As Murphy’s budget hits record high, NJ should be ready for recession, lawmaker says

New Jerseyans have grown accustomed to broken promises from Trenton leaders, as tax relief initiatives and assistance programs for schools, businesses and individuals are usually the first to be cut when the state is faced with financial difficulties.

As spending hits record highs in the face of an impending economic downturn, a new bill in the state Legislature aims to bolster New Jersey’s ability to weather future economic storms and financial crises.

The state’s Senate Economic Growth Committee this week voted 5-0 to approve the measure, S-2539which would require the New Jersey Treasury Department to conduct periodic fiscal “stress tests” and compile reports on the state’s ability to maintain services under varying economic conditions.

In an interview with NJ Advance Media, State Senator Troy Singleton, the bill’s primary sponsor, said it was intended to be used as a tool to guide state leaders in making decisions. sound financial policies and “to minimize future disasters”.

“The whole concept is really about helping our state estimate potential revenue shortfalls that could result from any adverse event, such as an economic downturn,” said Singleton, D-Burlington. “Implementing preventative measures, such as stress testing, will allow our state government to be better protected in the wake of a recession.”

Budget and policy experts at Pew Charitable Trusts say stress testing is an invaluable tool to help ensure states can maintain essential government services during difficult times.

In a 2020 reportJosh Goodman, a senior officer with the Pew State’s Fiscal Health Project, said fiscal stress tests help states prepare for dramatic economic downturns “or an outbreak of disease, such as that caused by the new coronavirus”.

New Jersey leaders were ill-prepared when COVID-19 rocked the state in the spring of 2020, and the ensuing panic prompted Governor Phil Murphy to issue $3.7 billion in emergency bonds to fill a projected shortfall in tax revenue that never materialized.

Instead, the Garden State is now experiencing an unprecedented increase in tax revenue, and Trenton’s overflowing coffers pose a new dilemma. State spending has hit record highs, even as budget experts warn that New Jersey is nearing a fiscal cliff, and tax revenue is expected to be billions of dollars below what the government needs. State will need to maintain government services over the next five years.

Murphy and lawmakers have used some of the state’s new wealth to pay off a fraction of New Jersey’s substantial debt, and they’re trying to fix the state’s crumbling balance sheet with two full payments to the pension fund, the first time that it has been done in 25 years.

But Murphy’s proposed budget for the new fiscal year that begins July 1, including the recent expansion of a property tax relief program, is $50 billion, or more than 30% more than the state budget for 2019.

Goodman, in his 2020 report, said state policymakers can use stress test data to help “avoid or limit a fiscal emergency and keep long-term priorities on track.”

“In times of fiscal stress, data from these analyzes can help lawmakers and governors decide how to manage fiscal uncertainty while meeting the needs of their constituents,” Goodman said.

Singleton said he and his colleagues worked closely with Pew to craft the stress testing bill, which is also sponsored by state senators Shirley Turner, D-Mercer, and Nilsa Cruz-Perez. D- Camden. It sets out five elements to include in economic stress test analyses.

Treasury officials would be required to produce long-term and short-term revenue projections, provide a comparison between the projections and historical trends, and an analysis of expenditures likely to change under various economic conditions. The department would also need to conduct state reserve accounting and provide options to respond to and mitigate the negative impact of economic downturns.

The bill calls for these reports to be completed annually, but Singleton said that would likely be changed every three years, based on Pew’s recommendations. The measure still needs to be voted on and approved by the entire legislature before it makes its way to Murphy’s office.

Murphy would not comment on the legislation, and Singleton said he has not discussed it with the governor.

“I want this information to be publicly available and to guide heads of state so that we can make more informed decisions,” Singleton said. “I would be shocked if the administration sees this as anything other than positive.”

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Derek Room can be attached to [email protected]. Follow him on Twitter @dereknhall.

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