A major ratings agency cast doubt over New Jersey Gov. Chris Christie’s proposed fiscal year 2014 budget this week, saying that the Republican’s forecasts are too ambitious and rely on “new and untested revenues” to balance the ledger.
Noting still-slow employment growth and lower-than-expected returns from 2013, a Standard & Poor’s report on Wednesday said the governor's reliance on increased sales tax revenue from Hurricane Sandy reconstruction and new revenue from online gaming is a risk.
While reconstruction efforts related to Sandy are likely to have positive impacts like increased onstruction employment and growth in sales and use tax revenue, “the timing and pace of recovery can be difficult to predict,” the report’s author, John Sugden, wrote. “There is also uncertainty about the Jersey Shore's summer tourism season, which will depend on the pace of reconstruction.”
The report adds that Christie’s projection that casino revenues will increase by $200 million (85 percent) thanks almost entirely to online gaming, which was legalized at the end of February and is expected to launch next fiscal year, puts too much reliance on an “untested revenue stream.” The rollout of online gambling could be delayed or could fail to bring in the projected revenues, according to Sugden.
Additionally, the report notes that the governor's 2014 fiscal year budget does not take into account the economic impact of sequestration and instead expects it to be averted. Lawmakers on March 1 allowed sequestration to take effect, which (unless later revised) will reduce federal government spending by $1.2 trillion over the next decade. In fiscal 2013 alone, the sequester is expected to shave 1.5 percentage points of national economic growth -- the equivalent of 750,000 jobs.
The Christie administration is downplaying the report. A spokesman for State Treasurer Andrew Sidamon-Eristoff, Bill Quinn, told Bloomberg News the agency's assessment is short-sighted.
In a statement, Quinn called the report “a shallow analysis that reflects a fundamental lack of understanding as to how Gov. Christie’s administration has brought New Jersey back from the brink of fiscal ruin after years of mismanagement.”
Christie’s $32.9 billion budget relies on an increase of 4 percent, or $1.27 billion, over the budget he signed last year. It’s the largest spending plan since fiscal 2009 and includes money for a Medicaid expansion (as called for under the Affordable Care Act) and the state’s largest-ever pension payment. The budget also calls for increases in education spending and sets aside $40 million in aid for towns devastated by Sandy.
In addition to casting doubt over the state’s projected returns, S&P pokes holes in the spending plan. While the $1.7 billion pension payment (approximately 5 percent of the proposed budget) is significant, it still only represents 43 percent of its annual required contribution (ARC). The full funding of the ARC would be approximately $3.9 billion, or 12 percent, of the total budget in fiscal 2014, the report said. The 6 percent boost in education spending to $12.4 billion would largely be directed to teacher pensions (72 percent of the spending increase) and debt service (14 percent). State aid to schools would increase by $97.3 million, or 1 percent, from fiscal 2013.
The 2014 proposal also includes a withdrawal of $76 million from the state’s rainy day fund, a one-time measure to balance the budget.
S&P, which placed the state on a negative outlook in September, concludes by noting that above-average income tax collections this year “coupled with a very aggressive reconstruction effort could provide some upside to the revenue forecast.” However, absent sustainable economic growth, future budgets will likely face constraints “as fixed costs continue to climb and the revenue impacts of one-time economic events fade.”