Over the past several months, the recurring story of hedge fund billionaires taking leave their home states, and heading to tax-friendly Florida has led various pundits to focus on the deteriorating fiscal state of hedge-fund heavy Connecticut, where as we reported recently credit risk surged to record highs following a disappointing bond auction.
As we reported at the time, the likely culprit was the state’s $550 million general-obligation sale on March 17, which included debt due in 2026 that priced to yield 2.52 percent, compared with an expected 2.37 percent based on Bloomberg’s Connecticut index. The state’s office of policy and management said last week that the budget deficit for the current fiscal year is $131 million, an increase of $111 million from the prior month’s estimate.
The ongoing hedge fund exodus, as billionaires leave for states where their money is treated better, will only make things for CT worse.
Now another state is in the crosshairs following the imminent "exstatiation" of prominent hedge fund billionaire, Appaloosa's David Tepper.
As Bloomberg reports, the decision by billionaire hedge-fund manager David Tepper to quit New Jersey for tax-friendly Florida has put the Garden State in fiscal peril, and could complicate estimates of how much tax money the struggling state will collect, the head of the Legislature’s nonpartisan research branch warned lawmakers.
That's right: one person can make or break the precarious fiscal balance of New Jersey.
According to Bloomberg, Tepper, 58, registered to vote in Florida in October, listing a Miami Beach condominium as his permanent address, and in December filed a court document declaring that he is now a resident of the state. On Jan. 1, he relocated his Appaloosa Management from New Jersey to Florida, which is free of personal-income and estate taxes.
His move has put NJ state official in a state of near panic.
“We may be facing an unusual degree of income-tax forecast risk,” Frank Haines, budget and finance officer with the Office of Legislative Services told a Senate committee Tuesday in Trenton.
The reason for the panic is that New Jersey relies on personal income taxes for about 40% of its revenue, and less than 1 percent of taxpayers contribute about a third of those collections, according to the legislative services office. A one percent forecasting error in the income-tax estimate can mean a $140 million gap, Haines said.
Tepper's departure is unexpected: he has lived in New Jersey for more than two decades, initially as an executive at Goldman Sachs where he helped run junk-bond trading during the late 1980s and early 1990s, and then after founded Appaloosa in 1993. His fortune is estimated at $10.6 billion, according to the Bloomberg Billionaires Index.
That makes him as the wealthiest person in New Jersey. Or rather "made" him.
But the worst news is for New Jersey residents who already bear the country’s third-highest tax burden, according to the Tax Foundation in Washington. Along with the nation’s highest property taxes, it’s one of two states that levy both an estate tax on the deceased and an inheritance tax on their heirs. The income-tax rate for top earners is 8.97%. Democratic legislators have repeatedly passed a millionaire’s tax that would increase the levy to 10.75 percent, but Republican Governor Chris Christie has vetoed it each time.
With Tepper's departure, Christie will have no choice but to comply.
Meanwhile, keep an eye on NJ CDS: already the riskiest state in the country, NJ credit default swaps are set to blow out further in the coming weeks.