The Big Things to Watch for in Murphy’s Inaugural Budget

John Reitmeyer | March 13, 2018 | Budget
New Jersey gets its first look at how governor plans to translate campaign promises into policies and spending priorities, as he issues his first state budget today

Gov. Phil Murphy is scheduled to present his first state budget this afternoon in a speech before a joint session of the Legislature in Trenton. Since being sworn in earlier this year, Murphy, a Democrat, has promised to take the state in a new direction after eight years under former Republican Gov. Chris Christie. The budget message will provide him with the first real opportunity to show what that will look like by fleshing out his own policy proposals — and by committing real dollars to his spending priorities.

Since gubernatorial budget addresses are typically long-winded and littered with lots of numbers and platitudes, here’s a list of the biggest issues to look out for as the fiscal year 2019 budget is officially unveiled today.

Taxes: Whereas Christie largely held the line throughout his eight years in office on major tax increases, Murphy has signaled his intention to increase taxes on millionaires to bring in more revenue for his top spending priorities. Under a proposal he discussed as a candidate last year, a new top-end income-tax rate of 10.75 percent on earnings over $1 million would be established to generate roughly $600 million in new revenue.

But Murphy could also decide to bring in even more new tax dollars to support his spending goals by raising taxes in other places, including by undoing a minor reduction of the sales-tax rate, or by expanding the list of items and services that are subject to the sales tax in New Jersey. Those were two suggestions made in a recent report issued by the progressive think tank New Jersey Policy Perspective. Last week, Senate President Steve Sweeney (D-Gloucester) also proposed raising the state’s top-end corporate tax rate to bring in more revenue, something Murphy said has “some appeal.”

Education aid: If Murphy does decide to bring in a significant amount of new revenue with tax increases, a good share of that revenue is likely to be devoted to increasing state aid for K-12 education. Under Christie, the state’s school-aid formula was repeatedly underfunded, by as much as $2 billion annually, leaving most districts with only flat funding. Murphy promised as a candidate to fully fund the school-aid formula, though he conceded it may take some time to bridge the full gap. Meanwhile, Murphy’s budget will also have to navigate concerns related to funding distortions that occurred through Christie’s handling of the aid formula, an issue that Sweeney in recent years has been focused on remedying.

Pension funding: Another issue that Murphy spoke often about as a candidate last year was the need to address the state’s long history of underfunding its obligation to the public-employee pension system, which is now among the nation’s worst-funded state retirement plans. Christie never made a full state pension contribution during his tenure but he started a payment ramp-up policy that, if Murphy stays on course, would increase the contribution in the 2019 fiscal year to over $3 billion. While Murphy has said it could take time to get up to his goal of full funding, it would be tough for him to reconcile his campaign rhetoric with anything less than a contribution that at least sticks to the next step in Christie’s ramp-up plan.

Property tax relief: While Murphy has talked about boosting K-12 education aid from the state as a key element of property tax relief — since local schools rely heavily on contributions from property owners to support their budgets — it remains to be seen whether the governor will also devote any new state funding to beef up direct property tax relief programs like Homestead and Senior Freeze. In Christie’s final years in office, the income-eligibility standards for most programs were kept the same, as were the total sizes of the credits or rebate checks provided by the state, which allowed Christie to keep funding for those programs flat. Murphy signaled during a radio interview yesterday that his budget message will show middle-class property tax relief is “high on our agenda,” but he didn’t offer any specifics.

New Jersey Transit: Another top issue of emphasis for Murphy has been the need to restore the state’s mass-transit agency to its former glory, and he has suggested his budget will show that he is committed to providing new state dollars to support NJ Transit operations, and to help offset Christie’s reliance on increased rider fares. It remains to be seen just how much Murphy will be able to improve upon his predecessor’s funding of NJ Transit; making the job harder for Murphy was Christie’s reliance on revenue raided from other places, like the New Jersey Turnpike Authority and the state’s clean-energy fund, to help support NJ Transit operations.

Hospital funding: State funding for hospitals — that’s known in the budget as Charity Care — used to be one of the largest line items, but it was cut back significantly during Christie’s final years in office as the federal Affordable Care Act picked up more of the burden for the state’s neediest residents seeking hospital care. But at $252 million, it remains one of the larger line items in the current state budget, and it is still a closely watched figure for healthcare officials, as is the state allocation for graduate medical-school funding.

Marijuana: At one point during the campaign, Murphy was banking on collecting as much as $300 million in new annual revenue by legalizing and taxing the sale of recreational marijuana in New Jersey. But fellow Democrats in the Legislature have yet to fully embrace Murphy’s call to legalize pot, so he may not be able to bank on collecting any new revenue in the budget for the 2019 fiscal year.

Surplus: Democrats in the Legislature were constant critics of the Christie administration for maintaining only the slimmest of budget reserves, and among the recommendations made in a report on budget matters that was issued earlier this year by Murphy’s transition team was a call to increase the surplus in the event the state faces a recession or downturn. Republican leaders tried to suggest yesterday that there could be a building surplus in the current fiscal year, but every dollar Murphy leaves in a rainy-day fund is one that cannot be spent on something like mass transit or property tax, so we’ll find out today whether Murphy will follow Christie’s habit of shorting the surplus to use funds for other purposes.