 Mr.
Chairman, distinguished members of the Senate Budget and Appropriations
Committee. Good morning.
As
we approach the close of another fiscal year and make final preparations
to open a new one, New Jersey remains positioned to achieve what could
not be achieved in the previous two fiscal years – a complete
year in which targeted revenues meet or exceed estimates and fully
fund budgetary needs. I come to the committee not with anemic revenues
and a long list of solutions, but with a balance sheet that charts
the success of Governor McGreevey’s fiscal and economic policies.
We
know that maintaining a balanced budget in today’s climate
requires reasoned planning, vigilant oversight, and exhaustive scrutiny.
I commend every member of this committee for the time and hard work
you have invested in the FY 2005 budget process. Together, our efforts
will soon yield the enactment of a balanced, fiscally responsible budget
that meets the challenging and diverse needs of New Jersey citizens.
New
Jersey’s bottom line revenue picture continues to closely
mirror the positive economic trends that have materialized in many
forms over the course of the last twelve to 18 months under the leadership
of Governor McGreevey.
These
indicators include a gain of 12, 900 jobs during the month of March,
marking the highest employment level since December of 2000,
and the creation of 54,200 jobs since March of 2003. New Jersey now
has 4,012,500 jobs – the highest rate since the peak of December
2000, prior to the effects of the national recession, when the State
had 4,025,300 jobs.
At
5.2 percent, New Jersey’s unemployment rate has been lower
than the national rate for 11 months in a row.
Last year, New Jersey ranked fourth in the nation in job creation
and recorded more new jobs that all northeastern states combined.
New
Jersey is also clearly an inviting place for new businesses. 2002
was a record year for new business filings. Last year, a new record
of 70,566 businesses registered to do business in New Jersey. And this
year, we are again on a record-breaking pace, with 28,292 new business
filings recorded in Treasury’s Division of Revenue through the
end of April.
There
are multiple factors behind the staying power of New Jersey’s
economic rebound.
First,
Governor McGreevey has telegraphed a clear and unmistakable message
that New Jersey is making the right investments to invite and
induce business investment. From an enhanced BEIP program, to new investments
in worker training and retraining, capital programs for our roads,
schools and ports; from new funding tools to help biotech companies
grow, to more funding for cancer treatment and stem cell research;
from increased commitments to pre-school and after-school programs,
to new investments in scholarship programs and innovation zones, “New
Jersey means business” is not just a slogan, it is an attitude.
Second, this administration has cultivated a good business and employment
environment by sending the right message about its fiscal policy.
For three straights budgets, this administration has held the line
on bureaucratic spending. For fiscal years 2003 and 2004, the budget
for department operations was down, by 2.5 percent and 1.7 percent,
respectively. For FY 2005, this spending would be down again absent
the increased staff commitment to the Division of Youth and Family
Services. Even with the $125 million increase for the child welfare
initiative, total spending on state executive departments is up just
2.5 percent.
And while the budget that Governor McGreevey proposed for FY 2005
is higher than the two sub-inflation growth budgets from FY 2003 and
04, the appropriations reflect new commitments to property tax relief
and to areas of need that have been neglected and deferred for the
last two years. The total budget also illustrates the spending pressures
brought to bear from mandatory costs in such areas as Medicaid and
nursing home care.
Our
budget’s exposure to mandatory cost risk is significant.
The budget stress from school funding requirements, homeland security
needs, health care and benefit cost increases and a growing list of
imminent or potential liabilities, is staggering. We have worked to
build New Jersey’s surplus to $400 million this year. We must
continue to build this cushion to better insulate the budget from factors
that can jolt it from its constitutional balance.
FY
2004 – Revenues
New
Jersey’s Big Three revenues – the Income, Sales and
Corporation Business taxes, ran consistently with or ahead of projections
over the course of the current fiscal year.
It
has been especially gratifying to see the Gross Income Tax maintain
consistent growth through the year, as it is the key barometer and
underpinning of New Jersey’s economy. When examining the numbers
behind the numbers of the income tax, it is clear why the growth has
been steady and strong – withholding payments have grown by 7.5
percent through the first 10 months of the fiscal year and 6 percent
alone over the last two quarters. And after opening all the envelopes
this spring from income tax collections, we are further encouraged
by the evidence of growth in capital gains income, another sign of
an economy on the move.
The Gross Income Tax is now growing at a more than a 10 percent rate,
versus the 5.9 percent pace forecast at this time last year. We expect
our total collections to reach $7.4 billion for the fiscal year, which
is $315 million higher than originally projected in the Appropriations
Act adopted last June and $205 million better than revised estimates
from this past February.
We remain cautiously optimistic about the upward trend of Sales Tax.
Sales Tax revenues have outperformed original 04 estimates by $115
million and revised estimates by $35 million. Collections have grown
sharply in each of the last three quarters, 4.5 percent, 5.3 percent
and 7.2 percent, and the trends favor continued strength. US consumer
durable goods expenditures are forecast up 4.6 percent in 2004 compared
to 3.3 percent in 2003. And, in its most recent report on New Jersey,
the Federal Reserve tracked gains in house permits and other indicators,
and forecasts positive growth over the next three quarters.
The Corporation Business Tax has been revised upward to $2.5 billion
in collections for FY 2004. The CBT performance wholly debunks the
arguments from naysayers that our reforms would trigger a mass exodus
of businesses and jobs from New Jersey. The evidence documents that
nothing could be further from the truth
Strong economic performance has yielded $24.9 billion in total revenues
for FY 2004, which is about $511 million above the target of $24.4
billon as revised in February. The increased revenues make it possible
to build the ending FY 04 surplus from $400 million to $800 million
and still address a list of approximately $156 million in supplemental
spending needs for the current fiscal year.
Some of these supplemental spending needs include:
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A $41 million appropriation for New Jersey
higher education institutions. As you will recall, the FY 2003
budget contained reduced support for New Jersey colleges, and
delayed the final $41 million payment. This supplemental funds
that delayed payment this fiscal year. |
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Also notable on the supplemental list is a $23.3
million disbursement of CBT revenue to constitutionally dedicated
funds. |
With these supplemental appropriations, we anticipate
total spending for FY 2004 will be approximately $24.7 billion.
At this time, I would like to discuss FY 2005 revenues
FY
2005 – Total
revenue
New
Jersey’s improving economy means that the unemployed are
finding work, employees are receiving better compensation, consumers
are spending more, new businesses are starting and existing businesses
are doing well.
This
all translates to revenue growth for the Big Three Taxes – the
Income, Sales and Corporation Business – which we have revised
to come in 2.2 percent above original estimates for next fiscal year.
Total revenues have been revised upward from $26.25 billion to $26.43
billion, an increase of $181 million over the February estimates.
FY
2005 – The
Income Tax
It will have taken four hard and painful years, but we now expect
the income tax to reach the level of collections recorded in FY 2001.
During that year, New Jersey collected $7.9 billion from its number
one revenue source on the strength of job creation and capital gains
performance. The Gross Income Tax, however, tumbled with the rest of
the economy in the ensuing months, to $6.7 billion in FY 2003, the
lowest total since 1999.
As
I alluded to in testimony on FY 2004 revenue, this tax has been the
undisputed dividend of an economy driven and fortified by Governor
McGreevey’s sound economic policies.
We anticipate collecting $8 billion in revenue from the Gross Income
Tax in FY 2005, $182 million over revised estimates. Please keep in
mind that this total does not include additional revenue from the proposed
increased in the upper income tax brackets, as the Governors FAIR initiative
is separate from this budget process.
I will also ask the committee to keep in mind that the projected $8
billion in income tax collections is approximately $1.3 billion more
than what New Jersey received from the income tax in FY 2003. After
recovering from the depths of the recession, we are expecting a return
to healthy but more moderate growth increments in the income tax from
year to year. In plainer terms, we are not expecting the income tax
to grow by close to $1 billion every year, nor are we planning our
future spending around such accelerated revenue growth.
FY
2005 – The
Sales Tax
The
Sales and Use Tax is perhaps the steadiest, most reliable and least
volatile barometer of the economic activity that drives New Jersey’s
budget.
We
have raised Sales Tax estimates by $25 million over Governor McGreevey’s
budget recommendation for FY 2005. This is a modest adjustment that
follows a fiscal year in which virtually flat growth was forecast.
FY 2005 – The Corporation Business Tax
In February of this year, we revised CBT collections for FY 2004 to
$2.25 billion, and have revised 04 collections again to $2.5 billion.
For FY 2005, we are anticipating the same level of revenue from this
source -- $2.5 billion.
The Surplus
While
there have been significant upward adjustments of revenues in New
Jersey’s spending plan, there has not been a corresponding
increase assigned yet to the financial cushion that the State must
draw upon for emergency and unexpected expenses.
As
I stated earlier, this administration has built the surplus from
nearly zero in FY 2002 to $400 million over the last two years. Despite
this progress, the surplus is still too small. For a budget of this
size, New Jersey would be far better off with a reserve fund of between
2 and 3 percent. I would add that rating agencies which make determinations
on New Jersey’s credit look at a state’s surplus account
closely.
As such, one of the top priorities of this administration is to use
a significant portion of the increased revenues to continue the surplus
rebuilding process. A safe surplus positions New Jersey to manage the
sudden, volatile expenses that can come with homeland security, public
health emergencies, extreme weather conditions, court mandates and
other costly items that defy our revenue crystal ball.
Beyond
the investment in surplus, the administration recommends $274 million
in additional investments for New Jersey’s priorities,
such as property tax relief, education, homeland security and quality
of life improvements for our citizens. The spending items reflect the
McGreevey Administration’s objective to return the rewards of
our budget and economic policies to New Jersey citizens quickly and
in a fiscally responsible manner.
The spending includes:
$32 million increase in municipal aid. Governor McGreevey’s budget
already includes $1.76 billion in targeted municipal aid, including
a $25 million increase in formula aid. As proposed, the Governor’s
budget provides $8 million in grants to counties and municipalities
for costs associated with the e-911 system. The budget also funds $6
million for stormwater management grants, $2.3 million in DEP grants
for tire clean up and $4.2 million for Regional Efficiency Development
Incentive grants, a $2.2 million increase over last year’s level.
In an effort to help municipalities offset the growing and sudden costs
associated with homeland security, the administration proposes a $32
million municipal fund for this purpose. This revenue provides an additional
layer of public safety and another source of property tax relief. As
with several other appropriations in the budget, this funding is necessary
to help offset the absence of sufficient federal aid for top public
priorities. Local governments around the country spend $70 million
a week every time the Department of Homeland Security raises the country's
alert level from yellow to orange. Couple this with the fact that there
is a $7 billion logjam on federal first responder funding, and it is
easy to understand why local budgets are in crisis.
Additional funding the Senior Property Tax Freeze. The Governor’s
budget more than doubled the funding for the senior freeze program
for FY 2005, which will allow 50,000 program applicants who did not
receive a check last year to receive a check this year. By using about
$20 million of the windfall from New Jersey’s improving economy
in FY 2005, we will be able to provide checks this year to first time
senior filers, rather than asking them to wait a year for their freeze
benefit. This funding re-opens the program to all eligible seniors.
Increased
community provider benefit - Recognizing the importance
of the community provider network that provides services on behalf
of the State to many of the most vulnerable citizens we propose to
increase the 1 percent cost-of living-adjustment in the Governor’s
proposed budget for community providers to 2 percent. We are committed
to working with the Legislature in an attempt to increase the COLA
even further. This represents an additional cost to the budget of $22.5
million.
School
Construction Expenses – New Jersey’s school construction
program is moving forward at a faster and more successful pace. Market
conditions and project readiness warranted additional bonding of $300
million this fiscal year, which will boost debt service payments for
this program in the FY 2005 budget. An additional $31million in funding
is required to meet the brisk demand for building new, state-of-the
art schools in our communities.
Highlands – Consistent
with the funding agreements and drinking water provisions necessary
for the New Jersey Highlands preservation,
the administration proposes $11.5 million in new funding.
Higher
Education Enrollment – In order to address the higher
education community’s concerns about New Jersey senior public
colleges and universities experiencing higher enrollment trends, the
administration proposes to offset these pressures through a $7 million
special growth adjustment fund. Just as the Governor’s budget
has created a special fund to help school districts experiencing accelerated
enrollment growth, the administration recognizes that colleges receive
no such compensation in their formula aid and need additional relief
to manage enrollment-driven costs.
Lead
Hazard Control Assistance Fund – Pursuant to a law authored
by Senator Ron Rice, we are increasing a special fund to remediate
the health dangers from lead hazards. The original budget contains
$7 million for this purpose; we propose an additional $7 million for
the special assistance fund.
Bayside
Locking System – The administration recognizes imminent
need for a new and modern locking system for the Bayside prison and
recommends $6.9 million in capital investment for this purpose.
Criminal
Pool Attorney increase – Pool attorney rates were increased
this past fiscal year for attorneys litigating DYFS cases. We recommend
$4.5 million in funding so that this rate increase can be extended
to outside pool attorneys who are retained to supplement the caseload
carried by public defenders.
These
line items constitute the majority of approximately $274 million
in additional funding requests for the FY 2005 budget. Absent from
this list are priorities that I know that the administration and the
Legislature share, such as an increased commitment to Charity Care.
The administration shares your commitment to help keep New Jersey’s
hospitals and health care system safe and secure. We have increased
funding to our hospitals in the proposed budget to help better compensate
them for the growing responsibility they assume for treating the uninsured.
We recognize Senator Codey’s leadership in this area and we are
prepared to work with you on ways to better address these challenging
needs.
Also absent from these recommendations is additional funding for drug
courts, which help the State better address the core problems and victims
of drug crimes. Again, we are prepared to work with the Legislature
to address additional ways to support this program.
The additional spending for these priorities still leaves New Jersey
with a surplus of $700 million for FY 2005. We urge this committee
to recognize that this $700 million does not reflect additional school
funding commitments to the Abbott districts. As a result of these constitutional
and Supreme Court mandates, we face significant obligations in school
funding. We understand that Commissioner Librera will make determinations
on supplemental appropriations for FY 2004 in the weeks ahead, so we
urge the Legislature to keep this factor in mind as we move to close
out the current and finalize the new fiscal year spending plan.
Mr.
Chairman, I thank you for the opportunity to present an updated and
upbeat revenue picture to the Legislature. The revenue growth is
testament to the Governor’s economic policies, which have created
more than 54,000 jobs in the last year, making New Jersey a national
leader in job creation and business investment.
While
the increased revenue is excellent news, we recognize the need to
plan with due caution because the growth rate, although steady,
is likely to level off in the months ahead. The adjustments we’re
recommending address immediate and priority needs without over-projecting
the revenue stream and committing it to higher, recurring spending.
We know from experiences in the recent past that this fiscal policy
can be a recipe for disaster.
Thank you for your time and attention. At this time, I welcome any
questions from members of the committee.
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