New Jersey’s finances are holding steady at the moment, but if spending continues at this rate, the state will deplete almost all of its $6.3 billion surplus account within the next two years, budget analysts said Tuesday.
In the first hearing on Gov. Phil Murphy’s proposed $58.1 billion state budget introduced in February, the nonpartisan analysts at the state Office of Legislative Services repeatedly used the terms “uncertainty” and “volatility” to describe what could happen in the next fiscal year that begins July 1.
Not only does Murphy’s final budget plan call for spending $1.2 billion more in taxpayer funds than it is projected to take in, but revenues have a hit a plateau. Revenues have risen only 1.1% in three years, said Thomas Koenig, the office’s budget and finance officer.
Then there is the uncertainty around the anticipated cuts to the Medicaid program contemplated by Congressional Republicans to help pay for income tax cuts enacted in President Donald Trump’s first term. New Jersey could lose as much as $5 billion to $10 billion over the next decade.
“To be clear, this has been a challenging budget to craft,” state Treasurer Elizabeth Muoio told the state Senate Budget and Appropriations Committee at the Statehouse in Trenton. “As you’ve seen in the news, troubling proposed funding cuts at the federal level could have a dramatic impact on our budget here at home.”
It has a potential to be a fiscal “tsunami” for the state’s finances, Muoio added. “As the governor mentioned in his (budget) address, this could be the ‘break the glass’ scenario. We’re not sure what that might look like, which makes this budget unique.”
Senate Budget Committee Chairman Paul Sarlo, D-Bergen, said he anticipated needing to reopen the budget process after the state adopts a budget in June to assess how to manage a massive blow to Medicaid.
The $24 billion program, paid for by $14 billion in federal funds and $10 billion in state spending, serves 1.8 million people who are lower income and disabled.
The analysts estimated New Jersey will collect $55.3 billion in revenue for the current fiscal year, $456.5 million higher than the administration’s own estimates from a month ago. Oscar Mendez, Revenue and Economic Policy analyst, called this “encouraging.”
But he painted a stark picture of the state’s future finances, predicting that with current trends the state’s “reassuring” $6.3 billion surplus could be functionally dry by 2028.
“Uncertainty alone can be enough to slow growth and restrain economic activity,” Mendez said. “Consumers may become more cautious in their spending and businesses may delay expansion plans.”
“We cannot consistently rely on a roaring stock market,” he added, a nod to the recent drop in the financial markets following Trump’s tariffs on foreign products.
Muoio also shared that health insurance premiums for public employees is expected to rise by more than 20%. This has become an annual problem, especially for the portion of the State Health Benefits Plan that covers local goverment employees.
Rising health care costs plus the popularity of the weight-loss drugs and other brand name prescriptions are driving the premium increases, Muoio said.
“Those problems are getting worse as towns with healthier or younger employees leave the plan to get less costly overage elsewhere,” she said.
“Our health benefits plan is a huge disaster and I don’t ever see costs coming down at all," said Senate Majority Leader Teresa Ruiz, D-Essex. Local governments will be pressured to cut services or raise taxes to pay for the rising expense, she said.
Sen. Declan O’Scanlon, R-Monmouth, agreed, saying the program “seems to be in a death spiral. ... Why have we done nothing to fix it?”
Muoio said under law, the state Legislature and the design plan committee for the State Health Benefits Program have the sole authority to make changes. O’Scanlon responded that former Gov. Chris Christie often brought ideas to the table that were then adopted by the state Legislature.
“During the Christie years, all of the reforms came from the governor’s office,” said O’Scanlon, the ranking member on the budget committee representing Republicans, the minority party.
Sen. Michael Testa, R-Cumberland, questioned some of the Murphy administration’s spending priorities, including the Cover All Kids program that allows children of undocumented immigrant parents to receive free health care under Medicaid.
“No other state does this. Even the lowest paid public employee must contribute to their children’s insurance,” Testa said. “It doesn’t seem fair to me people are not here legally and don’t have to contribute anything.”
Muoio said the goal of Cover All Kids is “to make sure all children have a right to health coverage so their health outcomes are better.”
Testa wondered about the school districts that have lost millions in state aid under what he called a flawed state formula. One school in his district “has cut every extra-curricular activity” and may close, but if could be saved with a $2 appropriation from the state.
“I would argue children who can’t go to school and don’t have basic skills are going to have some really bad outcomes while parents are struggling to make ends meet,” he said.
Murphy’s budget proposal also relies on about $1.2 billion in new taxes on recreational sports activities like bowling and laser tag and imposes higher taxes on internet and online gambling, alcohol and gun permits. Sarlo repeatedly said he wouldn’t support many of the governor’s proposed tax hikes, particularly those on recreational sports.
“There’s not a lot of revenue generated out of these, and most if not all of them will be eliminated and offset with government efficiencies,” Sarlo said.
Muoio and the nonpartisan budget analysts will return in May to update the status of state revenues.
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Susan K. Livio may be reached at slivio@njadvancemedia.com. Follow her on Twitter @SusanKLivio.
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