Governor, Democratic Leaders Tiptoe Toward Accord on School Aid

But with weeks to go before state budget be enacted, other impediments need to be negotiated

Senate President Steve Sweeney, left, and Gov. Phil Murphy
Despite the implementation of spending and hiring freezes and plans for a government shutdown, Gov. Phil Murphy and legislative leaders appear to be nearing agreement on an update of New Jersey’s school-aid law, which is a key sticking point in this year’s budget negotiations. But figuring out how to pay for a related increase in aid to K-12 districts, and several other key areas in the budget, remains a major source of disagreement with only a few weeks left before a new state spending plan must be enacted.

A battle has been brewing between the Democratic Murphy administration and the Democratic-controlled state Legislature since the governor announced his budget proposal in March. Murphy’s plan calls for additional spending for schools, public-worker pensions, mass transit, and property tax relief. But to pay for it, he’s proposed a number of tax increases, including a higher income tax for millionaires and a return to a 7 percent sales tax.

Murphy hadn’t shied away from talking of higher taxes in his gubernatorial campaign, so it was a bit surprising for the Democratic Legislature to say no — and seem to mean it. The powerful state Senate President Steve Sweeney (D-Gloucester) was particularly outspoken and he proposed his own idea for an increase in the corporate tax to raise revenues, though only as a last resort. He also made it clear that he wanted to fix the state’s school-funding process, not just add more funds, to the dismay of some school advocates, such as the New Jersey Education Association. Some school districts would be losing money under Sweeney’s plan.

Getting a deal on school funding would be a major step forward in budget talks, and after Sweeney introduced legislation last week that would revamp the state’s school-aid formula, Murphy said he believes the two sides are close to striking a deal.

Despite the recent specter of extreme measures in anticipation of a breakdown in negotiations, there’s also some reason for optimism given that Sweeney and Assembly Speaker Craig Coughlin (D-Middlesex) have largely accepted the administration’s call for more spending on public education, mass transit, public-employee pensions, and property tax relief. And there is still plenty of time left to iron out any remaining differences as serious budget talks don’t typically take place in Trenton until late June.

Tax hikes still to be resolved

Yet the issue of the tax hikes remains. That means the potential for a budget agreement is now riding on what, if any, revenue raisers lawmakers insert into the official budget bill they will send to Murphy later this month, and whether they will also include any major spending cuts or other fiscal policies that the governor will be willing to accept.

Sweeney said yesterday that he’s hoping to meet directly with Murphy and Coughlin to talk more about the budget later this week, and he predicted there would be more give and take as the month plays out.

“No one gets 100 percent of everything they want, including me,” Sweeney said.

In all, Murphy is proposing to increase taxes by $1.7 billion to support an overall budget for fiscal 2019 of $37.4 billion.

The tax hikes that Murphy sought would generate new revenue for a number of key areas, with funding for K-12 districts going up by nearly $284 million. Murphy’s budget also boosts public-worker pension funding by $700 million and increases state aid for New Jersey Transit by about $170 million. Meanwhile, lawmakers are likely to win Murphy’s approval of more funding for the Homestead property tax relief program, and for special grants to fund programs supported by lawmakers, including for cancer research and prisoner re-entry initiatives.

Sweeney adamant on school aid

State aid issue been a major sticking point for Sweeney, who’s taken issue with the distribution of the increased funding for K-12 school districts that’s generally known as “formula aid.” Murphy’s budget proposal maintained several special provisions that have kept state aid from keeping up with enrollment in many districts, while also allowing many other districts to receive more state aid than their current enrollment justifies. Sweeney and other lawmakers have supported updates to the 10-year-old school-aid law to address that situation, changes that would be made in the legislation that he proposed last week. They include getting rid of “enrollment caps” almost immediately and phasing out “adjustment aid” over seven years.

While the new bill didn’t get a committee hearing yesterday, Sweeney suggested he was confident after talking to the Murphy administration that it could be just a few tweaks away from getting a sign-off from the governor.

“Hopefully we’ll hear back from him shortly on the bill because we want to get it moving,” Sweeney told reporters in the State House yesterday.

On Friday, Murphy also expressed similar optimism, saying after a signing ceremony for legislation seeking to curb costly “surprise” medical bills, “I actually think we’re a lot closer than folks may think.” But he also warned reporters that how to fund the education-spending increase remains a key issue still to be worked out in budget talks.

“I think we have to figure out how we pay for all of this,” Murphy said.

Those comments came after reports came out Friday of a tense budget meeting between Murphy administration officials and the respective executive directors of the Senate and Assembly majority offices. Later in the day, the Murphy administration ordered a freeze of all new hiring and spending to help preserve the budget’s general fund, since lawmakers have yet to approve the administration’s proposed shifting of energy-tax receipts — which are expected to be distributed to municipalities but sometimes haven’t been in full — as “on budget.”

It’s a change in nomenclature; as in the past, nothing prevented the state from retaining some of those funds through raids of the “off budget” monies. But Murphy’s administration is seeking the shift this year not to raid any funds, but to give the state more budget flexibility and stability as a series of tax cuts and other fiscal policies have eroded general-fund revenues in recent years. The administration has also reportedly asked state departments to begin preparing for a possible government shutdown.

Yesterday Senate Budget and Appropriations Committee Chair Paul Sarlo (D-Bergen) downplayed the importance of Friday’s events, suggesting they are a normal part of budget negotiations, and that they may be getting more media attention this year since both the legislative leaders and the governor are from the same party.

Sweeney: ‘We’ve got plenty of time’

“I’ve been involved in budget negotiations for the last 17 years where both sides have walked out,” Sarlo said. “That’s part of negotiations (and) you shouldn’t read into anything.”

“We’re going to work through this,” he added.

But it remains to be seen whether lawmakers will ultimately give in to Murphy’s tax-hike proposals or send him a budget bill that seeks to fund the core elements of the governor’s budget that they agree with in some other manner.

Their options include Sweeney’s proposal to raise the corporate-tax rate by 3 percent on companies with net income over $1 million; offering a tax amnesty to encourage those who owe the state back taxes to settle up, as Coughlin has suggested; taking a more optimistic view of the state’s revenue outlook than the Murphy administration has; and presenting a budget with a smaller surplus account than the $786 million the governor has sought.

They could also seek specific spending cuts, though none have been talked about publicly yet by Sweeney or Coughlin.

Asked where things stand on the budget yesterday, Sweeney declined to discuss the issue in detail, citing the need to keep negotiations with Murphy confidential. But, he said, “We’ve got plenty of time to get a budget (deal) done.”