June 13 (Bloomberg) -- As New Jersey faces a budget crisis, among the biggest challenges are shortfalls created because chief economist Charles Steindel’s revenue projections have been short four of the past five years.
Those misses by Steindel, who came to Trenton after 25 years at the Federal Reserve Bank of New York, amount to a net $3.5 billion, according to data from state reports. That’s almost enough to cover the pension payments on which Governor Chris Christie is skimping to close two years of budget gaps.
Christie created the chief economist’s office in 2010 as he criticized his Democratic predecessors for spending gimmicks that put politics above sound fiscal choices. Four years later, it is lawmakers who blame the Republican governor’s administration for deepening New Jersey’s plight with over-optimistic estimates.
“There must have been very strong pressure for budget aspects and revenue performance to conform to the kind of political economic model that the governor has been pushing,” said Howard Chernick, an economics professor at Hunter College of the City University of New York.
Since taking office in 2010, Christie has lowered business taxes and urged the Democratic-led legislature to cut income levies, while blocking efforts to raise taxes on the wealthy.
Christie, since taking office, has been dogged by revenue shortfalls and rising pension costs. The three major credit-rating companies have all indicated that the state may face a seventh downgrade, a record for a New Jersey governor, if he and lawmakers can’t end recurring deficits.
Joseph Perone, a spokesman for the treasury department, said Steindel wasn’t available for an interview.
Steindel, tall, trim and gray-haired, with a quiet speaking voice, comes to testify on budget or investment matters with numbers committed to memory. At the Fed, co-workers played a game they called “Stump Charlie,” testing his knowledge of trivia, according to an April 2012 profile in NJBIZ, a weekly business journal. He is a panel member for the Survey of Professional Forecasters, the oldest quarterly macroeconomic poll in the U.S., according to its website.
While at the Fed, Steindel co-wrote a research report in which he said a tax surcharge on high earners could offset lower revenue during an economic slowdown.
In Trenton, Steindel has said New Jersey doesn’t need such an increase, and has co-authored three papers supporting an administration tenet: The rich leave when their taxes increase.
Christie, 51, has twice vetoed Democratic-sponsored measures to raise income taxes on residents earning $1 million or more. On June 11, he rejected a Democratic lawmaker’s compromise that would have raised the so-called millionaire’s tax while repealing a levy on estates.
Christopher Santarelli, another treasury spokesman, said the missed projections were caused in part by New Jersey’s volatile tax structure, the economic effects of Hurricane Sandy and federal measures that prompted high-income filers to accelerate payments. The wealthiest 1 percent contribute about 40 percent of income taxes in New Jersey.
“I bear the lion’s share of responsibility,” Treasurer Andrew Sidamon-Eristoff, a Christie appointee, told lawmakers at a May hearing. “It is, after all, treasury’s revenue estimates that form the foundation of the budget.”
Kevin Roberts, a Christie spokesman, referred questions about Steindel and the revenue forecasts to the treasurer’s office.
The chief economist and his colleagues “constantly try to refine their modeling techniques for projecting revenues to find more precise solutions,” Santarelli said in an e-mail.
Christie, during a May on-stage interview with CBS News anchor Bob Schieffer at a fiscal summit in Washington, blamed his economists, without naming names, for underestimating the effect of federal tax changes. The governor said that when he asked for an explanation, the economists answered: “‘We just missed it.’”
“The great thing about an economist is, that’s all they have to say,” Christie told Schieffer. “They just look at me and go, ‘Oh, governor, I’m sorry. We missed it.’ I’m like, ‘Yeah, I’m sure you are, but you know, I’m the one who has to fix your miss.’”
Steindel, 62, from Glen Rock, earned a doctorate in economics from the Massachusetts Institute of Technology. As a senior vice president at the New York Fed, “he played a leading role in producing U.S. economic forecasts and in monetary policy advice,” according to a biography on the state website.
David Rosen, the legislature’s nonpartisan budget analyst, said his forecasts were closer to the mark than Steindel’s for three years straight. When Rosen reported the difference to lawmakers in 2012, Christie responded by calling him the “Dr. Kevorkian” of budget estimates, referring to Jack Kevorkian, the deceased pathologist who advocated assisted suicide.
Rosen, who has worked on state spending plans for the Office of Legislative Services since 1991 and has a doctorate in political science from Rutgers University in New Brunswick, said that in any administration, numbers can be shaded by policy goals.
“OLS doesn’t have the other considerations to worry about,” Rosen said by telephone. “If we’re wrong, we’re wrong. It doesn’t become a policy problem.”
Assemblyman Declan O’Scanlon Jr., a Republican from Little Silver who is his party’s budget officer, said Sidamon-Eristoff “genuinely believed the projections.”
“It’s not as if the administration can wildly inflate revenue numbers and then not have to be accountable for them,” O’Scanlon said by telephone. “They’re the ones who have to figure out what to do about any shortfall.”
New Jersey is trailing the nation and neighboring states on recovery and job creation, recapturing only about half of the employment it lost during the recession.
Testifying before the Senate budget committee April 2, Steindel said New York’s tourism and Pennsylvania’s natural-gas industries are driving job growth in those states.
“I would say we need to have Broadway theaters,” he said.
A week later, S&P cut the state’s credit rating to A+, the fifth-highest investment grade, matching earlier downgrades by Moody’s Investors Service and Fitch Ratings.
Moody’s A1 grade for New Jersey ties it with California and puts it ahead of only Illinois for the lowest rating among U.S. states.
“Almost five years after the official start of the economic recovery, New Jersey continues to struggle with structural imbalance and stands in stark difference to many of its peers who registered sizable budgetary surpluses in fiscal 2013,” John Sugden, an S&P analyst, wrote in an April 9 report.
Santarelli, the treasury spokesman, said the office has only so much information to analyze.
“Economic forecasting can be similar to driving a car when looking in the rear-view mirror,” he said. “It is important to note that those who are projecting revenues have only 10 years of data to analyze under the state’s current income-tax structure.”
Assemblyman Gary Schaer, a Democrat from Passaic who is chairman of the budget committee, said it’s not clear what Steindel’s office adds.
“The numbers that we’re getting just make no financial sense and year after year, the only thing that seems to be true is the extraordinary divergence between perception and reality,” Schaer said in a telephone interview.
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