New Jersey, Its 'Comeback' Derailed, Sets Another Budget

A year ago, New Jersey's firebrand Republican Governor Chris Christie called on lawmakers to cut the state's income tax rate as part of the "New Jersey Comeback," a campaign aimed at boosting economic growth.

But the Democrat-led legislature effectively killed his tax cut when revenues lagged forecasts. Then Superstorm Sandy slammed the state, its full fiscal impact still uncertain.

As Christie gets ready to propose another budget on Tuesday, New Jersey, the 11th most populous state, is still in need of a comeback. It has the fourth highest unemployment rate of any U.S. state, at 9.6 percent, nearly 2 percentage points above the national rate. It was one of three states to report late in 2012 that revenues were lagging expectations.

New Jersey also faces a host of fiscal unknowns. State lawmakers, pundits, investors and Wall Street credit rating agencies will be watching Christie's presentation for answers.

"We've really got to see some concrete progress being made on the books," said Richard Ciccarone, chief research officer at McDonnell Investment Management in Illinois. "There were a lot of promises made... that they are going in the right direction."

REVENUES AND OTHER UNCERTANTIES

Christie had predicted revenue growth of more than 7 percent for fiscal year 2013, which ends on June 30. But so far this fiscal year, revenue is up only 3.9 percent through January to just under $13.1 billion.

That's $350 million, or 2.6 percent, under what's been budgeted for this year. However, the state is expecting its usual uptick in personal income tax collections in the month of April.

"While revenues on a year-over-year basis are better than they were in 2012, they're still falling below budget," said Marcy Block, a senior director at Fitch Ratings.

Fitch rates New Jersey's general obligation debt AA-minus with a stable outlook. Moody's Investors Service rates New Jersey Aa3 with a stable outlook.

Standard & Poor's Ratings Service has an AA-minus rating and a negative outlook on the state, because of concerns over structural budgetary imbalances, growing fiscal pressures what it says are optimistic revenue assumptions.

"When they budget for revenues, they've got to be more conservative," Ciccarone said. "This is a consistent story, a pattern, no matter which way you dice the numbers." Christie is expected to present updated revenue forecasts on Tuesday.

He's also expected to reveal whether New Jersey will expand its Medicaid program under President Barack Obama's federal health care reform.

(For a graphic on Medicare expansion, click on link.reuters.com/teh26t)

Republican governors, including Christie, have criticized the law. But several have opted to expand anyway, including Florida's Republican Governor Rick Scott, who reversed course on Wednesday and said the state would expand Medicaid.

Not expanding Medicaid could cost New Jersey $4.2 billion over the next nine years, according to a report published on Thursday by the left-leaning think-tank New Jersey Policy Perspective.

If it opted to expand, however, New Jersey could save $2.5 billion, the group said.

SANDY AND THE SHORE

New Jersey's short-term fiscal picture is also clouded by efforts to recover and rebuild after Sandy, which ravaged the region as it made landfall on October 29.

It's still not clear whether Sandy-related expenditures exceed funds the state has received. Fitch analysts have asked the state to walk them through the numbers, but that has not yet happened yet, according to Block.

New Jersey Assembly Budget Chair Vincent Prieto, a Democrat, said legislators don't know exactly what portion of the $50.5 aid package is headed for New Jersey.

The assembly's budget committee voted on Wednesday to give itself subpoena power over Christie administration officials, including State Treasurer Andrew Sidamon-Eristoff, after he repeatedly declined to testify before the committee.

Christie said the subpoena vote was politically motivated.

Another question mark facing the state is whether the New Jersey shore, a major economic driver that was ravaged by Sandy, will be ready for tourists this summer season - and whether they'll come.

A Rutgers-Eagleton poll this month found that 63 percent of regular visitors to the shore planned to spend the same amount of time there this summer, with 13 percent saying their stays would be even longer than usual.

State Senate Republican Leader Thomas Kean Jr. said that the state is living within its means. Kean said he wouldn't be surprised if Christie again proposed a tax cut, but it wasn't certain, given the impact of Sandy.

"The New Jersey comeback is going to happen," Kean said.