As State Coffers Swell, Murphy Administration Releases Frozen Funds

John Reitmeyer | January 17, 2020 | Budget
With the first half of fiscal year over, Trenton has collected nearly $1 billion more than at this time last year
Credit: Edwin J. Torres/ Governor's Office
State Treasurer Elizabeth Maher Muoio

State tax collections increased by more than 7% during the first half of the fiscal year, a surge that allows for the release of all remaining spending items impounded by Gov. Phil Murphy several months ago during a budget dispute with lawmakers, his administration said.

The positive news about fiscal year 2020 revenues and the new information about the release of dozens of appropriations that had been locked in reserve by the governor over loud objections from lawmakers were announced at the same time Thursday afternoon by the Department of Treasury.

Treasury’s action seemingly resolves concerns about the stability of the current budget that Murphy first raised in late June as lawmakers approved an appropriations bill that increased projected spending, but balked at a tax on the wealthy sought by the governor.

A total of $121 million in reserved spending was released on Thursday after an initial $114 million had been cleared by Treasury in October.

The state’s improved revenue outlook — year-to-date tax collections are up by nearly $1 billion over last year — is good news on the budget front. But it could end up undercutting Murphy in his continuing call for lawmakers to enact a surcharge on the wealthy.

The governor, a first-term Democrat, announced earlier this week in his State of the State address that he still wants a true millionaires tax. But it may now be harder for him to sell it to tax-sensitive lawmakers since current tax rates are generating a healthy surplus on their own.

Dim echoes of battle over spending

The dustup over FY2020 spending came to a head in late June as Murphy enacted a $38.7 billion budget that funded many of the priorities shared by both the governor and legislative leaders from his own party. They included increasing aid for K-12 education, mass transit and public-worker pensions.

But Murphy also used his line-item veto powers to cut $50 million from the budget bill he received from the Democratic-controlled Legislature. He also impounded another $235 million using an executive order that also raised concerns about savings initiatives that lawmakers baked into their spending bill. In addition, he suggested maintaining a minimum of $1.275 billion in budget reserves was a top priority to ensure the state is prepared for the next recession.

The largest spending item frozen was $105 million that lawmakers earmarked for “transitional aid” to distressed municipalities. An initial $53.7 million was released in mid-October, with the remainder getting cleared Thursday.

Funding for cancer programs, urban parks, colleges and universities and a new local-news consortium were among the other spending items that were initially put in reserve by the governor.

Treasurer Elizabeth Maher Muoio cited the Murphy administration’s concerns about maintaining adequate budget reserves in a statement Thursday.

“Based on the latest revenue numbers, we currently anticipate we will be able to meet our targeted fund balance pursuant to the Governor’s Executive Order,” Muoio said. “While there is always the risk of a future downturn, we are comfortable that we can maintain this surplus level throughout the remainder of FY 2020.”

‘Six long months’

Senate President Steve Sweeney (D-Gloucester), who had been sharply critical of the administration’s fiscal maneuver, responded by saying “It’s about time!”

“We always knew these funds would eventually be released but they should never have been frozen in the first place and the people served by the programs should not have been forced to wait for six long months for the services they need,” Sweeney said.

Credit: NJTV News
Coughlin, Murphy and Sweeney

Assembly Speaker Craig Coughlin (D-Middlesex) also defended the Legislature’s budget in the wake of Thursday’s news, saying it relied on “appropriate revenue estimates.”

“We are pleased the Governor has released the funds that will be used to support critical programs and services that improve the lives of New Jerseyans,” Coughlin said.

In all, total state tax collections through December were up by 7.6%, according to Treasury —well ahead of the less than 1% growth the administration had projected for the full fiscal year, which ends June 30.

In dollars, the state’s tax collections from July through December totaled $13.88 billion, besting last year by $986.4 million. Among the top performers were the business, income and sales taxes, the state’s three largest sources of revenue.

Murphy pushed anew for tax on wealthy

But Treasury has warned that the current pace of revenue growth is unlikely to hold through the end of June, in part because a reduction of the top-end business-tax rate just went into effect on Jan. 1. Treasury has also raised concerns about the potential for significant tax appeals in coming months as large corporations continue to review their liabilities in the wake of an overhaul of the federal tax code that was enacted in 2017 by President Donald Trump.

Murphy has argued that a true millionaires tax — hiking the personal income tax rate on all who earn $1 million, not just $5 million as under the current tax structure — would bring in as much as $500 million that could be used to further beef up K-12 funding and increase direct property tax relief programs. (Revenue from the income tax is constitutionally dedicated to such purposes.)

The governor repeated his call for the wealth surcharge while speaking to reporters Wednesday after a news conference in East Brunswick held to highlight a new jobs initiative. Murphy said the proceeds from a millionaires tax would “go directly to the middle class of this state.”

“The use of the proceeds are showstoppers, they’re unassailable,” he said.

But an analysis of the state’s latest revenue figures issued by Garden State Initiative, a right-leaning think tank based in Morristown, suggested the state’s surging revenues could help ease the overall tax burden on New Jersey residents.

“If these robust revenue collections are used to reduce, rather than increase our tax burden, there is an opportunity to make New Jersey more affordable, make New Jersey more competitive, and get New Jersey back on the road to prosperity,” said the group’s president Regina Egea, a former top aide to Murphy’s Republican predecessor, Chris Christie.

If enough lawmakers from both parties adopt that position, it would not be the first time that revenue trends derail a governor’s tax-policy ambitions. During Christie’s first term, sagging state tax collections played a role in lawmakers’ rejection of his call for widespread income-tax cuts.