Despite a slow start, updated tax-collection forecasts indicate Gov. Phil Murphy’s administration believes there is still potential for modest revenue growth by the end of June.

New budget projections made public Tuesday shaved roughly $500 million from the initial tax-collection forecast for the state’s current fiscal year budget.

All of the top three revenue sources for the budget, the income, sales and corporation business taxes, saw a reduction to some degree in that forecast.

However, if the latest projections hold up, state government would still end the current fiscal year on June 30 slightly ahead of the $52.1 billion that was collected during fiscal 2023, according to updated budget documents.

The projected annual growth, albeit slight, would make for a total of $52.2 billion for the year. And that would come after overall state tax collections for the first seven months of this fiscal year trailed the pace set last year at the same point by 3%.

Tweaking and fine-tuning

Such fine-tuning of the state’s revenue forecasts occurs routinely each year, but the revisions are often overshadowed by new proposals for the upcoming fiscal year detailed in the annual budget message delivered by the governor at the end of February.

This year, helping to offset the administration’s lowered revenue forecast for the current fiscal year and other routine budget changes are more than $675 million in spending adjustments, or “lapses,” according to budget documents.

A complete list of these adjustments, including specific line items seeing reductions, was not immediately made available by the Department of the Treasury.

Projected total income tax receipts dropped by nearly $800 million.

Meanwhile, a host of additions to the spending side of the ledger will also inflate the bottom line for the fiscal 2024 budget by the end of June, according to budget documents.

While a complete list of the “supplemental” spending items was unavailable, they add up to $983 million, and include an increase in spending on Anchor property-tax relief benefits that occurred after an advertising campaign boosted year-over-year participation in the program, administration officials said during a briefing held with reporters Monday in advance of the governor’s budget message.

A snowy winter has also inflated the line item for snow removal, while new laws passed at the end of the lame-duck session of the Legislature that ended last month also triggered increased spending during fiscal 2024, officials said.

Shrinking surplus

Budget documents also indicate an opening undesignated budget surplus of more than $10 billion for the current fiscal year will be reduced to $7.85 billion by the start of fiscal 2025 as overall spending is now projected to top $55 billion during the 2024 fiscal year.

Unlike the federal government, which is allowed to operate at a deficit, New Jersey’s Constitution generally requires the state to maintain balanced spending from year to year. However, budget surplus is often used to fill in “structural deficits” that occur when annual spending is forecast to exceed total annual tax collections.

The sales tax is still expected to generate year-over-year growth by the end of June, but $114 million less than was projected when the fiscal year 2024 spending bill was enacted.

The tax source seeing the largest revision in the updated forecasts released this week is the income tax. Projected total income tax receipts dropped from nearly $19.5 billion, to a little over $18.7 billion, a reduction of nearly $800 million, according to budget documents.

The income tax is the largest single source of revenue for the annual budget, with proceeds constitutionally dedicated to funding items that include direct property-tax relief and K-12 public-school aid.

Income-tax collections go slightly south

Overall income-tax collections were down 3.6% through the end of January. That reflects steady growth in wage withholding, but also declines in quarterly estimated payments and tax year 2022 payments from those provided with extensions, according to the Budget-in-Brief released by the administration earlier this week.

When it comes to the sales tax — the second largest source of revenue for the budget — the Budget-in-Brief suggests consumers have been spending more cautiously over the past year or so, and “less so on taxable durable goods.”

The sales tax is still expected to generate year-over-year growth by the end of June, but $114 million less than was projected when the fiscal 2024 spending bill was enacted, according to budget documents.

Looking ahead, Murphy’s proposed budget for the fiscal year that begins July 1 forecasts overall revenues will increase to $54.1 billion, or roughly 3.5% above the revised totals for the current fiscal year.

Meanwhile, the Budget-in-Brief indicates corporation business tax (CBT) refund claims have “jumped substantially” in recent months, and the overall forecast for the business tax through the end of June was lowered by $183 million.

However, the forecast for receipts from the pass-through business alternative income tax, or PTBAIT, was increased, by $180 million through the end of June, according to budget documents.

The state will also generate $388 million more in “investment earnings” than was originally forecast due to “higher State balances and higher interest rates,” according to the Budget-in-Brief.

Looking ahead, Murphy’s proposed budget for the fiscal year that begins July 1 forecasts overall revenues will increase to $54.1 billion, or roughly 3.5% above the revised totals for the fiscal 2024.

However, Murphy is proposing $55.9 billion in spending during the 2025 fiscal year, with the balance of the undesignated surplus expected to drop once again, to $6.1 billion by the end of that fiscal year, according to budget documents.

— Chart by Genesis Obando