New Jersey Gas-Tax Fix Seen as Credit Negative for State Budgetby
Moody’s maintains negative outlook on A2 state rating
State’s general fund to take $1 billion hit, credit rater says
The 23-cent a gallon gas-tax increase approved on Friday by New Jersey lawmakers may solve the state’s infrastructure crisis at the expense of its general operating budget, according to Moody’s Investors Service.
The new gas-tax revenue will support $16 billion of road and rail projects over the next eight years. About $3.5 billion in transportation projects have been stalled since the summer after Governor Chris Christie halted all non-essential projects when the state’s transportation trust fund exhausted its proceeds.
To make the measure palatable to Christie, who said he wouldn’t approve the raise without tax breaks elsewhere, lawmakers voted to eliminate New Jersey’s estate tax and lower the 7 percent sales tax to 6.6 percent by 2018. The lawmakers also voted to reduce income taxes on families below the federal poverty level.
Though Christie’s office estimates that savings from the tax breaks for residents will amount to $1.4 billion annually by 2021, Moody’s gave the tax plan a credit negative outlook. Since the new tax revenue will be restricted to transportation projects, the rating company said the state’s general fund will take a $1 billion hit by 2021 due to the other planned revenue reductions.
"The net effect of the revenue package is credit negative because it will strain the state’s operating budget amid rapidly rising pension contributions and below-average revenue growth," Moody’s said in a release.
State projections show pension contributions to increase annually by an average of $711 million through fiscal 2023, roughly 1.9 percent of revenue. Revenue has increased 7 percent over the past eight years, well below the national average growth rate of 20 percent. Moody’s estimates that the state’s revenue will have to grow 4 percent annually to balance pension and other spending growth.