New Jersey's recently announced big revenue shortfall is a credit negative for the state, Moody's Investors Service said April 30.
Moody's rates New Jersey senior debt Aa3 with a negative outlook.
The New Jersey Department of the Treasury announced the state was expecting total revenues to come in $807 million below the fiscal year 2014 expectations announced in Gov. Chris Christie's fiscal year 2015 budget message, which Christie presented on Feb. 25.
Compared to what had been budgeted for the fiscal year at its start, New Jersey's revenues are expected to come in $1.06 billion or 3.2% short. Earlier in 2014 the state implemented $694 million in balancing actions, said Moody's vice president Baye Larsen.
The chief reason for the shortfall is that the state underestimated the impact of the imposition of higher federal taxes at the end of calendar year 2012, the Treasury said. Wealthy individuals in New Jersey manipulated their income to advance it to 2012 so as to pay taxes at a lower rate than they would if the income was counted in 2013. The top 1% of state income taxpayers accounted for almost 40% of all gross income tax received by the state, the Treasury reported.
Many of these wealthy taxpayers pay large portions of their taxes in physical checks sent to the state in April, the Treasury said. These have been coming in much lower than expected.
With only two months left in the fiscal year, New Jersey has limited options to deal with the shortfall, Larsen said.
"Given that the state has relied on one-time solutions to solve mid-year gaps in the current year and past several years, it is highly likely that one-time measures will be part of this solution," she said. "The state's continued reliance on one-time fixes underscores its financial weakness."
At the end of March, the general fund had a cash position of $336 million, Larsen said. The state had an additional $435 million in borrowable funds outside the general fund.
Standard & Poor's downgraded the state to A-plus on April 9. Fitch Ratings rates it AA-minus with a negative outlook.
