The ripple effect of the new federal limit on state and local tax deductions may make it all the harder for New Jersey to balance its budget this year, according to a report by S&P Global Ratings.
Treasurer Elizabeth Muoio, like her counterparts in other wealthy, high-tax states, saw tax collections fall short of forecasts late last year, after officials had struggled to predict how much income residents would shift into 2017 before President Donald Trump’s tax overhaul took effect.
But for New Jersey, income-tax revenue was also down 4.8 percent in January -- and 6 percent so far for the fiscal year ending in June. It anticipated growth of 5.4 percent when the budget was enacted.
The ratings company warned that without mid-year budget cuts or continued strong sales-tax collections, the state risks “a cumulative deficit in its general fund” for the fiscal year.
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Governor Phil Murphy, who last year avoided a last-minute state shutdown after fellow Democrats rejected his higher sales tax and levies on millionaires, is set to make his fiscal 2020 budget address on March 5. The potential budget pain for this fiscal year, though, is an immediate matter: While the state tends to receive a wave of payments in April, S&P said it may not be enough to fill the hole left by prior months.
“The extended revenue shortfalls in the first half of the year will make catching up by the end of the year more difficult, even if currently slow revenue trends reverse,” wrote analysts David Hitchcock in New York and Timothy Little in Chicago.
Short revenue in past years, New Jersey governors resorted to skipping or reducing pension payments, making the system among the least-funded among U.S. state governments. Murphy has pledged to pay 70 percent of the actuarially-recommended contribution in the 2020 budget year, according to S&P, compared with the 60 percent budgeted for 2019.
Representatives of Murphy and Muoio didn’t immediately respond to emailed requests for comment.
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