Gov. Phil Murphy plans to put forward a much-anticipated second draft of his budget proposal on Tuesday after a previous version unveiled earlier this year was scrapped because of the coronavirus pandemic.
This time around, Murphy’s spending plan will cover just nine months instead of the typical 12, thanks to another decision made earlier this year that delayed the start of the state’s traditional fiscal year by three months, also in response to the health crisis.
A new state budget must be in place by Oct. 1, leaving just weeks for Murphy and lawmakers to manage a budget process that usually plays out in Trenton over several months.
The resumed budget process officially begins with Murphy offering up his revised budget plan for the 2021 fiscal year during a public address planned for Tuesday morning in Piscataway. The address will be livestreamed on YouTube.
The following are some of the key issues to watch for in the governor’s budget address and over the next few weeks as lawmakers come up with an appropriations bill.
Spending: During a normal fiscal year, the state spends nearly $40 billion. Murphy’s original budget called for a record-setting $40.85 billion in spending. But that was before the pandemic hit, and before Murphy’s administration projected steep drops in revenue would occur as a result. A stopgap spending bill covering the months of July, August and September was enacted in late June, totaling nearly $8 billion. But to balance the stopgap budget, more than $2 billion in spending was deferred. Murphy is expected to propose close to his original, 12-month spending goal, counting the stopgap budget, to cover the deferrals and also avoid major cuts to important frontline services.
Revenue: Tax-collection forecasts are always a key factor for the state budget, but this year even more so. When the Murphy administration put out official revenue projections in May, they forecast a roughly $7 billion gap between what the governor originally had hoped to have available during the 12-month fiscal year and what may actually flow through June 2021, when the shortened fiscal year will come to a close. The latest state tax collection figures and unemployment numbers have provided some foundation for a more optimistic outlook. A prolonged rebound on Wall Street could also help brighten revenues since New Jersey’s budget often swells when financial markets are rolling.
Taxes: A series of tax hikes that Murphy proposed at the beginning of the year to help support his spending goals, including a true millionaires tax, were temporarily shelved because of the pandemic. However, the governor has continued to discuss a need for “revenue raisers.” While Murphy has yet to offer many specifics, a group of state-based economists and other academics recently called for hiking taxes on high earners and leaving in place a surcharge levied on the state’s most profitable businesses. That would raise new revenue to obviate the need for major spending cuts during the pandemic. But business-lobbying groups have cautioned against such tax changes, arguing they could impact many businesses still struggling to survive during the pandemic.
Borrowing: A law enacted by Murphy last month gives preliminary authorization for up to $9.9 billion in new debt to be issued without voter approval, including $7.2 billion in the 2021 fiscal year. But that doesn’t mean Murphy’s revised budget can automatically count on that much new borrowing; he still will need to get final approval from a four-member panel of lawmakers established in the borrowing law as a check on the administration’s borrowing power. And while credit-rating agencies are granting governments extra leeway this year, relying too heavily on borrowed funds to balance the budget may still be viewed as the type of one-shot revenue source that typically results in a downgrade. New Jersey is already one of the nation’s most indebted states, and it is carrying a huge unfunded pension liability.
Coronavirus second wave: New Jersey continues to report new COVID-19 infections though many of the tight restrictions on economic activity to help slow the rate of infections remain in effect. While those precautions seem to be working, the pandemic remains very much a wild card when it comes to how it could influence the budget in the future. If there is a second wave of infections in the fall — bringing on another round of stay-at-home orders — that could result in lowered revenue projections and a series of mid-year budget changes.
Budget reserves: New Jersey was among the states that went into the downturn caused by the pandemic with only a small percentage of its annual spending socked away in reserve, even though policymakers had been warned often to build up a better surplus. That left little cushion to absorb the revenue losses. Since there are concerns about a potential second wave of in infections, maintaining an adequate surplus will again be a key issue for budgeting this time around.
Federal aid: While New Jersey has already been allocated billions of dollars in federal aid to help prop up hospitals, mass transit, small businesses and other areas, Murphy has been calling on President Trump and the Congress to enact a new relief program that provides more flexible aid to states and local governments. But it remains to be seen whether another round of federal funding is coming. Even a scaled-back relief package that restores some support for federal unemployment benefits would help the state budget by pumping additional federal dollars into New Jersey’s economy.
Transparency: In a normal year, lawmakers hold public hearings to scrutinize departmental budget requests and other proposed spending before an appropriations bill is drafted and sent to the governor for adoption. But many of the key decisions are still traditionally made behind closed doors by just the governor, Senate president and Assembly speaker often just days before the budget deadline. Interest groups already have raised concerns this year about transparency. And a renewed focus on issues of racial equity and social justice has put new pressure on policymakers to ensure New Jersey’s many diverse communities play a part in the budgeting process.