As Shutdown Clock Ticks, Murphy and Dem Leaders Duel Over Budget Plans

John Reitmeyer | June 28, 2018 | Budget
Legislative leaders want taxes on short-term summer rentals, boost in realty-transfer tax, but Murphy’s millionaires tax and increase in state sales tax still nowhere to be seen

Gov. Phil Murphy holds a press conference on the budget with Mayor Ras Baraka (left) in Newark City Hall.
Legislative leaders put a few new suggestions for tax hikes on the table yesterday in a compromise offer to Gov. Phil Murphy as they try to agree on new revenue streams for the fiscal 2019 budget. They’re hoping these proposals will help end an ongoing deadlock over the state’s next budget that’s playing out just days before the deadline for a government shutdown.

The lawmakers’ new offer came a day after Murphy, a first-term Democrat, floated his own initiative that incorporated several top priorities identified by Democratic legislative leaders, including increased spending on property-tax relief and a new way of distributing K-12 education aid.

Key elements outlined by Senate President Steve Sweeney (D-Gloucester) yesterday include discarding some revenue items that cleared the Legislature last week, which Murphy flagged as unpredictable. In their places are an extension of the sales tax to cover short-term property rentals, and a hike of the realty-transfer tax on properties over $1 million. Sweeney said lawmakers are also willing to extend a proposed corporate-tax hike on businesses with incomes over $1 million from two years to four, another concession to concerns that Murphy raised about their budget plan.

“At the end of the day, we’re not looking to shut down the government,” Sweeney said yesterday.

Levying taxes on summer rentals

Lawmakers believe their proposal to levy the current 6.625 percent sales on short-term property rentals would raise $250 million in new revenue, and would simply bring private summer rentals (those less than 90 days) on par with hotels at the state’s beach communities. Lawmakers have also already passed legislation in recent days that would extend the tax to other short-term accommodations like those arranged by the website Airbnb. Legislative staff said New Jersey is the only state between Maine and Florida that doesn’t also tax summer rentals.

But that move is already becoming controversial, as Sen. Vin Gopal — a Democrat who represents many of those beach communities — issued a statement saying the new tax could threaten to upset the state’s $44 billion tourism industry.

“We’ve already shown a balanced budget is possible without this dangerous tax,” said Gopal (D-Monmouth).

The lawmakers’ new budget offer would also raise $110 million from hiking the 1 percent tax on those buying commercial and residential properties worth over $1 million to 2 percent. And it scores increased state sales-tax collections from online transactions at $125 million, in the wake of a U.S. Supreme Court ruling that came down last week making it easier for states to collect revenue from such sales.

“If the governor wants to be completely honest, we have provided him with a balanced budget, and gone out and found another brand-new, $360 million in new revenue,” Sweeney said. “We’re pretty confident right now with where we’re at.”

Millionaires tax MIA

While the lawmakers’ proposal seems to bring the two sides closer together on the numbers, it continues to leave out two key tax hikes sought by Murphy: establishing a millionaires tax and restoring the 7 percent sales tax. What remains to be seen today, when negotiations are expected to resume, is whether the governor is willing to walk away from those proposals in the interest of getting a deal, or whether he will push to get at least some version of the millionaires tax, which was a main part of his campaign platform, before the deadline for a shutdown, which is midnight on Saturday.

Murphy press secretary Dan Bryan declined comment on the legislative counterproposal yesterday.

The jockeying over the state’s fiscal 2019 budget began in March when Murphy proposed a $37.4 billion spending plan that called for more state spending in several key areas, including K-12 education, public-worker pensions, and mass transit. Lawmakers have largely embraced Murphy’s spending goals, but they’ve balked at his main tax-hike proposals, the millionaires tax and sales-tax restoration, and have been countering with their own revenue initiatives, including a tax-amnesty program and a two-year corporate-tax increase.

A $36.5 billion appropriations bill that they sent Murphy last week incorporates most of the governor’s outline for new spending, but also adds to it by including more funding for Homestead property-tax relief and K-12 education. It also adds millions of dollars in additional spending for legislative priorities like cancer research and support for facilities that work with the developmentally disabled.

But Murphy has promised to veto the legislative spending bill, faulting roughly $855 million in revenue assumptions that are baked into it. Earlier this week, he sent Sweeney and Assembly Speaker Craig Coughlin (D-Middlesex) a letter that suggested new compromise to the legislative leaders.

Murphy’s offer letter

He said in the letter that he’d be willing to accept a “recurring” corporate-tax hike and a “modest” increase in the top-end rate levied on incomes over $1 million. Right now, the highest corporate rate is 9 percent, and the top-end income tax rate is 8.97 percent, levied on income over $500,000.

Murphy’s offer, which did not provide many specifics, also proposed a two-year phase-in of the restoration of a 7 percent sales tax. The current rate of 6.625 percent went into effect earlier this year. He also said he would be willing to initiate the tax-amnesty program sought by lawmakers, which he’s previously questioned as a one-time revenue, and boost funding for Homestead property tax relief and K-12 school aid.

“Through all of this, I have listened carefully to your concerns, and you have made many valid points which I have given great consideration,” Murphy said in the letter.

Sweeney responded to the letter with the counterproposal that was detailed during a news conference in the State House yesterday. Coughlin did not attend the event, but Sweeney said the Assembly leader was fully onboard with the compromise.

To help address Murphy’s concerns about revenue, the new legislative proposal removes more than $200 million in estimated savings from a series of audits of employee healthcare programs. It also discounts the amount of revenue that was expected to be collected through the corporate business-tax increase and calls for the tax to be levied over four years instead of the original two.

But their proposal also banks on $49 million being collected by taxing of legalized recreational marijuana, something that has yet to make it out of the Legislature, and $23 million from a new fee that would be levied on plastic and paper bags, legislation that has yet to be endorsed by the governor.

For his part, Murphy held his own event on the budget topic yesterday in Newark, pressing once again for lawmakers to accept his compromise offer.

“It’s reasonable, we’re trying to find a reasonable, common ground while retaining our absolute resolve and the commitment to the things we want to get done,” Murphy said.

A meeting between Murphy and the legislative leaders that had been scheduled to take place later yesterday in Trenton was cancelled, but an administration source suggested that wasn’t a sign of a setback as officials were still going over the Legislature’s new offer.