New Jersey’s finances are stable for now, but a lot is riding on how much money comes in around the income tax deadline later this month, budget experts told lawmakers Monday.

If those tax collections fall short, that could mean spending cuts this year and less money for Gov. Phil Murphy, a Democrat, to fund his priorities next year. Murphy’s proposed budget for the coming fiscal year calls for higher taxes on millionaires and total spending of $38.6 billion.

State Treasurer Elizabeth Maher Muoio and analysts from the nonpartisan Office of Legislative Services testified Monday that the recent overhaul of the federal tax code, together with new state taxes on individuals and businesses enacted last year, has made revenues especially difficult to predict.

Both the income and sales taxes — the state’s two largest sources of revenue — have brought in less than projected this year. But Muoio and the OLS analysts said that was largely due to people delaying their tax filings in response to the changes, and they anticipated a rebound in April.

At the same time, growth in corporate business taxes — the state’s third-largest source of revenue — has far outstripped expectations and will more than make up for weak income and sales tax collections, Muoio and the OLS analysts said.

All told, the Treasury revised up its projection for all revenues this year by $327 million. The OLS was less optimistic but still said revenues would outpace targets by $218 million.

Balancing act

Monday’s testimony in front of the Assembly Budget Committee came as lawmakers are ramping up hearings ahead of a June 30 deadline for finalizing a new state budget.

How tax collections shake out this year will be important for Murphy’s agenda moving forward. As the Wall Street credit-rating agency Moody’s noted in a recent report, “a fiscal 2019 revenue shortfall would make it more difficult to meet the governor’s fiscal 2020 forecast.”

Murphy’s spending plan for the fiscal year beginning July 1 would pour more than $200 million in new money into public schools, avoid NJ Transit fare hikes, boost the state’s pension payment by more than a half-billion dollars and build modestly on signature programs such as universal pre-kindergarten and tuition-free community college — all while adding to the state’s surplus, a key factor in how ratings agencies weigh a state's creditworthiness.

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But funding those goals assumes more than $1 billion in savings, with nearly $800 million of it coming from changes to public employee health benefits achieved in tandem with labor groups, and $447 million in new revenue from increasing the marginal tax rate on income over $1 million from 8.97 percent to 10.75 percent.

Democratic leaders in the Legislature have said they do not support new broad-based taxes, such as the so-called millionaires tax, in the next state budget.

What will already be a delicate budget-balancing act for Murphy, then, would become only more difficult should tax collections this year not pan out as expected.

Another gas tax hike?

The OLS analysts also raised the prospect of another increase in the state’s gas tax — potentially the third such increase in four years.

The increase would be a legacy of a deal struck in 2016 between Republican former Gov. Chris Christie and Democratic lawmakers to raise the gas tax by nearly 23 cents to pay for construction projects across the state.

Language in the 2016 law requires annual changes to the gas tax to generate roughly $2 billion a year for the state’s Transportation Trust Fund, which pays for road repairs and projects to fix the crumbling bridges and mass transit system.

Lower-than-expected fuel consumption in 2017 and 2018 caused gas tax collections to miss targets set by the Christie administration, triggering a 4.3-cent increase in the gas tax last October.

David Drescher, chief of the OLS’s revenue, finance and appropriations section, said the state may have to increase the tax again if fuel consumption does not “substantially increase” between now and the fall.

Muoio, however, said she was “cautiously optimistic” that revenues would remain steady and a hike in the gas tax would not be needed this year.

Email: pugliese@northjersey.com