal year violated the law and ordered him to work with the Legislature to find more revenue. The governor is appealing the decision.

Adding $1.6 billion to the pension system this late in the fiscal year would be "incredibly disruptive," Sidamon-Eristoff said. But he said the Treasury Department was willing to work with lawmakers to find more money.

He also addressed state funding for transportation projects, the subject of hot debate recently in Trenton.

Christie's budget calls for $1.1 billion in spending for transportation projects, to be financed through borrowing, a loan repayment, and other measures.

Democrats and groups such as the New Jersey Chamber of Commerce have been pushing for a long-term funding source, possibly by raising the state's 14.5 cent-per-gallon tax on gasoline.

But the Legislature has not reached an accord with the governor. "There is no proverbial Sword of Damocles hanging over the state's transportation capital program as of July 1," Sidamon-Eristoff said. But he acknowledged the need for a solution soon.

Republicans have said any tax increase would need to be accompanied by a reduction elsewhere, such as in the inheritance tax.

New Jersey is one of only two states that impose both an estate tax, which levies certain estates of resident decedents, and a transfer inheritance tax, which taxes some beneficiaries of asset transfers from people who die.

Rosen produced data Monday showing that fewer than 5 percent of New Jersey estates are subject to the estate tax. That proportion increases to 11 percent when accounting for the inheritance tax, he said.

On another topic of debate in Trenton, Sidamon-Eristoff said Christie's budget included $110 million from legal settlements, including a portion of the pending settlement with Exxon Mobil Corp. over pollution in North Jersey. Democrats have vowed to block the $225 million settlement, which the administration announced this month after it sought $8.9 billion at trial last year.