Federal Money Shores Up NJ’s Budget, But Gov. Murphy Opts for Election-Year Spending Rather than a Sustainable Path

The gusher of federal money has certainly been a boon to New Jersey as well as other states.  This has had a number of positive ramifications, most importantly filling state coffers so that even perpetually in-deficit state governments like NJ’s are now running budgetary surpluses.  This has allowed NJ to increase spending (in an election year), make a $6.9 billion pension payment, and pay down some debt.  But Sunlight asks whether what NJ is doing is sustainable after the federal money goes away, and so does the rating agency Moody’s.

This week, as loudly trumpeted by the Murphy administration, Moody’s recognized NJ’s fiscal improvement by moving the state’s ratings outlook from a stable to positive.  Of course, NJ still has the second-lowest rating of any state (only Illinois is worse), but Moody’s is a highly respected company and while not an upgrade (like Connecticut) their shift in outlook is a positive step.

But Moody’s also voiced some caution: as reported by NJ Spotlight, “Increased spending … creates structural budget gaps that make the state vulnerable to budget risks … and may challenge the state’s ability to sustain its improving trajectory.”  Moody’s also raised concerns about the need to create a long-term plan for making full pension payments.  In other words, is the increased government spending under Gov. Murphy sustainable?

Sadly, the answer appears to be no.  Murphy is not taking steps to put NJ on a long-term sustainable path.  He has not reformed public pensions, so despite the bulked-up payments, the pension system is still in crisis.  And as Moody’s suggests, allocating 15% of the state budget every year to pensions will be an enormous challenge going forward.  In addition, while Murphy is mailing out one-time $500 tax rebates (in an election year), he has not reformed NJ’s worst-in-the-nation tax system to make our state economy more competitive.  The Tax Foundation reports that 11 states have used excess revenues to lower income and/or corporate taxes.  But not NJ:  Murphy raised income and corporate tax rates last year and they remain in place.

Being elected with the help of NJ’s powerful public unions, Murphy has governed for their benefit.  That has continued with this year’s budget, where Murphy spends and spends but does none of the necessary, hard, long-term reforms.  Why? Because under Murphy, NJ is run by and for the special interests, not the citizens.