Report: New Jersey had largest pre-pandemic revenue gap

New Jersey was one of a handful of states that started the pandemic with a structural deficit, according to a new report.

The Pew Foundation report found New Jersey and eight other states had a roughly 15 year deficit, or a negative fiscal balance, which carried forward deferred costs of past services, including debt and unfunded public employee retirement liabilities.

Of those states, New Jersey had the largest gap between revenues and annual bills from 2006 and 2020, taking in enough to cover just 91.9% of its expenses, the smallest percentage of any state, according to the report.

After New Jersey, Illinois had the largest deficit with aggregate revenue able to cover only 93.9% of aggregate expenses.

New Jersey and Illinois were the only two states with total shortfalls exceeding 5% of total expenses, Pew said, and the only ones with annual deficits in each of the 15 years.

The Pew Foundation looked at the fiscal health of all 50 states leading up to the pandemic in early 2020, and found at least 20 states recorded annual shortfalls in fiscal year 2020, the most since the Great Recession, and four-times more than in the preceding fiscal year.

In fiscal year 2020, a historic plunge in tax revenue collections, and a spike in spending from the pandemic were met with an initial influx of federal aid to combat the pandemic.

For many states, expenses and revenues grew faster than at any time since at least fiscal year 2002, largely thanks to the unprecedented federal aid, the report noted.

"Despite the sudden increase in annual deficits, most states collected more than enough aggregate revenue to cover aggregate expenses over the long-term," the report's authors wrote.

Besides New Jersey and Illinois, the other states with long-term deficits ahead of the pandemic were Connecticut, Hawaii, Massachusetts, Maryland, Kentucky, New York, and Delaware, according to Pew's report.

The report's authors said states can withstand periodic deficits, but long-running imbalances, such as New Jersey's can create an "unsustainable" fiscal situation by "pushing off some past costs for operating government and providing services onto future taxpayers."

To be sure, New Jersey borrowed more than $4 billion during the pandemic to help fund the state government, and keep programs running amid a substantial decline in tax revenue.

Gov. Phil Murphy and Democrats, who control the state legislature, argued the step was necessary to avoid deep cuts to essential services, including education, transit and health care.

New Jersey’s borrowing plan was criticized by the state's Republicans, who filed a lawsuit to try to block the move. The legal challenge was ultimately rejected by a state court.

At the time, the state was already saddled with the fourth-highest level of bond debt in the nation, averaging $4,125 per resident, according to the credit rating agency Moody's.

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