New Jersey faces steep deficits in coming years, group warns

New Jersey could face staggering deficits in the next few years even if the state does not move to raise spending, according to a series of projections by the Sweeney Center for Public Policy.

Under a budget that includes no new government services, the state would face multi-billion-dollar deficits even under the most optimistic projections drafted by a budget group at the Sweeney Center, located at Rowan University. The center was founded by former state Sen. Steve Sweeney, who resigned from its board after launching his gubernatorial bid in December.

The report made forecasts using a budget that assumes the state will fully fund state school aid, continue making full pension payments, fund the StayNJ property tax relief program, and annually invest $500 million into NJ Transit starting this July. It assumes most costs will increase by 3% annually, or 5.1% for certain medical expenses.

“There are certain things that the state is committed to by constitution or by law. Medicaid is increasing, school aid is increasing,” said Richard Keevey, a former state budget director and comptroller. “We can argue about whether transit is necessary, but the numbers to me say that we’re facing significant shortfalls, and we should not exacerbate that by starting something new.”

The group’s budget report comes just two weeks before Gov. Phil Murphy is set to unveil his plan for next year’s budget during an address scheduled for Feb. 27.

Under the Sweeney group’s baseline scenario, which they said is the likeliest of their three forecasts, New Jersey would enter the 2025 fiscal year that begins July 1 with a $3.2 billion structural deficit that would expand to $4.4 billion in three years, totaling $16.5 billion in cumulative shortfalls over the next five years.

The group’s pessimistic scenario, which assumes a mild recession the state then recovers from, predicts a $4.5 billion deficit in the coming fiscal year, rising to more than $7 billion over five years and totaling $25 billion in total shortfalls.

They forecasted the state would immediately face a $1.9 billion deficit in the coming fiscal year even under the most optimistic scenario, the least probable of the three models. By fiscal year 2028, that annual shortfall would rise to $2.6 billion, meaning the state would need an additional $10.4 billion in revenue to meet only current expenses.

The costs could very well be higher. The projections assume the state will annually dispense only an additional $500 million to NJ Transit, an amount that would leave the agency short of meeting a more than $800 million fiscal cliff it faces beginning July 2026.

“The last couple of days, we’ve been talking a lot about the World Cup coming in and the potential of NJT. I think that’s probably secondary or tertiary because they seem to have a plan for that,” said Marc Pfeiffer, a senior policy fellow at the Rutgers’ Edward J. Bloustein School of Planning and Public Policy. “What we don’t have a plan for is the long-term funding of NJT.”

The group’s forecasts assume lawmakers would forgo one-shot spending added by budget resolutions. In total, budget resolutions added about $1.5 billion in spending to the current year’s budget.

The forecasts have dire implications for the StayNJ property tax relief program, which is intended to cut seniors’ property tax bills in half, to a cap of $6,500, beginning in 2026. Democrats campaigned on the program in advance of last November’s legislative races, when the party gained six seats in the Assembly.

The program’s enabling legislation stipulates it can only pay out awards if the state can maintain a surplus equal to 12% of annual spending, meet constitutional obligations on school funding, make full pension payments, and maintain two existing $250 property tax deduction programs.

The state’s surplus would fall below that level — roughly $6.5 billion for the current year and about $6.3 billion for the level of spending the working group assumed for fiscal year 2025 — in the coming fiscal year under even the most optimistic forecast.

But some of the group’s members cautioned that didn’t necessarily spell doom for StayNJ, as lawmakers could simply write the surplus requirement out of law, though doing so wouldn’t come without a cost.

“Even in the worst economic times, the worst budget times, you can still find room for new investment, but there’s going to be a cost to that investment,” said David Rousseau, a former state Treasurer, adding that cost would be spending cuts, revenue raisers, or other incentives to boost tax collections.

Assembly Speaker Craig Coughlin (D-Middlesex), the architect of StayNJ, in January said the Legislature had already demonstrated its commitment to the program when passing it in near-unanimous votes last June.

“We have shown time and again that when we make something a priority, we achieve our goals,” he said in a statement at the time.

Spokespeople for Coughlin and Senate President Nicholas Scutari (D-Union) declined to comment on the Sweeney group’s budget forecasts.

But even if lawmakers were to circumvent StayNJ’s surplus requirement through budget language or legislation, they’d still be faced with denuded reserves that could force spending cuts or tax hikes.

Former Gov. Chris Christie faced such a budget in 2014, when a $2.7 billion deficit and a scant surplus led to smaller-than-required payments into state pensions that added $2 billion to the state’s unfunded pension liability.

“You have a problem one year, you use the surplus to plug it. That’s exactly what it’s for,” said Charles Steindel, New Jersey’s former chief economist. “After you’ve done that, you have to budget to refill the surplus. It’s not sort of like a magic pot which fills itself. It’s got to be refilled.”

Budget best practices

The Sweeney budget group exists partly to pressure New Jersey officials to adopt two budgeting best practices — multi-year forecasting and consensus forecasting.

Multi-year forecasting sees states predict their revenue and expenses for a number of years, usually between two and five, to better inform budget talks and prepare for expenses and revenue dips in the near future. The Treasury produces multi-year forecasts, but they are not typically released to the public.

Consensus forecasting sees multiple groups — in New Jersey, those groups would be the Treasury and the nonpartisan Office of Legislative Services — draft their own forecasts and then reconcile the two to better prepare for revenue shocks or unforeseen costs.

Sen. Paul Sarlo (D-Bergen), Assemblywoman Aura Dunn (R-Morris), and former state Sen. Steve Oroho (R-Sussex) last session introduced a bill that would have required multi-year budgets — the measure never reached committee votes in either chamber — and made some steps toward consensus forecasting.

Dunn has reintroduced the bill in the Assembly, but it has not yet returned in the Senate. The Sweeney group said it would continue to release five-year forecasts biannually.

“We plan to do so until New Jersey joins the 38 other states who engage in consensus revenue forecasting and transparent long-term fiscal planning,” the group said in its report.

Due to an editing error, an earlier version of this story did not accurately note that Sweeney resigned as chair of the Sweeney Center for Public Policy in December.