No ‘April Surprise’ in State Taxes, Budget Strain Remains for Murphy and Lawmakers

Hopes fizzled in State House that last month’s income taxes would rise above projections and ease disagreements over governor’s budget plan

State Treasurer Elizabeth Maher Muoio (second from left) to lawmakers: “Despite our best wishes, there is no April surprise.”
The latest state tax-collection figures were unveiled by Gov. Phil Murphy’s administration yesterday, and they did nothing to help end a simmering disagreement between legislative leaders and the governor over taxes and the next state budget.

Lawmakers who had been holding out hope that April income-tax collections would surge well above projections instead heard state Treasurer Elizabeth Maher Muoio deliver a revenue update that indicated tax collections are tracking very closely to the latest projections with just weeks left in the current fiscal year.

That means Murphy, a first-term Democrat, won’t have to make any major last-minute spending cuts before June 30 — something that happened regularly during the tenure of his Republican predecessor, Chris Christie. But the lack of a big tax-revenue windfall, or “April surprise,” almost guarantees Murphy won’t get the increased spending his fiscal 2019 budget plan calls for unless lawmakers have a change of heart over the next several weeks and decide to heed his call for higher taxes.

“Despite our best wishes, there is no April surprise,” Muoio said during yesterday’s Assembly Budget Committee hearing in Trenton. “Instead, we have a May reality check, a reality check on the urgent need for new revenues,” she said.

Murphy’s fiscal 2019 budget plan hikes spending by $2.7 billion compared to the budget Christie signed into law in July, with major increases planned for the public-employee pension system, K-12 education and mass transit, among other areas. To help bring in about $1.7 billion in new revenue to support the higher spending, Murphy is proposing to establish a 10.75 percent top-end income-tax rate on earnings over $1 million and reinstate a 7 percent sales-tax rate. New taxes on “sharing-economy” services like Uber and Airbnb would also be levied, along with other corporate-tax changes.

Sweeney and Coughlin

But Senate President Steve Sweeney (D-Gloucester) and Assembly Speaker Craig Coughlin (D-Middlesex) have yet to embrace the two biggest elements of Murphy’s tax-hike agenda — the millionaires tax and the sales-tax increase. Instead, Sweeney, who has generally been calling tax hikes a “last resort” this year, has proposed increasing the corporate-tax rate on companies with more than $1 million in net income and Coughlin has thrown his support behind a proposed tax-amnesty program.

Lawmakers had been hoping a nice “April surprise” from tax collections would also show the state economy is growing enough on its own to support increased spending without having to adopt any significant tax-policy changes. But Muoio released new revenue projections yesterday that indicate the current fiscal year will end on June 30 with tax collections beating estimates by roughly $28 million, which is just a fraction of overall spending that totals nearly $37 billion. And earlier yesterday, analysts from the nonpartisan Office of Legislative Services said their own forecast shows a slight revenue shortfall of $39 million between now and June 30.

Meanwhile, in the wake of last week’s major U.S. Supreme Court ruling on legalized sports betting, lawmakers are now working to establish new state regulations, but the Department of Treasury is counting on sports betting to generate just $13 million in new revenue during fiscal 2019.

Muoio: ‘No gimmicks’ left

The forecast adjustments that were announced yesterday did nothing to alter the current course of the budget debate in Trenton. When Muoio appeared before lawmakers last month to go over the details of Murphy’s budget, she urged them to “face facts” as she made a strong pitch for the tax increases the governor is seeking. She had a similar message yesterday, telling members of the Assembly Budget Committee there are “no gimmicks” left for them to rely on.

“Do we continue kicking the can down the road? Or do we finally get together and address our funding needs and our structural deficit?” Muoio asked.

Assembly Majority Leader Lou Greenwald (D-Camden) says no appetite in New Jersey for more taxes.
Despite her plea for action, it appears many lawmakers remain skeptical about the tax hikes. Assembly Majority Leader Lou Greenwald (D-Camden) pressed Muoio to explain how Murphy’s budget plans would fix not just this year’s fiscal problems, but those three years from now as costs like those related to the pension system continue to rise. He also questioned whether the administration has figured out the impact that recent federal tax-policy changes, including the capping of a write-off for state and local taxes known as SALT, will have on the state economy and revenue collections.

“I can tell you there is not an appetite in the state of New Jersey for more taxes, there just is not,” said Greenwald, who used to chair the budget panel before rising to his current leadership position.

Muoio was also questioned about the spending side of the ledger by Assemblywoman Nancy Munoz (R-Union), and whether any cuts are under serious consideration given that lawmakers like Greenwald continue to resist the notion of hiking taxes.

McKeon: ‘…in big trouble’

“If you don’t get these tax increases, where will you cut spending?” asked Munoz.

In her response, Muoio suggested it would be “up to the Legislature” to find where to cut since Murphy presented them with a balanced budget, and the state constitution gives lawmakers the sole authority to draft an appropriations bill. “If the Legislature determines there are revenue increases they don’t want to approve or implement, then they will need to present a balanced budget for approval (by the governor),” Muoio said.

Muoio did find some support for the tax hikes yesterday from Assemblyman John McKeon (D-Essex), who suggested the state won’t be able to meet its most basic obligations, like adhering to the school-funding law, without raising revenue.

“I don’t know what the wise thing to do is for all of us because we’ll make those decisions in the next six weeks, but we need to reconcile as a budget committee and as a Legislature the fact that without the (proposed tax hikes) . . . we’re in big trouble,” he said.

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