No Big Welcome in State House for Sweeney’s Proposal to Waive 2% Tax Cap

John Reitmeyer | November 26, 2019 | Education, Budget
Governor, among the first to dismiss Senate president’s suggestion, says a millionaires tax would be far better source of new revenue
Gov. Phil Murphy called for a millionaires tax to address education-funding gaps.

Senate President Steve Sweeney’s new proposal to give some school districts authority to exceed New Jersey’s 2% property tax cap to offset cuts in state aid is drawing criticism from leaders on both sides of the aisle in Trenton.

Gov. Phil Murphy, a Democrat, took issue yesterday with the proposal, which Sweeney (D-Gloucester) floated over the weekend; the governor suggested in a statement that a millionaires tax would be a better source of new revenue than higher property taxes.

“We have a broadly-popular plan for investing more deeply in our school districts without requiring them to raise property taxes,” said Murphy, who has been trying to convince fellow Democrats to enact a millionaires tax for nearly two years.

Senate Minority Leader Tom Kean (R-Union) also questioned Sweeney’s proposal yesterday, noting in a statement that a broader overhaul of the state’s school aid formula is warranted.

“Lifting the property tax cap is not the answer,” Kean said.

Sweeney raised the idea that some school districts need relief from the state’s 2% cap on annual property-tax levy increases as he spoke to the New Jersey School Boards Association’s semi-annual delegate assembly at Mercer County Community College in West Windsor on Saturday.

Under his proposal, nearly 200 school districts that have been hit by last year’s phase-out of so-called “adjustment” or hold-harmless aid would be allowed to offset those losses by exceeding the cap without having to put the increase to voters. (Currently, school districts can exceed the 2% cap only with voter approval, with the exception of some urban districts that can already go over the cap without voter approval.)

The phase-out of the adjustment aid was a key piece of the Murphy administration’s and Democratic-led Legislature’s strategy to fully fund the state’s school aid formula, which the state has regularly underfunded for years. But it has also created both winners and losers among school districts, forcing layoffs and deep program cuts in some places.

“It was never the intent to hurt any schools,” Sweeney said during the School Board Association’s meeting, where his proposal drew a smattering of applause.

Not seeing eye to eye

But Murphy took issue yesterday with Sweeney’s bid to use local property taxes to offset the loss of state school aid. He pointed to his own proposal for a millionaires tax as a better alternative; he also suggested that a reduction of the state sales tax that occurred during former Gov. Chris Christie’s tenure could be repealed to bring in more revenue at the state level, which could be used to offset the school-aid cuts.

“Before middle-class property taxpayers have to again take it on the chin, we should be asking our wealthiest residents to pay their fair share through a millionaires tax and undoing Governor Christie’s tax gimmicks, including the sales-tax reduction,” Murphy said.

(The sales tax was lowered in two steps, from 7% to 6.625%, with an initial reduction taking effect on Jan. 1, 2017, and the second reduction taking effect on Jan. 1, 2018. Last year, Murphy estimated a restoration of the 7% rate would generate nearly $550 million in new annual revenue.)

Calling for a millionaires tax to address education-funding gaps is familiar turf for Murphy, who has been seeking such a tax-policy change since he ran for office in 2017. Murphy has also regularly pointed to poll results that suggest a majority of New Jersey voters generally supported a millionaires tax.

Under the governor’s millionaires-tax proposal, the state’s income-tax rate for earnings over $1 million would be increased from 8.97% to 10.75%. Right now, the higher rate is only assessed on earnings over $5 million. Earlier this year, Murphy estimated the higher rate would generate $536 million in new annual revenue.

But the proposal for a millionaires tax has not been embraced by Sweeney or Assembly Speaker Craig Coughlin (D-Middlesex).

Murphy also failed to win any legislative support last year when he sought to roll back the sales tax reduction that had gone into effect under Christie. And it’s unclear how a millionaires tax or a hiking of the sales tax would help school districts that were hurt by the state-aid cuts since the additional revenue would still likely be subject to the same provisions of last year’s school-funding law that led to the reduction of the adjustment aid for those districts in the first place.

A spokesman for Sweeney declined to comment yesterday when asked to respond to Murphy’s lack of support for the Senate president’s proposal. Sweeney’s office also declined to weigh in on Kean’s criticism, which also focused on New Jersey’s highest-in-the-nation property taxes.

“Voters keep going to the polls and shooting down school budget referenda that seek to exceed the (2% cap),” Kean said. They’re sending a very clear message that they’re at the limit of what they can afford.”

“Lifting the property tax cap is not the answer,” he said.