An annual budget is prepared for the General Fund and certain special revenue funds (Casino Control, Casino Revenue, Gubernatorial Elections, and Property Tax Relief funds). The Legislature enacts the Budget through passage of specific departmental appropriations, the sum of which may not exceed estimated resources, and the Governor is responsible for the final certification of revenue.
New Jersey's Budget is prepared in accordance with generally-accepted accounting principles (GAAP) as it applies to fund financial statements prescribed by the Governmental Accounting Standards Board (GASB), with certain exceptions. GAAP is the same basis used in preparation of the fund financial statements section of the State's audited Comprehensive Annual Financial Report. Specifically, revenues are estimated and recognized when they can be accrued (i.e., when they become both measurable and available for financing expenditures in that fiscal period). Appropriations are recommended at a level sufficient to recognize all accrued expenditures and outstanding obligations in support of program operations for the fiscal period. Goods and services delivered during a fiscal period are accrued as expenditures, if not actually paid for by the end of the year. (For further details, see the ”Summaries of Revenues, Expenditures and Fund Balances” section of the Governor's Budget.)
The Department of the Treasury, OMB, issues the Comprehensive Annual Financial Report (CAFR) which includes all funds. The State's budgetary basis differs from that utilized to present financial statements in conformance with GAAP. The main differences are that under the budgetary basis, encumbrances are recognized as expenditures and the budgetary basis reflects transactions only for the current fiscal year. In addition, the budgetary basis does not accrue the value of Food Stamps.
Budgetary control is maintained at the item of appropriation level. “Item of appropriation” means the spending authority associated with an organization, appropriation source, and program classification, as identified by line-items in the Appropriations Act. Internal transfers within programs are permitted subject to certain constraints; transfers between programs or above designated levels require the approval of the Legislature. In cases where appropriations are based on anticipated revenues, spending authority will be reduced by the amount of the deficiency in actual revenues. Other changes to the Budget not authorized by specific language provision must be approved by the Legislature in a supplemental appropriation.
Appropriations are authorized for expenditures during the fiscal year and for a period of one month thereafter, and unencumbered appropriations lapse at year end, unless otherwise specified by the Appropriations Act. Non-lapsing balances are considered automatically reappropriated as authorized by statute or by the Appropriations Act.
A summary of New Jersey's significant financial management policies is presented below. Where applicable, relevant sections of the Governor's Budget document that contain additional information are noted.
New Jersey's State Constitution states the following: “No general appropriation law or other law appropriating money for any State purpose shall be enacted if the appropriation contained therein, together with all prior appropriations made for the same fiscal period, shall exceed the total amount of revenue on hand and anticipated which will be available to meet such appropriations during such fiscal period, as certified by the Governor.”
A balanced budget must be established at the start of the fiscal year (July 1) and be maintained at end of the fiscal year. This determination is based on the revenues and expenditures for all funds, the accounting basis for which is Generally Accepted Accounting Principles (GAAP), with the exceptions noted above. In conjunction with the Appropriations Act enacted by the Legislature, the official revenue estimate for the fiscal year is established and certified by the Governor. If the appropriations approved by the Legislature exceed the revenue estimates plus any available surplus, the Governor has the authority and the duty either to veto the entire appropriations bill or to reduce the amount of appropriations to produce a budget that is balanced against the total resources available.
As a matter of policy, the Governor's Budget seeks to limit appropriations to the amount of annual revenues anticipated for a given fiscal year. For the long term, the goal is to achieve a structural balance between ongoing operating expenditures and revenues for all fund types. However, fund balances may be used to support unforeseen or unpredictable expenditures that require supplemental appropriations. If budget adjustments are necessary to maintain balance during a fiscal year, those actions are typically implemented by the Department of Treasury's Office of Management and Budget acting at the direction of the State Treasurer and the Office of the Governor.
To help achieve a long-term structural balance between ongoing revenues and spending, the rate of growth in direct services provided by the State should be constrained, both in total appropriations and in its relative portion of the State Budget. The overarching goal is to identify the most efficient way to provide current services or to expand services within the current budgeted resources. This may include staffing reductions across State departments as well as aggressive implementation of management efficiencies and service consolidations.
The State Appropriations Limitation Act (P.L. 1990, c.94), commonly referred to as the CAP law, limits the growth of appropriations in the Direct State Services portion of the Budget, which encompasses the operations of State government. By statute, the maximum appropriation for a given fiscal year is determined by multiplying the base (i.e., current) year appropriation by the average three-year growth rate in per capita personal income calculated on a fiscal year basis. The State may exceed the maximum appropriations if a bill making an appropriation is agreed to by a two-thirds vote of all members of each legislative body. See the Appendix of the Governor's Budget for the specific CAP limitation amount for the upcoming fiscal year.
To prepare for financial contingencies, New Jersey sets aside monies in a restricted reserve fund entitled the Surplus Revenue Fund (i.e., Rainy Day Fund). By law (NJSA C52:9H-14, et seq.), the Surplus Revenue Fund receives 50% of the difference between the amount of revenue certified by the Governor in the annual Appropriations Act for the current fiscal year and the actual collections realized for that year. (Note: income tax revenue is excluded from this calculation.) The balance in this fund, which is reflected within the State's total undesignated fund balance, may be appropriated upon certification by the Governor that anticipated revenues are less than those certified. Upon a finding by the Legislature that an appropriation from the Surplus Revenue Fund is more prudent fiscally than raising new tax revenue to offset such a revenue decline; or to address emergencies.