Gridlock: No Agreement on Transportation Trust Fund as 5-Year Plan Expires

Christie freezes all nonessential transportation projects. Senate and Assembly leaders split on how deeply to cut other taxes to compensate for hike in gas tax

gas pump
New Jersey’s gas tax will remain the second-lowest in the country — at least for now.

Despite Democratic legislative leaders and Gov. Chris Christie coming to agreement this week on a 23-cent increase in the tax to replenish the Transportation Trust Fund, a lingering dispute over tax cuts prevented a final deal from being struck yesterday before the trust fund’s 5-year finance plan expired at the stroke of midnight.

Christie administration officials said months ago when asked about the possibility of this very scenario playing out that there would be enough cash to pay the bills at least through the month of July. But in an apparent effort to ramp up the pressure, Christie issued an executive order just before midnight that effectively freezes all state spending on transportations projects that are not “absolutely essential.”

Construction-worker unions and other groups that have been pushing hard for a trust-fund renewal by yesterday’s deadline chastised leaders in Trenton for a lack of leadership. But lobbyists for small-business owners and others who opposed the proposed gas-tax increase praised the inaction because it staved off what would have been an immediate hike from the current per-gallon rate of 14.5 cents to 37.5 cents.

Even though a final deal couldn’t be reached yesterday, legislative leaders say they will continue to try and work through their differences, meaning a gas-tax increase still remains likely later this summer.

The primary sticking point between lawmakers in both the Assembly and Senate is a series of tax cuts that have been proposed along with the 23-cent gas-tax increase in a bid to make the tax hike more palatable to a public that has consistently opposed it in polls.

In the Senate, a bipartisan plan emerged at the beginning of the month featuring a phase-out of the estate tax and a series of other cuts along with the 23-cent gas-tax hike. The other cuts include lifting state income-tax exemptions on sources of retirement income like pensions and 401(k)s, increasing the Earned Income Tax Credit for low-wage workers, and establishing a new state income-tax credit for contributions to social-service charities.

That plan has been supported by construction-worker unions and business-lobbying groups, who recognize this may be their last best chance to see the estate tax eliminated here as it already has been in many other states. Many in the business community also fear accepting the full sales-tax cut could take such a toll on the budget that it could make a new tax hike on millionaires or businesses almost a certainty when Christie leaves office in early 2018.

But some Democrats in the Assembly have been concerned that the Senate plan would provide too big a benefit to the wealthy, and Christie swooped in late Monday night with an offer to cut the sales tax by 1 percent in exchange for his support of the 23-cent gas-tax hike. That came after the governor had previously decided not to get engaged in direct talks on renewing the trust fund, even though he took the initiative in 2011 to draft the finance plan that was in effect for the past five years.

The sales-tax proposal ended up getting passed with enough votes from both parties in the Assembly after midnight on Monday, setting the stage for yesterday’s voting session in the Senate.

But Senate President Stephen Sweeney (D-Gloucester) decided not to post the Assembly bill for a vote yesterday because he said it didn’t have any support from either Democrats or Republicans in his house. Instead, he said there would be a new attempt to reach a solution with the Republican Christie and Assembly Speaker Vince Prieto (D-Hudson) in the next few days.

“This is not the ideal situation, but we want to work with our Assembly colleagues,” Sweeney said. “We’re not going to try and ram anything down anyone’s throat. We’re going to go back and work with them, we want to go talk to the governor to see what we can agree on. We’re willing to work through the weekend to come to an agreement to do what we have to do.”

The primary sticking point in the Senate is the cost of the proposed sales-tax cut from 7 percent to 6 percent; it’s estimated to be at least $1.6 billion once fully implemented at the beginning of 2018.

Even though the gas-tax hike would bring in over $1 billion in annual revenue, those dollars would go directly into the trust fund, an off-budget account. But it would be the budget’s general fund that would take the full hit from the reduced sales tax. The Assembly bill also includes the tax cut benefiting retirees that’s in the Senate bill, adding to its overall cost.

The tax cuts in the Senate’s bill, sponsored by Sens. Paul Sarlo (D-Bergen) and Steve Oroho (R-Sussex), would cost a more modest $870 million once fully phased in.

“It’s just a lot more money. The sales tax creates just a much more difficult budget process than our bill going forward,” Sweeney went on to say.

And on the Republican side, Senate Minority Leader Tom Kean Jr. (R-Union) said he still remains opposed to a tax hike as large as 23 cents. Others in his caucus support a plan floated by Sen. Jennifer Beck (R-Monmouth) that doesn’t rely on any tax hikes but instead uses borrowing and assumes state revenues will continue to grow at rates some have said are unrealistic.

New Jersey Working Families, one of the liberal groups that has opposed the notion that taxes need to be cut at all to offset a gas-tax hike, raised the possibility yesterday that a new borrowing issue could be enacted as a short-term fix. That option would not involve a tax hike or a tax cut, but it would push more costs down the road.

“We urge both the Senate and Assembly to consider alternatives, including bonding, until they are free from the unreasonable demands of a lame-duck governor,” said Analilia Mejia, the group’s executive director.

But a statement issued yesterday by Michele Siekerka, the president of the New Jersey Business & Industry Association, stressed the need for all parties to keep working together, with a focus on eliminating the estate tax as the Senate bill proposes.

“It is important that all sides continue talking so that we have a plan that the Legislature and governor agree upon that improves the state’s infrastructure while at the same time providing comprehensive tax relief,” she said.

For his part, Prieto spoke about the Senate’s inaction before his house’s own voting session yesterday, saying the Assembly is still open to negotiating a deal. But he stressed because Christie didn’t support the Senate’s legislation, there were not enough votes in the Assembly to override the governor, creating the current stalemate.

“Right now, there’s no appetite for an override,” Prieto said.

Ray Pocino, vice president and eastern regional manager for the Laborers’ International Union of North America, said the inaction puts the livelihoods of construction workers across the state at risk. Many were in the State House yesterday wearing fluorescent-colored t-shirts that urged TTF action.

“Every single legislative district in New Jersey will have workers who will lose their jobs by virtue of the fact that their elected representatives failed to act and the TTF was left to languish,” Pocino said.

But the lack of action was praised by Laurie Ehlbeck, state director of the National Federation of Independent Business. She said small-business owners are breathing a sigh of relief.

“We understand completely the importance of addressing the funding of infrastructure improvements throughout the state, but that does not mean that the taxpayers of New Jersey should have to settle for a trade-off,” Ehlbeck said.