A nearly $8 billion “mini budget” that covers state operations for another three months is slated for final approval in both houses of the Legislature on Monday afternoon.
Sponsored by majority Democrats, the spending legislation should have no problem clearing the Assembly and Senate before landing on Gov. Phil Murphy’s desk by the end of the day.
Under the current schedule, Murphy, also a Democrat, will have just enough time to enact the three-month spending plan — which covers July, August and September — before appropriations that were approved this time last year will lose their legislative authorization.
How we got here: The virtually unprecedented decision to create what is effectively a fifth quarter for fiscal year 2020 was made several months ago as part of the state’s broader response to the pandemic. The coronavirus has killed nearly 13,000 New Jersey residents. It has also left more than 1 million seeking unemployment benefits following lockdown orders called to stem the spread of infections. Not surprisingly, state tax collections have slowed, forcing the governor and lawmakers to adjust state spending and even the budget process itself as part of the response.
By the numbers: The state’s traditional fiscal year runs from July 1 to June 30, and the budget usually tops out at around $40 billion. But Murphy’s administration has projected total revenues will fall to around $34 billion over the next 12 months due to the pandemic and the ongoing economic restrictions. The three-month mini budget proposed by lawmakers spends $7.7 billion to cover operations through the end of September. The mini budget drafted by lawmakers last week is slightly larger than a three-month plan proposed by the Department of Treasury last month. It increases funding for four-year public colleges and universities by $52.5 million, and for county colleges by $13.3 million. Nearly $4 million will go to the Department of Labor and Workforce Development to help address technology problems that have slowed the distribution of unemployment benefits in recent months.
Taxes: Murphy, who took office in early 2018, has been pressing lawmakers to increase taxes throughout much of his tenure. His proposals have included increasing the general sales tax, hiking taxes on millionaires and upping the tax levied on cigarettes in recent years. But Murphy — at least for the time being — has shelved his calls for tax hikes, and the three-month mini budget does not rely on any revenue from new or increased taxes. However, some Republicans have noted that cuts in funding for property-tax relief programs will result in de facto tax hikes for thousands of New Jersey residents.
Reserves: New Jersey had only a small fraction of total annual spending socked away in reserve. That is one of the biggest reasons the state has had to cut or defer planned spending on property-tax relief and dozens of other programs in response to the revenue losses brought on by the pandemic and the shutdown orders as the state headed into the economic downturn. This came even after governors and lawmakers have heard numerous warnings through the years about the wisdom of doing so. While budget surplus is being drained to help offset the state’s short-term revenue losses, the three-month spending plan forecasts nearly $1 billion will be in reserve by the end of September.
What happens next: Once the governor signs the mini budget into law, the focus will turn to drafting a spending plan to cover the truncated fiscal year that begins Oct. 1 and ends June 30, 2021. The mini budget defers several big-ticket spending items into October, including a quarterly public-worker pension contribution and an aid payment to K-12 school districts. That will make it that much harder in the next fiscal year to balance spending — which is required by the state Constitution — amid what may still be declining revenues. Murphy has also struck an agreement with a major state-worker union for no layoffs through the end of next year, eliminating a tool that could have been available to lawmakers seeking to reduce future spending. The governor is also pressing lawmakers to authorize emergency borrowing, but his proposal is stalled for the time being in the Senate and is also likely to face a legal challenge.