In what is hardly a surprise to anyone who has overseen a large surplus — or even a few extra bucks in their wallet — there is plenty of debate and little consensus on how the state should or should not use what could be a $10 billion surplus.
To be clear, this is a good problem to have — one the state hasn’t had in some time.
The debate over its use, however, is as rich as the state’s coffers.
Michael Egenton, the longtime government affairs head of the New Jersey Chamber of Commerce, jumped in earlier this week when he said the surplus only should be used to help businesses.
Egenton, speaking at a public hearing on the fiscal year 2024 budget, said the potential of economic downturn — which would hit the business community hardest — has only increased since a banking crisis has begun to simmer, following the collapse of Silicon Valley Bank and others earlier this month.
“If the banking crisis worsens and financial institutions pull back on lending, which many leading economists predict could happen, our New Jersey companies, including many small businesses, will need assistance,” he said.
Egenton said some economists have put the chance of recession this year at 65% — a significant increase from a few weeks before.
“The $10 billion surplus should be used for items such as replenishing the state’s Unemployment Insurance fund, which many states have done, instead of through business payroll tax increases,” he said. “The current payroll tax increase only adds to the business community’s economic stress and uncertainty.”
His statements show how the debate is changing.
Earlier this month, at the ReNew Jersey Business Summit & Expo in Atlantic City, business leaders criticized the size of the budget.
This came after Gov. Phil Murphy referenced the mini-banking crisis as a reason to keep the surplus so high.
“The budget is designed precisely to ensure the state is ready to step in to backstop any economic downturn,” Murphy told the crowd at the event. “The surplus is also the bag from which any economic safety nets will be deployed, should we need them.”
Murphy said those who think the surplus is too high were missing the potential of such a problem.
“Here’s the reality: Even with a modest downturn, minimizing the impact to New Jersey’s economy — to your businesses and our families — could easily eat up half of that surplus practically overnight,” he said.
Then there’s this: The surplus actually isn’t too high — at least, it isn’t in comparison to other states.
According to the National Association of State Budget Officers, the national average for fund balances for states is 24.7% and the median is 26.9%. The surplus Murphy suggested in his budget address earlier this year would be 18.9% of the budget.
Treasury spokesperson Darryl Isherwood said the state is lucky to be able to have this debate in the first place.
“The governor’s proposed surplus is 16 times greater than the average surplus under the prior administration and more than 20 times greater than the surplus we were left with under the previous administration’s final budget,” he said.
“Our proposed $10 billion surplus puts New Jersey in a better position to withstand any future decline in state revenue as a result of a potential recession or any other unexpected change in economic conditions, and continue providing key services.”
Like we said, a good problem to have.
But how does it get solved?
Tom Bracken, the CEO of the state chamber, said in an Op-Ed in ROI-NJ that the surplus should only be used judiciously.
“If the banking crisis worsens and financial institutions pull back on lending, which many leading economists predict could happen, our companies will need direct assistance,” he said. “Working capital, the lifeblood of any business, could become a scarce commodity.
“If that’s the case, the projected $10 billion state budget surplus should be used for relief initiatives such as replenishing the state’s Unemployment Insurance fund, like many states have done, instead of through payroll tax increases on employers. The current payroll tax increase only adds to the business community’s costs and economic stress.”
Doing this, Bracken’s colleague Egenton suggested, would help create the state Murphy wants.
“If we are to create a ‘next’ New Jersey, as Gov. Murphy noted in his budget address, simply doing more of the same as in previous budgets will make the change difficult,” Egenton said. “More aggressive actions are needed to improve our image and the way our citizens think about the state. Additional support for the business community will do just that.”
