Trenton Starts to Sizzle, Governor Duels with Leading Dems Over Budget

Amid competing press conferences, clashing news releases, and governor’s threat to veto Legislature’s appropriations bill, possibility of government shutdown increases

Gov. Phil Murphy explains his approach to the budget at a press conference in Trenton.
The tension between Gov. Phil Murphy and Democratic legislative leaders ramped up to a new level yesterday, with dueling press conferences, crisscrossing news releases, and talk of a government shutdown. The debate over the fiscal year 2019 budget has become a high-stakes game and it’s become unclear, which — if any — side will eventually win.

Both the governor and the legislative leaders gathered reporters for news conferences at different times during a steamy day in Trenton, primarily to speak about a budget bill that hasn’t been officially introduced in the State House, although that step in the process could finally come today.

Murphy, a first-term Democrat, went so far as to threaten to veto the Legislature’s pending appropriations bill, even though he had yet to read it, and as legislative leaders later claimed he was mischaracterizing some elements of their broader spending plan.

For their part, the legislative leaders openly accused the governor of refusing to negotiate in earnest with them on the budget, even though they’ve apparently not yet given him any substantial, complete legislative proposal to work with.

Far apart, that’s where they are

Senate President Steve Sweeney (left) and Assembly Speaker Craig Coughlin during this year’s budget impasse
By the end of the day, it was clear the two sides remain far apart on how to pay for a series of spending priorities that they seemingly both share, as Murphy has remained adamant that he wants to see a millionaires tax enacted and the sales-tax rate restored to 7 percent, while the legislative leaders are backing a corporate-tax hike and other revenue measures, including a tax-amnesty program. Yesterday’s rhetorical jousting also left one less day on the calendar for them to reach a deal on a new budget, something the state constitution requires to be in place when the next fiscal year starts on July 1. If no agreement materializes, the constitution also requires a government shutdown, something Murphy has already ordered department heads to begin planning for.

Under the budget outline that Murphy put forward in March, the state would contribute an extra $700 million to 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.

To help pay for the increased spending, Murphy has proposed creating a new income-tax rate of 10.75 percent to be levied on earnings over $1 million, and he would move the sales-tax rate back to 7 percent from 6.625 percent, a reduction that just went into effect earlier this year. The governor’s $37.4 billion budget also proposes new corporate tax rules to raise additional revenue, and it would levy new taxes on “sharing-economy” services like Uber and Airbnb and on so-called e-cigarettes.

But lawmakers have rejected Murphy’s two main tax-hike proposals, which would generate a combined $1.3 billion, over concerns about how those tax hikes would impact New Jersey residents, especially after new federal tax legislation was adopted last year that will hurt many state taxpayers by capping a longstanding deduction for state and local taxes known as SALT.

Sweeney, Coughlin prefer their way

Instead of following Murphy’s plan on taxes, the $36.2 billion legislative budget will rely largely on a proposal for a corporate-tax hike backed by Senate President Steve Sweeney (D-Gloucester), and a tax-amnesty initiative supported by Assembly Speaker Craig Coughlin (D-Middlesex), according to a news release issued by the Senate Budget and Appropriations Committee Chair Paul Sarlo (D-Bergen) yesterday.

The corporate hike would increase the rate for companies making more than $1 million from 9 percent to 11.5 percent, and for companies making more than $25 million to 13 percent, generating a projected $805 million in new revenue. Sweeney said the higher rates would remain in place for two years to give the state more time to explore other fiscal-policy options. A prior version of his proposal would have given every company with income over $1 million a 3-percent hike, something Murphy previously said he was worried about since right now only Iowa levies a corporate rate as high as 12 percent.

Meanwhile, the proposed tax amnesty would generate $150 million from those who owe the state back taxes, according to the news release.

“This is a responsible budget that reflects our priorities and values,” Sarlo said.

But Murphy is taking issue with other revenue measures that the Democrats in the Legislature say they will include in the budget bill, which is expected to be formally introduced this morning and likely passed out of committee sometime later in the day. They include savings from planned audits, including of state-employee health benefits and pharmacy-benefits programs.

Murphy breaks out the charts

During his morning news conference, Murphy pointed to charts that listed some items he also believes could be in the Legislature’s spending bill that he finds questionable.

“Should the Legislature send me a budget proposal that looks anything like these charts, I will veto it,” Murphy said during the event.

During their own news conference, Sweeney and Coughlin took issue with Murphy’s portrayal of their spending bill, given it has yet to be formally introduced and includes new elements that had yet to be publicized, including the tweaked corporate-tax hike. The bill will end up funding many of the main priorities that Murphy included in his own budget proposal, including the increased public-employee pension contribution, more K-12 school aid, and increased property tax relief, they said.

“I think it’s incumbent upon the governor to take a look at what we actually put forth, and I’m hopeful that when he does, he’ll recognize that 95 percent of the things he’s looked for are included in that budget,” Coughlin said.

The legislative leaders also bristled at what they characterized as Murphy’s reluctance so far to begin more intensive negotiations on specific issues related to the budget, talks that could ultimately result in a deal that heads off a government shutdown.

“A negotiation is a negotiation,” Sweeney said. “A ‘take it or leave it’ is not.”

Governor considers all options

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, as there are this year. 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 the Legislature adopts an appropriations bill, the governor still has the authority to veto it, or use the line-item veto to remove certain portions that he disagrees with.

Asked yesterday if he’s only planning to issue an absolute veto of the Legislature’s budget bill rather than employ the line-term veto as an alternative to avoid a shutdown, Murphy said “…we will consider use of all of our options.” But it also remained unclear just how seriously Murphy will be willing to move away from his original budget plan once serious negotiations begin. Still, he made it clear he is not gunning for a shutdown.

“I don’t want (a shutdown), let there be no doubt about it. But I’m not going to sacrifice what I believe are the principles of this state, and its middle class in particular, going forward,” Murphy said.