Treasurer Muoio Testifies Before Senate Budget Committee on Proposed FY2024 Budget
Treasurer Muoio Testifies Before Senate Budget Committee on Proposed FY2024 Budget
Budget Calls for Record Surplus and Third Full Pension Payment in as Many Years
(TRENTON) – State Treasurer Elizabeth Maher Muoio testified before the Senate Budget & Appropriations Committee at the State House today, providing a detailed update on revenue projections for the remainder of Fiscal Year 2023 through Fiscal Year 2024 as revenues have begun to stabilize after three years of heavy growth.
Treasurer Muoio outlined Gov. Phil Murphy’s continued efforts to make New Jersey more affordable while continuing strategic investments in the state’s economic foundation, including a third full pension payment in as many years, a record surplus of $10 billion, and $10.75 billion in school funding. The budget continues the successful ANCHOR tax credit program for another year, providing substantial tax relief to lower and middle income families.
The following is a copy of her full testimony as prepared for delivery:
SENATE BUDGET COMMITTEE HEARING
State Treasurer Elizabeth Maher Muoio
Testimony as Prepared for Delivery
March 30, 2023
Good Morning Chairman Sarlo, Senate President Scutari, and distinguished members of the committee.
Thank you for the opportunity to come before you today to discuss Governor Murphy’s proposed budget for Fiscal Year 2024 (FY2024).
Before I start I would like to introduce my colleagues seated with me today – Deputy Treasurer Aaron Binder, Acting Director of the Office of Management and Budget (OMB) Lynn Azarchi, Deputy Director of OMB Tariq Shabazz, and Martin Poethke, the Director of our Office of Revenue and Economic Analysis (OREA).
I’d like to personally thank each of them, along with my front office, and the staffs of OMB, OREA, and a number of our other divisions, who have worked tirelessly throughout this process to help put this budget together. Their professionalism and dedication is unmatched and quite frankly, it shows in this budget.
After the roller-coaster ride we have lived through over the past three years, I imagine we would all welcome a return to stability. The economic shockwaves we felt three years ago, at the start of the COVID-19 pandemic, and the sharp recession that followed, were largely offset by a rapid and strong economic recovery. By the middle of 2022, New Jersey had gained back all the jobs lost in the spring of 2020. Indeed, today we have recovered about 109 percent of those pandemic employment losses. Our 3.5 percent unemployment rate has dropped back to pre-pandemic levels and puts us well ahead of surrounding states. The State’s GDP and personal income are growing at rates equal to or higher than, NY, CT, and PA and our tax revenues have soared.
This positive economic news has helped enable us to make decisions and important investments that continue to put the State on a fiscally responsible path, and, as you will hear from my cabinet colleagues over the next several weeks of budget hearings, it has enabled us to fund the critical programs and services that will help position New Jersey residents, communities, and businesses for future success.
There is much to be proud of in this budget proposal. From a fiscal perspective, the budget, again, includes full funding for the pension system which means for the first time in more than a quarter of a century, the State will have made the full pension payment three years in a row. With the FY2024 payment, the Murphy Administration will be responsible for nearly 73 percent of the pension contributions since FY1995. In the past three years, the Governor has included more than $20 billion to fully fund the pension system, including a record $7.086 billion in the budget we’re reviewing today. Those payments would not have been possible without the solid record of fiscal stewardship consistently demonstrated by Governor Murphy, working closely with the Legislature.
This budget proposes to significantly increase school funding and reaches step six of seven in the S-2 school funding formula that was created in partnership between the Governor and Legislature, providing a record amount of direct aid for our schools. The $10.75 billion proposed in this budget represents a $2.6 billion increase since FY2018 – more than 30 percent – in K-12 funding.
This budget proposes a second year of full funding for the extremely successful and impactful ANCHOR property tax relief program. Over 1.75 million renters and homeowners participated in year one of the program and in fact many taxpayers received their ANCHOR benefit earlier this week. The Governor’s proposed budget provides $2 billion to fully fund year two of this program and we are hoping to build off the year one success and reach even more eligible homeowners and renters next year. ANCHOR delivers much needed property tax relief back into the pockets of our homeowners and renters at levels not seen in over a decade.
While making these important investments, the State has also continued to prepare for an uncertain economy and an uncertain revenue picture, with a record $10 billion surplus. For those who question this level of surplus, I’d point out that according to data from the most recent report from the National Association of State Budget Officers, the national average for state surpluses is 24.7 percent of spending, while the median is 26.9 percent. The proposed $10 billion surplus would put New Jersey at 18.9 percent. Wall Street has clearly noticed and credited our level of preparedness as a major factor behind the three credit rating upgrades we received during 2022. Now is the time to plan for the future and this administration is proud to present a budget which puts us in a position to withstand potential economic shocks.
As we have all witnessed, the State has benefitted from unprecedented revenue growth over the past several years. Between the pandemic low point in FY2020 and the end of FY2022, State revenues jumped $14.7 billion — a remarkable 38.7 percent increase — in just two years. Our revised FY2023 revenue forecast of $54.1 billion reflects solid year-to-date collections during the first half of the fiscal year and a slowdown for the remainder of the year. For FY2024 we are forecasting revenue stabilizing at $53.8 billion.
The following graph shows the State’s pandemic revenue roller coaster ride, our revised number for FY2023 and our forecast for FY2024.
I would like to now turn to some of the details underlying these revenue forecasts, starting with our update of the FY2023 forecast.
FY2023 revenue growth exceeded expectations during the first half of the fiscal year, as the revenue slowdown we had anticipated held off for about six months. Our $54.1 billion revised forecast is $3.7 billion above the level certified in the Appropriations Act last June. We have increased the forecasts for the largest major revenues plus some non-tax revenue sources, including:
- The Gross Income Tax (GIT) estimate of $20.4 billion is up by $426.5 million.
- The Sales Tax estimate of $13.1 billion is up by $578.9 million.
- The Corporation Business Tax (CBT) estimate of $5.8 billion is up by $544.5 million.
- The Pass-Through Business Alternative Income Tax (PTBAIT) estimate of $4.0 billion is up by $562.0 million.
These increases reflect steady strength in the economy – jobs growth, wage and salary increases, and consumer spending have continued. But there are economic uncertainties looming in the coming months as higher U.S. interest rates continue to affect the housing market, consumer behavior, and the banking industry. We have seen revenue growth slow this winter and are expecting a weaker spring tax filing season compared to last year.
Specifically for the Gross Income Tax, the State’s largest tax revenue, collections are up 3.9 percent through the end of February, driven by growth in wage withholding and final payment extensions related to Tax Year 2021. This exceeded our expectations and precipitated the improved FY2023 forecast. However, we expect overall GIT collections will decline this spring and offset the growth seen up until now. The stock markets were down significantly in Tax Year 2022 and we expect higher-income taxpayers to reduce their April 1040 payments from the record levels of last year.
The Sales Tax, the State’s second largest revenue, is up 6.1 percent through the end of February. While consumer spending has slowed from the double-digit growth rates seen last year, Sales Tax growth has kept pace with regional CPI inflation over the last seven months. And while consumer spending continued at higher levels longer into the winter months than anticipated, we see Sales Tax growth slowing further this spring and summer as the economy slows, the benefits from the large federal pandemic stimulus wane, and consumers continue to shift a portion of their spending away from taxable goods and towards the pre-pandemic levels of non-taxable services.
Corporation Business Tax collections are down slightly so far this fiscal year. As the US corporate profit picture has stabilized, so have State CBT collections, and we believe this stability will continue through the remainder of FY2023.
PTBAIT payments also appear to have stabilized in FY2023 and we now expect collections of about $4.0 billion, similar to last year. As you know, PTBAIT allows members of pass-through entities to elect to pay taxes at the entity level, rather than at the personal level, so those taxes may be deductible for federal tax purposes. PTBAIT has been successful in generating significant federal tax savings for New Jersey taxpayers.
A number of other revenues have largely met our expectations so far in FY2023. Motor Fuels and Petroleum revenues, Insurance Premiums Tax, and Realty Transfer Taxes are roughly on target, with only minor adjustments. In particular, as anticipated, the housing market has declined during much of the past year in the face of rising interest rates. This is likely to continue for the remainder of the fiscal year.
Turning now to FY2024, the following table shows the broad overview of the FY2024 revenue forecast and how it relates to the overall budget proposal. Total forecasted revenues of $53.8 billion are down by $226.2 million from FY2023, a small decline of 0.4 percent. We expect the weakness in collections affecting the end of FY2023 to continue into the next fiscal year, accompanied by the initial impact of the expiring CBT surtax.
FY2024 Proposed Budget
There are two important points I would like to make related to this budget table. First, as I mentioned earlier, the ending surplus is projected to grow from $9.5 billion at the end of FY2023 to over $10.0 billion at the end of FY2024. Second, the FY2024 budget proposal has a structural surplus — $53.8 billion in revenues exceed the $53.1 billion in proposed appropriations.
Underlying these positive budget conditions, key points for the FY2024 revenue forecast include:
- The GIT estimate of $20.9 billion includes growth of $472.6 million, or 2.3%, from FY2023. This growth comes primarily from wage withholding, while the proposed expansion of the Child Tax Credit from $500 to $1,000 per eligible child is included in our GIT forecast, reducing the total by about $120 million.
- The Sales Tax estimate of $13.2 billion shows growth of $143.9 million, or 1.1 percent. This is consistent with economic projections for retail sales, and is less than the rate of CPI inflation. Households are assumed to have dipped into their excess savings built up during the pandemic, and consumers will continue to shift away from pandemic-driven durable goods purchases back toward more spending on services, which are less frequently subject to the Sales Tax.
- The CBT estimate of $5.3 billion is a decline of $421.2 million, or 7.3 percent. This decline is due primarily to the initial impact of the expiring CBT surtax, which will reduce quarterly estimated payments starting in April and June of 2024. The estimated reduction is $322.5 million in FY 2024.
- The PTBAIT estimate of $4.1 billion is a small increase of $89.0 million, or 2.2 percent. The payment patterns for this revenue appear to be stabilizing at the FY2022 and FY2023 levels.
As I finish outlining the revenue forecast, let me reiterate that the proposed FY2024 budget contains no new taxes or fees. In fact, the proposal includes a continued waiver of certain fees for teacher certifications, state park access, and public defender clients as well as continuing the back to school sales tax holiday for another year.
The proposed FY2024 budget is constructed on three pillars that have been at the forefront of Governor Murphy’s economic plan since his first year in office: Affordability, Responsibility, and Opportunity.
This budget addresses affordability through significant tax relief, through an $832 million increase in direct k-12 school aid and through critical investments in pre-school and higher education funding.
This budget promotes responsibility by increasing the surplus, depositing an additional $2.35 billion in the debt defeasance and avoidance fund, and making another record-setting full pension payment of over $7 billion. We are anticipating another rise in public worker health care costs based on increased utilization and other factors, and have proposed an increase of $280.5 million, or a 7.4 percent increase over FY2023. We are continually monitoring the cost of the plans and its impact at both the state and local levels. In an effort to help offset rising health care costs, this budget allocates $200 million to local employers, to be aligned with long-term savings reforms.
And this budget expands opportunity and promotes economic growth by creating the Urban Investment Fund to aid in the revitalization of urban areas, creating a Boardwalk Fund to help restore seaside attractions at the Jersey Shore, providing new resources to help promote the green economy, and building upon last year’s investment in the Affordable Housing Production Fund. The results of the actions taken by this administration are far reaching and have been recognized. As I mentioned earlier, the credit ratings agencies have taken notice. In just the past year, we have received a rating increase from each of the three major rating agencies and all have listed our outlook as positive.
In its note raising our outlook to positive, S&P said, and I quote, “New Jersey’s finances have shown a remarkable turnaround.”
In its September note raising our credit rating, Fitch noted “…the strong fiscal momentum of recent years and consistent policy actions to confront (New Jersey’s) long-term fiscal and liability challenges reflect a notable improvement in budget management.” The agency cited the State’s efforts to prioritize building a sizable fiscal cushion amid robust revenue collections in recent years, while simultaneously addressing debt and pension liabilities.
Our improved financial position and responsible management have allowed us the flexibility to continue our push to make New Jersey more affordable for all. Over the first two years of his second term, Governor Murphy, working closely with this Legislature, will have delivered more than $6 billion in direct tax relief, including fully funding the ANCHOR tax relief program, one of the largest relief programs ever instituted in the state.
As I mentioned earlier, over 800,000 applicants received their ANCHOR payment this week by direct deposit. Over the next several weeks, we will continue sending out payments and we expect all eligible applicants to receive their payment by the end of April.
The incredible success of the ANCHOR program in year one is in part a direct result of the massive outreach effort undertaken by our team here in Treasury and also thanks to many of you. While the Homestead Rebate program we inherited provided a modest benefit to some New Jersey homeowners, it did not provide relief to renters. Through the extensive outreach efforts to help get the word out and raise awareness particularly among renters about this program, over 500,000 renters ended up applying. Our team conducted outreach events in the evenings and on the weekends, and partnered with many of you to hold events in your districts. Our dedicated team in Treasury went above and beyond, which included keeping our doors open and answering calls up until midnight on February 28. And in the end, over 1.75 million New Jersey homeowners and renters will benefit from this program.
As you know, the FY2024 budget proposes again funding the successful ANCHOR program and our goal is to reach even more taxpayers next year.
In addition to the ANCHOR tax relief, this budget calls for a doubling of the child tax credit, from a maximum benefit of $500 to $1,000, which will provide meaningful relief for lower and middle income families with children.
This budget provides significant relief to eligible seniors and disabled residents, many of whom have struggled for years with fixed incomes and a rising cost of living, by significantly expanding the Senior Freeze, Pharmaceutical Assistance to the Aged and Disabled (PAAD), and Senior Gold programs so that more of our older and disabled residents will see relief in the coming years.
This budget proposes an additional $2.35 billion deposit in the Debt Defeasance and Prevention Fund, which would bring the total investment in this fund to over $11 billion. This fund has helped the administration defease billions in existing, high interest debt and make key investments in projects that would have otherwise required additional debt to complete. Like the Governor’s other initiatives, reducing the State’s bonded debt ensures that we leave an affordable New Jersey for the next generation.
When Governor Murphy took office a little more than five years ago, the expectation for the State budget included very little surplus, making a fraction of the required pension payment, and providing almost no new direct property tax relief. Expectations have changed and over these past five years, this Administration, working with our partners in the Legislature, has made significant progress in righting our fiscal ship.
We all recognize that there are bound to be challenges ahead. However, with the budget proposal we are here to discuss today, the Governor has put us on the path to a new future in New Jersey. One that ensures that any New Jerseyan who wants to make a home here, own a business here, or raise a family here can afford to do so.
I look forward to taking your questions.