New Jersey state government had overtaxed and overspent itself into a deep hole before Gov. Phil Murphy took office at the start of 2018. It already had $48 billion in debt and the nation’s biggest shortfall — $152 billion — in funding the pension and benefits promises politicians made to public employee unions.
But instead of seeking to improve state government finances, the former Wall Street executive raised taxes more and used the money to increase spending further — an additional $2.6 billion his first two years.
Ratings agency Standard & Poors warned that although the strengthening national economy and stock markets had eased the state’s financial pain, “another recession could deliver a damaging blow.”
Well, two years later that damaging blow is hitting. A recession caused by the pandemic and the throttling of the economy in response to it started in February. It is likely to be as severe as the financial collapse of 2007-09, giving New Jersey a weak economy with high unemployment for the rest of Murphy’s term and beyond.
State government felt the stress immediately. The administration has proposed an emergency $7.7 billion three-month budget to hold it over until October. That’s a far lower rate of spending than the record $41 billion budget Murphy previously proposed, but mainly because it moves big chunks of spending into the next quarter. That will make the nine-month budget for the rest of the year more difficult.
Revenue is projected to fall $5 billion this fiscal year, and state Treasurer Elizabeth Muoio recently warned that the pandemic could cost the government an additional billion in revenue. That far exceeds the $4 billion drop from the severe recession a decade ago, which left state government’s finances dire when then-Gov. Jon Corzine, another veteran of Goldman Sachs, sided with public unions (including the one led by his girlfriend) instead of the legislative consensus on reducing spending.
This time, so far, Murphy is seeking money from the federal government and from future taxpayers. Last month he went to the Oval Office to ask President Trump for $20 billion to $30 billion. Now he is asking the Legislature for expanded borrowing ability, which some lawmakers say would violate limits in the state Constitution.
As the state with the second greatest burden from COVID-19, behind only New York, New Jersey inevitably faced extraordinary fiscal and economic challenges. It could have strengthened the ability of government and the state economy to handle such challenges, but instead chose to weaken its position.
An example of responsibility is close at hand. The state Casino Reinvestment Development Authority last summer rejected spending $10.4 million to provide splendid large offices for the Atlantic City School District. “Tax revenue is subject to fluctuation and economic cycles,” said board member and Atlantic County chief of staff Howard Kyle, so “you have got to plan for the bad times.” CRDA Chairman Bob Mulcahy said, “I understand the motivation and worthiness (of the plan), but CRDA does not have a lot of money left.”