Gov. Phil Murphy has now released more than $100 million in spending that was put on hold earlier this year amid a budget dispute with lawmakers.
Appropriations for distressed municipalities, colleges and universities, and a Camden-based cancer program were among the many spending items the Murphy administration took out of reserve yesterday after the latest official state revenue report showed the current fiscal year is off to a solid start.
But even with the promising revenue figures — tax collections are up by more than 7% compared to this time last year — the Department of Treasury is continuing to hold back another $121 million in spending, in part due to the governor’s lingering concerns with several savings initiatives that lawmakers wrote into the fiscal year 2020 budget before its adoption this summer. Murphy issued an executive order in late June that put a combined $235 million into reserve to ensure the budget wouldn’t run in the red.
State Treasurer Elizabeth Maher Muoio said yesterday’s action means about half of those appropriations have now been released.
“We will continue to closely monitor revenue collections and additional savings initiatives booked in the budget and hope to be able to release additional funds as expeditiously as possible,” Muoio said.
After feuding with lawmakers for months over whether the state should establish a millionaires tax, Murphy, a Democrat who favored the tax hike, used line-item veto powers authorized in the state constitution to take $50 million in appropriations out of the budget bill he received from the Democratic-controlled Legislature. He also put another $235 million in spending in reserve using the executive order at the same time the overall $38.7 billion spending plan was enacted for FY2020.
Among the issues Murphy raised in the executive order were concerns about questionable savings assumptions that lawmakers included in their spending bill, as well as a need to maintain robust budget reserves in the event another national recession is looming.
The largest spending item the governor put on hold was $105 million that lawmakers earmarked for what’s known as “transitional aid” for distressed municipalities. Yesterday, the Murphy administration released $53.7 million of those impounded funds as part of the overall $114 million in spending taken out of reserve.
Also released yesterday was $20 million in funding for a substance-abuse program run by the Essex County Jail, and $1.75 million for an inmate-rehabilitation program administered by Union County. Funds for several colleges and universities, including $5 million for Rowan University’s Cooper Medical School, were also among the list of released appropriations.
Another $1.35 million earmarked for a Camden-based cancer program was also released yesterday. Senate President Steve Sweeney (D-Gloucester) had identified the program as a major concern when Murphy held back the initial appropriation. But Sweeney has previously threatened to summons Muoio before the Senate’s Budget and Appropriation Committee to offer a deeper explanation of Murphy’s actions, and it’s uncertain whether yesterday’s action will be enough to quell those concerns.
Treasury saving initiatives
Treasury cited a number of reasons yesterday for why certain appropriations were released and others are still being held in reserve, including the size of each impounded spending item and the statewide or local impact of holding back the funding.
Muoio pointed to some of Treasury’s savings initiatives, including a consolidation of youth correctional facilities, as factors leading to yesterday’s action. But it’s unclear right now when the remaining appropriations, including another nearly $50 million earmarked for transitional aid, will be released.
“In the interim, we have asked all state departments to continue to keep us apprised of any potential financial hardships on the horizon in relation to spending items placed in reserve,” she said.
But also coming out yesterday and potentially playing a role was the revenue data for the first three months of FY2020, which showed major tax collections were up 7.4% compared to the first quarter of fiscal year 2019. In all, a combined $6.1 billion in revenue was collected in July, August and September, besting FY2019’s first quarter tax collections by $422.5 million. The pace of growth was also well ahead of what was forecast for the full fiscal year; 7.4% compared to less than 1%.
Largest revenue sources
The income tax, which is the state’s largest source of revenue, was among the top first-quarter performers. Proceeds from the sales tax, the second largest source of revenue, also outpaced projected growth during the first quarter of FY2020, according to Treasury.
But tempering some of the optimism was some concern about the corporate-business tax (CBT), the state’s third largest source of revenue. For starters, there is already a planned reduction of the top-end CBT rate coming in January. The one percentage point reduction is the result of a deal that Murphy and lawmakers struck last year as they quarreled over the FY2019 budget and nearly caused a government shutdown.
In a news release issued yesterday, Treasury officials also raised concerns that some corporations may file for large tax refunds later this year as they continue to assess the ways the federal tax overhaul President Donald Trump enacted in late 2017 has impacted their overall bottom line. And even though the first quarter is off to a good start, there is still a long way to go in the fiscal year, including the always-critical April income-tax season.
Meanwhile, new revenue data the Pew Charitable Trusts released yesterday indicated New Jersey remains in the small group of states that have continued to see overall tax collections lag their pre-Great Recession peaks, after adjusting for inflation. While revenue collections for the 50 states as a whole were up about 13% as of the end of the first quarter of the 2019 calendar year, New Jersey’s inflation-adjusted revenues were still behind by an estimated 2.3%, according to the Pew analysis.
Pew analysts didn’t blame a single factor for New Jersey’s lagging tax collections. But likely playing some role were tax cuts enacted during former Gov. Chris Christie’s tenure, including reductions of the state sales-tax rate and some business taxes, and an outright repeal of the estate tax.