It has been five months since New Jersey officials issued warnings about a coronavirus-related financial calamity. The dire outlook contributed to lawmakers’ decisions to increase taxes on income over $1 million and to become one of the first states to borrow billions to cover operating costs.
But the doomsday forecast has since brightened considerably, officials said, enabling the Democratic governor, Philip D. Murphy, to unveil a $44.8 billion spending plan on Tuesday that calls for no new taxes, few cuts and tackles head-on a chronic problem — the state’s underfunded pension program — for the first time in 25 years.
“The news is less bad,” the state’s treasurer, Elizabeth Maher Muoio, said. “I wouldn’t say it’s good, but it’s less bad.”
The governor’s election-year financial blueprint relies on better-than-expected revenue from retail sales and high-earners, who have lost fewer jobs during the pandemic than low-income workers and are reaping the benefits of a prolonged Wall Street rally.
The $38 billion that New Jersey and its residents have received in federal stimulus funding, a short-term extension of a corporate tax and a $504 million windfall from the so-called millionaire’s tax also helped, Ms. Muoio said.
The release of New Jersey’s proposed 2022 fiscal year budget comes as Congress continues to debate President Biden’s $1.9 trillion virus relief package. The proposed package includes considerable funds for states and municipalities as well as grant and loan programs for small businesses.
Other states have seen similarly strong signs of an economic rebound even as cases of the virus have spiked nationwide over the last several months and the nation’s death toll surpassed 500,000 on Monday.
Earlier this month, the nonpartisan Congressional Budget Office concluded that large sectors of the economy were adapting to the pandemic better than originally expected and that December’s economic aid package had helped.
That was the message this week in New Jersey.
Mr. Murphy, who is running for re-election in November, said the spending plan was designed to not only enable the state to scrape through the pandemic, but to help it emerge stronger.
“Even as we continue to confront the pandemic’s challenges, we cannot — and we will not — sit still,” the governor said Monday in a statement. “Now is the time to put in motion a plan to spark New Jersey’s recovery and get our economy moving forward.”
A key pillar of the budget is a proposal to fully fund the state’s public sector pension obligations for the first time since 1996. If adopted, Ms. Muoio said, the allocation would eventually result in cost savings to the state.
The state has not set aside the full amount of its pension obligation for 25 years, resulting in $4 billion in extra debt, Ms. Muoio said. Under a deal brokered with the Legislature, Mr. Murphy had been on track to fully fund the state’s share by next year. But the spending plan released on Tuesday accelerates that commitment.
Under the plan, the state’s surplus, which proved to be a vital resource during the first wave of the pandemic, would not grow, state officials said, but would remain at about the same level it was at the end of 2020.
“I think we all know right now what a rainy day looks like,” Ms. Muoio said.
In November, the state borrowed $4.29 billion to cover its operating costs, a move that Republicans unsuccessfully tried to block, citing the burden it would place on future generations of taxpayers. The state is not expected to begin paying interest on that debt during the fiscal year covered by the proposed budget, administration officials said.
James W. Hughes, the former dean of the Edward J. Bloustein School of Planning and Public Policy of Rutgers University, said the state’s decision to turn to borrowing made sense at the time.
“It’s so overused, but whatever the term is — unprecedented, uncharted waters — five, six months ago that was truly the case,” Mr. Hughes said.
“In the summer we still weren’t sure the scale of layoffs that could have occurred if we followed a conventional recession,” he added.
During the peak of the pandemic, when most businesses were shuttered in an effort to slow the spread of the virus, 831,000 residents lost jobs. That was twice the number of jobs gained over the last 10 years, Mr. Hughes noted.
“If that’s not terrifying, I don’t know what type of metric is terrifying,” he said.
Since then, the state has recovered about 58 percent of those jobs, but an estimated 350,000 residents remain out of work.
Leonard Lance, a former Republican congressman and state lawmaker who filed a 2004 lawsuit that challenged the state’s ability to borrow to fund operating costs, said New Jersey should consider repaying the $4 billion it borrowed in November.
“It has now been proven that we did not need to borrow more than $4 billion,” said Mr. Lance. “If they’re not going to repay it, why not?”
The post How New Jersey Averted a Pandemic Financial Calamity appeared first on New York Times.
