Appropriations Bill from Democratic Lawmakers, First Salvo in Budget Battle

John Reitmeyer | June 18, 2018 | Budget
Despite overall accord, legislators and governor still have issues to hash out, especially when it comes to funding public-employee pensions, K-12 education, and mass transit

Credit: Jim Connolly
Senate President Steve Sweeney
State lawmakers continue to disagree with Gov. Phil Murphy on how to pay for the significant new spending they want to see in the state’s next budget, but they’ve decided to use this week to advance their own appropriations bill.

Senate President Steve Sweeney (D-Gloucester) told reporters on Friday that lawmakers, rather than trying to hammer out a deal on revenue with the governor, will instead move forward without his signoff by unveiling budget legislation later today for the upcoming 2019 fiscal year. The appropriations bill will reflect their own priorities instead of Murphy’s, he said, setting the stage for a confrontation with the governor, who ultimately has the power to reject their legislation or delete sections he doesn’t like.

Still, under Sweeney’s schedule, final passage of the budget bill in the Legislature would come by the end of the week.

“That’s our goal,” Sweeney said during a news conference in Trenton, adding, “We want to get moving.”

A statement released later by Assembly Speaker Craig Coughlin (D-Middlesex) made it clear that his house, while still open to negotiating a broader budget deal with Murphy, will also be looking to approve a spending bill by the end of the week.

“It is my expectation that the Assembly will pass a budget on the 21st that protects taxpayers and our priorities for New Jersey’s working middle-class families,” Coughlin said.

The passage of a budget bill out of both houses of the Legislature would be a step in the right direction since the state constitution requires a government shutdown if such legislation isn’t signed into law before midnight on June 30. But at the same time, it appears the majority Democrats in the Legislature and the Democratic governor are still far apart on exactly how the state should pay for the various spending priorities they seem to share, including increasing funds for the public-employee pension system, K-12 education, and mass transit. That disagreement is the part of the budget process that still threatens a shutdown, and Murphy’s administration has already instructed department heads to begin putting together their contingency plans.

Gutting some Murphy tax hikes

Sweeney confirmed on Friday that lawmakers plan to cast aside major tax hikes that were included in Murphy’s fiscal 2019 budget, namely restoring the 7 percent sales tax and establishing a millionaires tax, which was a central issue Murphy campaigned on last year. In their place will be proposals favored by the legislative leaders. They include Sweeney’s call for a higher corporate-tax rate to be levied on the state’s highest-earning businesses and Coughlin’s proposal to generate new revenue from tax delinquents using a one-time amnesty program.

Murphy sounded unimpressed in a statement issued by his office later on Friday, suggesting the lawmakers’ plan could rely on shakier revenue sources. He also highlighted a series of credit-rating downgrades the state suffered during the tenure of his predecessor, Republican Gov. Chris Christie.

“New Jersey didn’t elect me to paper over problems with the same failed policies of the past,” Murphy said.

Under the budget that Murphy put forward in March, the state would add $700 million to the annual contribution into the public-employee pension system, which is grossly underfunded and has been a primary concern for credit-rating agencies. Murphy’s spending plan would also provide a nearly $284 million increase in direct state aid to K-12 school districts, and boost state funding for New Jersey Transit by about $170 million.

Agreeing to disagree

Lawmakers appear to be in general agreement with the governor on those spending items, although their budget may reflect some minor changes when it’s unveiled this week. Sweeney also made it clear on Friday that the Democrats will be funding a series of legislative add-ons that were inserted into the budget for the current fiscal year that did not make it into Murphy’s draft of the fiscal 2019 budget. They will cost roughly $75 million to fund, covering items like $5.25 million for nursing homes, $4 million for cancer research, and $5 million for hospice and palliative care, among others.

He also said full funding for the Homestead property-tax relief program, which was reduced by Christie and lawmakers in the current fiscal-year budget, would be restored in fiscal 2019, adding another roughly $143 million to the spending side of the ledger. That’s something that Coughlin has previously said is a top priority for the Assembly majority as well.

“I think we all agree that the Homestead rebate needed to be returned,” Sweeney said. “The speaker made it a priority, and it’s our priority.”

What happened to ‘last resort’?

There also seems to be broad agreement among the majority Democrats in both houses about how the state would pay for the increased spending they’re seeking. While Sweeney has previously said any tax hike would be a “last resort,” the Senate’s budget bill is expected to include a 3 percent increase in the corporate tax rate that’s levied on businesses with net income over $1 million, pushing the overall rate from 9 percent to 12 percent. He’s estimated the new rate, which would be in place for two years, would generate $657 million annually.

Meanwhile, Coughlin has previously called for a tax-amnesty program to be offered for several months in fiscal 2019 to generate revenue that’s owed by tax delinquents, with some $150 million pegged as a possible target.

Further, Sweeney suggested on Friday that the legislative budget bill would also feature proposals to reduce spending through efficiencies and audits, though he did not provide any specific items or savings estimates.

Under the state constitution, lawmakers and the governor have to work together to adopt a new budget, especially when there are proposals to increase revenue through new or increased taxes. For example, the constitution gives the governor the authority to certify a revenue projection for the fiscal year, but tax hikes can only be enacted through legislation, which must originate in the Assembly. And once an appropriations bill is adopted by the Legislature, the governor still has the authority to veto it, or use the line-item veto to remove certain portions that he disagrees with.

Earlier this month, even as he neared an agreement with Sweeney on the issue of school funding, Murphy warned state department heads to begin planning for a possible government shutdown: The New Jersey Constitution prohibits the Department of Treasury from spending any money if a new budget isn’t signed into law by midnight on June 30.

In the statement he issued on Friday, the governor highlighted his own approach to the budget, which he described as “simple.”

“Fix what’s broken and make sure that everyone is paying their fair share,” he said.