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Sweeney Pushes Tax Hikes On Millionaires, Corporations To Fund Pensions

Unilateral move by Senate leadership highlights split with Assembly Democrats, failure of talks with governor on negotiated budget

Credit: Newsworks

Senate President Stephen Sweeney (D-Gloucester), who staked his political future on a controversial pension reform three years ago, yesterday announced that Senate Democrats would introduce their own budget to fully fund the state’s pension obligation by increasing taxes on the wealthy and on corporations.

“We have a responsibility to have a balanced budget and meet our responsibilities in that budget, and one of those responsibilities is pensions,” Sweeney asserted at a Statehouse press conference with Senate Majority Leader Loretta Weinberg (D-Bergen) at his side.

“The governor talks about the need to have an adult in the room? Well, there is a Plan B,” Sweeney said, taking a swipe at Christie’s insistence that he cannot plug the state’s two-year budget gap without cutting pension payments by $900 million this year and $1.5 billion next year.

Sweeney’s “Plan B” would increase the top income tax bracket for the 2014 tax year from 8.97 percent to 10.25 percent on income between $500,000 and $1 million and 10.75 percent on income over $1 million; imposing a temporary surcharge to raise the corporate income tax rate from 9 percent to 10.35 percent; and cutting $175 million from the much-criticized Business Employment Incentive Program that provides tax subsidies to companies to relocate or stay in New Jersey. The plan also calls for $125 million in anticipated fund lapses and a $69 million increase in projected income tax collections.

The Senate Democratic budget plan would generate the full $1.569 billion needed to completely fund the $2.25 billion pension payment required in Fiscal Year 2015 -- the fourth year of a seven-year ramp-up to actuarially mandated funding of the state’s pension obligations under legislation sponsored by Sweeney and signed by Christie in 2010.

Sweeney’s proposal was lauded by public employee union and progressive leaders, but the absence of Assembly Democratic chiefs from yesterday’s hastily called press conference signaled a split in the Democratic legislative ranks that could prevent the Senate Democratic budget plan from ever reaching Gov. Chris Christie’s desk. Christie has already vetoed a millionaire’s tax three times and has threatened to do so again.

Sweeney, who said he offered Christie the option of implementing a millionaire’s tax with a built-in sunset provision, warned that there are “constitutional things we can do” -- presumably including placement of a constitutional amendment implementing a millionaire’s tax on the 2015 ballot -- if Christie continued to block Sweeney’s legislative options.

More than anything, Sweeney’s decision to unveil his own budget plan demonstrates that the Senate president believes that closed-door talks with Christie administration officials on a negotiated budget will not produce an agreement to increase pension funding enough to prevent the state’s $38 billion unfunded liability from growing and give Sweeney and other Democrats the political cover they need.

In fact, it is increasingly likely that the Senate and Assembly will be voting on the Fiscal Year 2015 budget on June 30, the constitutional deadline for enactment of a balanced spending plan -- and Republicans, as well as Democrats, remain divided over what that budget should include.

While public employee union leaders were effusive in their praise for Sweeney’s plan, Assembly Speaker Vincent Prieto (D-Hudson), who previously supported a millionaire’s tax, was noncommittal. “The budget is a work in progress,” Prieto said. “Everything is on the table, as always. We will review the Senate plan.” “Taxes, taxes, taxes -- that’s how we got in this jam,” said Assembly Minority Leader Jon Bramnick (R-Union). The Democrats’ solution will make our state less competitive and less attractive to business. We need to cut spending further and eventually lower the tax burden.”

The need to hold down taxes applies not only to the income and corporate tax increases Sweeney recommended, but also for most of the $237 million in tax increases and fee hikes Christie used to balance his budget, Senate Minority Leader Thomas Kean (R-Union) and Assemblyman Declan O’Scanlon (R-Monmouth) made clear this week.

Both Kean and O’Scanlon are proposing other budget cuts to eliminate the need for Christie’s proposed tax on e-cigarettes and 26 fee increases. Kean also wants to knock out Christie’s plan to make businesses located in 31 Urban Enterprise Zones pay the full 7 percent sales tax.

Senate and Assembly Republicans are already looking at life after Christie -- whether he leaves in 2015 to run for the White House or stays through 2017 -- which could make it hard for Christie to muster unanimous GOP support, if needed, for what is shaping up to be an unpopular budget.

Senate Budget Committee Chairman Paul Sarlo (D-Bergen) has suggested previously that Democrats might insist that all 16 Republicans in the Senate and all 33 in the Assembly vote for Christie’s spending plan if a negotiated budget is reached -- allowing Democrats to simply choose five senators and eight Assembly members who run in noncompetitive districts to provide the majorities needed for passage in both houses.

However, Assembly Republicans, who have to run for reelection in 2015, do not want to vote for a budget that includes tax increases or for a budget that angers public employees by slashing pension payments. And Kean, in particular, owes no loyalty to Christie after the GOP governor tried to oust him as Senate minority leader last November as a favor to Sweeney after Kean tried too hard to elect Republican senators in Sweeney’s South Jersey base, where Christie had a tacit “noncompete agreement” with South Jersey Democratic power broker George Norcross.

The FY15 budget will be adopted in the shadow of a lawsuit filed by 14 public employee unions challenging Christie’s decision to unilaterally cut pension funding in FY14 from $1.6 billion to $696 million by executive order, and to reduce recommended pension funding from $2.25 billion to just $681 million in his revised budget proposal for FY15.

Christie’s contention that he had no other choice after expected state income tax payments from wealthy taxpayers plummeted in April, leaving a combined $2.7 billion hole in the FY14-FY15 budgets, will be the subject of a court hearing before Superior Court Judge Mary C. Jacobson next Wednesday -- six days before the June 30 budget deadline.

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