How Will Sweeney Deal with Christie and Prieto’s Late-Night TTF Surprise?

John Reitmeyer | June 30, 2016 | Budget
Senate President is searching for a solution — or maybe not — after a last-minute deal between Christie and Prieto to boost transportation funding

Senate President Stephen Sweeney (D-Gloucester)
By all indications, Senate President Stephen Sweeney wants to be the state’s next governor, and for those watching at home, today should provide a good test of how a Sweeney administration would operate under pressure.

After months of negotiations between Senate Democrats and some of their Republican colleagues, Sweeney (D-Gloucester) firmly supported a plan that called for a 23-cent gas tax hike. In return, as an incentive to obtain what they hoped to be a veto-proof majority with Republican support, the Democrats agreed to a range of tax cuts, including phasing out the estate tax, tax benefits to seniors, and a tax cut for charity donations.

After Assembly Speaker Vincent Prieto (D-Hudson) was in general agreement, Sweeney thought he had a winning hand. That is, until Gov. Chris Christie brought a new proposal at the last minute that tied the gas-tax hike to a cut in the state sales tax, while dispensing with most of the Senate bill’s menu of tax cuts.

So far, Sweeney says he’s not buying it, possibly setting up for another standoff between him, Republicans and the Assembly.

The competing plans are efforts to address the fact the state has run out of time to renew the Transportation Trust Fund (TTF), whose current five-year finance plan expires at midnight. The plan favored by Christie has already passed in the Assembly, but Sweeney’s Senate has yet to act on it.

That plan, which trades a 23-cent gas-tax increase for a 1 percent sales-tax cut, doesn’t seem to have enough support to make it out of Sweeney’s house in its current form. Lawmakers from both parties have raised concerns about the impact that at least $1.6 billion in lost revenue from the tax cut could have on the state budget in future years.

That leaves Sweeney with a few options. He could attempt to broker a new plan altogether as some members of the Assembly may be having buyer’s remorse, after their constituent groups yesterday loudly called foul on the Christie move. He could stick with the Senate’s own preferred solution, which relies on a less costly tradeoff of tax cuts for the gas-tax hike. He could also choose to simply punt the issue to another day.

Christie, for his part, held a news conference yesterday to ramp up the pressure, saying he will be working hard today to get enough support for the sales-tax/gas-tax tradeoff. But liberal groups have stepped forward to question the wisdom of that proposal, saying the tax cut would threaten funding not only for safety-net programs, but for education, healthcare, public-employee pensions, and other vital services.

Sweeney, meanwhile, spoke to reporters about the transportation-funding issue yesterday after a forum in Newark on education funding. He seemed to be taking the legislative turmoil in stride, suggesting he was open to negotiating a deal but also ready to go through the last day of TTF funding without taking any action.

Unlike the July 1 deadline for a new budget that’s set in the state constitution, there is no similar cutoff for renewing the transportation fund. Christie administration officials have said there’s enough cash in the account to make it to August without a major impact.

“We still feel we have a good bill,” Sweeney said. “We’re open to talking to the administration and the Assembly.”

“Do we need to get this done? Absolutely we need to get this done,” he said. “We are very close to a crisis point in this state, it’s just a matter of finding the right solution.”

The state has been spending more than $3 billion annually on road, bridge and rail-network improvements, counting federal matching funds, for the last five years under a finance plan that Christie put forward back in early 2011. But the primary source of revenue for the trust fund, the state’s 14.5-cent gas tax, will produce only enough revenue to pay down the fund’s significant debt once the current plan runs out. That leaves no money for new projects unless the gas-tax is increased or lawmakers increase the fund’s debt ceiling, or both.

Sweeney and other senators have backed the bipartisan plan that would trade a 23-cent gas-tax hike for the tax cuts favored by Republicans. The proposed cuts include phasing out New Jersey’s estate tax; lifting state income-tax exemptions for sources of retirement income like pensions and 401(k) plans; a new income-tax deduction for contributions to social-service charities; and an increase of the Earned Income Tax Credit for low-wage workers.

Backed by both construction-worker unions and the business community, the Senate plan would reauthorize the trust fund for another 10 years at $2 billion per year, which would draw a $2 billion federal match. It was supposed to come up for a vote in the Assembly on Monday. But after a series of long delays and backroom meetings, Christie, a Republican, and Prieto instead worked out a deal to post the bill seeking to cut the sales tax in exchange for the gas-tax hike. That bill, which would extend the trust fund by the same $2 billion, but over an 8-year term, passed in the Assembly with bipartisan support after midnight.

Christie, during his news conference yesterday, said he was reluctant to sign off on the gas-tax hike but thought this was a good deal overall for taxpayers. In addition to cutting the sales tax from 7 percent to 6 percent by 2018, the Assembly bill also incorporates the increased exemptions on retirement income that is in the Senate’s legislation.

“The fact is that we need to spend this money in order to modernize our roads and bridges, and equally important, our mass-transit system,” Christie said in defense of the tax hike.

By his administration’s calculations, he said, the gas-tax hike would hit the average family with a $220 increase. That figure is based on a two-motorist household with annual mileage of 12,000, each driving a car that gets 25 miles-per-gallon, (according to the state Department of Treasury). They would also save money on car-repair costs from better-maintained roads, Christie said. The sales-tax reduction would deliver a tax cut of $435 to the average household, he said.

Looked at in a different way, Christie’s calculations assume annual household spending of $43,500 on items that don’t include food or groceries, which are exempt from the sales tax in New Jersey. Just to break even, household spending on non-exempt items would have to equal at least $22,000. And it’s unclear whether purchases made by out-of-state consumers were factored into the administration’s math.

Several liberal groups took aim at the impact of the sales-tax/gas-tax tradeoff yesterday, saying it would mostly benefit the state’s wealthiest residents. An [|analysis] released by New Jersey Policy Perspective] (NJPP), a liberal think tank based in Trenton, found the sales-tax cut would take away $17 billion in revenue over 10 years. That’s because while the tax cut would impact the budget’s general fund, the new revenue from the proposed gas-tax increase would go into the off-budget trust fund.
Gordon MacInnes, NJPP’s president, urged the Senate to take a more cautious approach than the Assembly did on Monday. “Let’s take a breath, let’s come back in July when we can give this the kind of serious attention that it deserves,” MacInnes said.

Brigid Callahan Harrison, a Montclair State University political science and law professor, said Sweeney is now facing a serious dilemma. “This clearly was a political shock to him,” Harrison said. “I would think it’s safe to say, in a million years he never imagined this scenario unfolding.”

As a potential candidate for governor, Sweeney has to consider how the sales-tax cut would impact the budget after Christie leaves office in early 2018, just as the cut would become fully phased in.

“It would seem the most expedient way to move forward is for the governor and the Assembly speaker to allow him to save face in some way,” Harrison said, suggesting the timeline for the sales-tax cut could be stretched out over a longer period of time.

“If I’m Sweeney, I say, ‘Let’s make it over five years, or six years,’” she said.

John Mooney contributed to this report.