TRENTON -- New Jersey budget analysts are predicting the state will collect $436 million less in taxes than projected in Gov. Chris Christie's budget for this fiscal year and next, and warned Wednesday that the administration has built additional revenue risks into its spending plan for the upcoming fiscal year that could worsen the prognosis.
The projected shortfalls cut across two years, including $223 million for the 2017 fiscal year ending in June and $213 million for the 2018 fiscal year beginning in July.
The state treasurer, however, offered a conflicting forecast that projects his department's more optimistic revenue estimates to hold up.
Even if the nonpartisan Office of Legislative Services' projected budget hole is right, the state will be just 0.6 percent off its targets for the $34.6 billion and $35.5 billion budgets.
The administration would be tasked with plugging that hole before the close of the fiscal year June 30.
"While from a forecasting perspective, such a relatively small percentage shortfall might be acceptable, for those with the responsibility of crafting a budget, particularly a budget that assumes only a modest surplus, the differences are meaningful," Catherine Brennan, revenue section chief for OLS, told the Assembly Budget Committee on Wednesday.
Mid-year shortfalls have bedeviled New Jersey's budget for years, even as Christie's administration has adopted more modest projections. With a heavy reliance on high-income earners through its progressive tax structure, budget experts warn, the state's gross income tax can be unpredictable. And the corporation business taxes are considered even more difficult to nail down.
The top 100 tax filers pay 5.5 percent of New Jersey's income tax revenues, Treasurer Ford Scudder said.
"This reality -- with such a small segment of the population driving (gross income tax) revenues and so much of the revenue collected so late in the fiscal year -- creates heightened volatility in tax receipts, severely increasing the complexity of the annual budgeting process," he said.
Both the treasurer and OLS will update their projections again after the all-important spring tax collections are finalized. That could bring good news in the form of increased gross income tax collections following a strong 2016 finish in the financial markets.
But the nonpartisan OLS warned that higher income taxpayers may defer taking their capital gains from 2016 to 2017 to take advantage of possible federal tax reform.
Brennan said that as a result, the office is predicting "strong, but not spectacular growth in April.
Scudder, who addressed the committee in a separate hearing Wednesday, disagreed, saying the strong stock market performance should be reflected in reported unearned income this year.
In addition, Scudder said savings from a state crackdown on fraudulent tax returns should bolster gross income tax collections.
The income tax is responsible for two-thirds of the discrepancy between the OLS and treasury revenue estimates.
Frank Haines, budget and finance officer for OLS, focused on such "risks" in the governor's proposed budget as the proceeds of public broadcasting spectrum, legal settlements and savings from employee health care changes.
The proposed spending plan includes $325 million in revenue from the sale of state assets, including public broadcast television spectrum for use as wireless broadband as part of a national auction. The administration has not said how much money it expects to receive from the sale.
If the state sold off all four of its stations at maximum profits, it would see $2.3 billion. But Scudder said that kind of take is unrealistic and creates outsized expectations.
An OLS report said it's unclear whether the state will receive those proceeds in time.
For the second year, Christie has also relied on a request that public employees accept changes to their health benefits to balance his budget. The upcoming budget requires $100 million in savings from out-of-network reforms.
As in previous years, the state's small surplus leaves little room for error. The treasurer's office expects to end this year with $491 million in its cash reserve account, which it will boost by just $2 million by the end of next year. That's just 1.4 percent of appropriations, compared with a national median of 5 percent, according to OLS.
"The executive's projected 1.4 percent surplus is low by both historical and national standards," OLS reported.