While Democrats now control both the executive and legislative branches after Gov. Phil Murphy’s election last fall, it remains to be seen exactly how this year’s budget process will play out. Most Democratic legislative leaders offered only benign comments on Tuesday following Murphy’s budget address, and the governor and Senate President Steve Sweeney have thus far had what could be called a testy relationship.
Murphy’s budget has proposed a series of tax hikes to help support a record level of spending, including a millionaires tax on individuals and a restoration of the 7-percent sales tax. Sweeney is advocating a different tax hike — one on corporations — as well as a different school-aid vision.
Last year, lawmakers were unable to reach a budget deal with former Gov. Chris Christie before the constitutional deadline, leading to a three-day state-government shutdown in July.
State lawmakers are planning to hold four public hearings the next few weeks as they now begin the formal process of scrutinizing Murphy’s budget proposal for the next fiscal year.
The hearings will give residents, public-policy advocates, and interest groups an in-person opportunity to tell lawmakers who serve on the Assembly and Senate budget committees what they like and don’t like about the $37.4 billion spending plan that Murphy put forward earlier this week.
The Assembly Budget Committee will host two public hearings at the State House in Trenton, on March 28 and April 9. The Senate Budget and Appropriations Committee will also host two hearings, but at locations outside of Trenton — on March 29 in Newark, and April 3 in Glassboro.
The public hearings officially kick off a lengthy legislative review of the governor’s budget proposal that typically culminates with the adoption of a new spending plan just days or even hours before a new state fiscal year begins on July 1. The Legislature can draft a spending bill based on what Murphy, a first-term Democrat, has proposed for the 2019 fiscal year; the New Jersey Constitution also gives lawmakers the option of designing their own budget legislation, and sending that to the governor instead. That could be in the cards this year, given Sweeney’s initial opposition to a millionaires tax, and that Murphy cannot get revenue from any proposed tax hikes without cooperation from lawmakers.
In all, Murphy’s budget for the 2019 fiscal year would spend a total of $37.4 billion, a nearly 8-percent increase over the spending plan that Christie signed into law last July.
A major chunk of the planned spending increase would go to the grossly underfunded public-employee pension system, with a record $3.2 billion infusion of cash. Murphy’s pension contribution, which represents 60 percent of the amount actuaries have calculated is needed, would keep the state on a gradual ramp-up plan to full funding that began during Christie’s tenure.
Direct state funding for K-12 education that’s known as “formula aid” would also be increased by $284 million, and Murphy administration officials detailed yesterday exactly how that aid would be distributed to each school district across the state. Another $57 million is earmarked for public preschool, and Murphy has set aside $50 million for community-college tuition assistance.
Covering costs, raising taxes
Also getting a $167 million funding increase under Murphy’s budget plan is NJ Transit, the state’s beleaguered bus and rail agency. And to provide more property tax relief, the Murphy budget would allow homeowners to write off up to $15,000 in local property taxes from their state income taxes; the deduction is currently capped at $10,000. The state’s Earned Income Tax Credit for low-wage workers would also be increased, from 35 percent of the federal version of the credit to 37 percent during the 2019 fiscal year.
To help cover the cost of those new programs and spending increases, the governor is asking lawmakers to adopt legislation that will raise $765 million in new revenue by hiking taxes on those with incomes over $1 million. Another revenue-raising bill that Murphy is seeking would generate $546 million by moving the sales-tax rate back to 7 percent from the 6.625 percent rate that Christie convinced lawmakers to establish in 2016. Taxes on “sharing-economy” services like Uber and Airbnb would also be levied under Murphy’s budget proposal, and he also hopes to legalize and tax the sale of recreational marijuana during the 2019 fiscal year.
But just because Murphy has sketched out all these new changes to the state’s fiscal policies doesn’t mean that lawmakers will end up accepting them all unchanged. In fact, before Murphy presented his budget to a joint session of the Legislature on Tuesday, Senate President Steve Sweeney (D-Gloucester) had already been talking openly about his reluctance to enact a millionaires tax.
For his part, Sweeney has asked members of a special fiscal-policy working group that he seated last month to review exactly how an overhaul of the federal tax code that was adopted last year could impact New Jersey residents. He’s also called for a higher corporate-tax rate to be levied on high-earning businesses to bring in roughly $650 million in new funding for education and environmental programs, a proposal that seems to be in direct competition with Murphy’s millionaires-tax plan.
In addition to the four legislative public hearings that will be held over the next few weeks, members from Murphy’s Cabinet will come before the legislative budget panels in Trenton over the next several months to justify the individual appropriations that are being proposed for their respective departments. The state treasurer will also appear before the committees, first to review the official revenue forecast in early April, and then several weeks later to update tax-collection figures and outline any budget changes after all April income-tax returns are processed.
While the state constitution gives lawmakers final say on what the annual spending bill looks like, it also gives the governor broad powers, including the authority to certify the official revenue forecast upon which to base spending. The governor also has line-item veto authority, meaning the governor can at the last minute remove specific spending items approved by the Legislature. In addition to requiring a new spending plan by July 1, the state constitution also requires every state budget to be balanced, which means deficit spending is strictly prohibited.
Following is a list of this year’s legislative public hearings on the budget. Those who wish to testify can register ahead of time by following this link.
March 28, 9:30 a.m., Assembly Budget Committee, State House Annex, Committee Room 11, 125 West State Street, Trenton
March 29, 10:00 a.m., Senate Budget and Appropriations Committee, New Jersey Institute of Technology, Campus Center Atrium, 150 Bleeker Street, Newark
April 3, 10:00 a.m., Senate Budget and Appropriations Committee, Rowan University, Engineering Hall, Room 320, 600 North Campus Drive, Glassboro
April 9, 9:30 a.m., Assembly Budget Committee, State House Annex, Committee Room 11, 125 West State Street, Trenton