Gov. Phil Murphy is proposing to increase taxes by about $1 billion and borrow another $4 billion to help sustain the state budget over the next nine months as New Jersey continues to deal with the coronavirus pandemic.
Taxes would go up on boat sales, firearms, and on packs of cigarettes, according to budget documents released ahead of Murphy’s public address in Piscataway on Tuesday.
Anyone who uses limousine services in New Jersey would also get hit with higher taxes, as would millionaires, a frequent target for Murphy, a first-term Democrat who faces reelection next year.
In addition, a special surcharge on the state’s top-earning businesses supposed to be phased out over the next few years would instead remain permanently in place, under the governor’s budget plan.
Another stab at a millionaires tax
All the tax increases, as well as the budget itself, must be approved before Oct. 1 by a Legislature controlled by Democrats who have repeatedly refused Murphy’s call for higher tax rates on millionaires despite voting for a similar raise several years in a row under Gov. Chris Christie, a Republican.
Murphy administration officials told reporters during a background briefing the governor’s budget also benefits from millions of dollars in savings recently identified in departmental budgets and other areas.
The governor highlighted those cutbacks during a morning budget address delivered at a Rutgers University sports stadium.
“Some spending cuts are absolutely necessary in the face of this crisis, and, yes some of them will hurt,” Murphy said during the roughly 40-minute address. “I asked every department to dig deep to find cuts and efficiencies.”
The mostly empty sports stadium made for an unusual backdrop. Typically, gubernatorial budget addresses are delivered before a packed audience inside the State House’s elegant Assembly chambers.
The stadium was chosen as a venue to accommodate social-distancing requirements that remain in effect in New Jersey due to the pandemic. The 300 or so in attendance had to peer through bright sunlight to watch the governor and also contend with occasional wind gusts that posed challenges for at least one of the tents that had been set up to help shelter attendees.
Help for local governments
In all, Murphy is proposing to spend $32.4 billion between Oct. 1 and June 30, 2021, counting all state revenues and those generated from a proposed borrowing initiative. Federal dollars are also being earmarked for programs including housing assistance and relief for local governments during the ongoing pandemic.
Murphy’s proposed budget would leave roughly $2.2 billion in reserves, something administration officials said will provide a healthy cushion in case the state has to be shut down again if there is a second wave of COVID-19 caused by the virus.
Bolstered by the proposed tax hikes and new borrowing — which will each require legislative approval — Murphy’s budget plan would hike total spending on public-worker pensions by more than $1 billion, to nearly $4.9 billion.
Pension contribution, K-12 funding
New Jersey’s state retirement plan is one of the nation’s worst-funded and the proposed payment would be a record-setting contribution. But it would still fall short of what the state’s actuaries would consider to be a “full” contribution, even as it sticks to a funding ramp-up plan that began during Christie’s tenure.
Among other big-ticket items, spending on K-12 education funding known as “formula aid” would be nearly $8.7 billion, holding the line on the same allocation from last year’s budget, according to the budget documents.
Murphy’s new spending plan also seeks to restore funding for popular state property-tax relief programs that was held back earlier this year in response to the state’s projected revenue losses.
‘Baby bonds’ for thousands of children
If adopted, the budget would also establish a new “baby bond” program to help generate savings for children born into lower-income families by providing $1,000 each to an estimated 72,000 who meet proposed income qualifications.
In his address, Murphy stressed the need to reimagine the state’s economic and fiscal policies as New Jersey recovers from the pandemic to ensure opportunities for success are spread across all income levels.
“Building a stronger New Jersey requires us to ask those who, in some cases, continued to prosper as this pandemic raged around us — and most certainly were hurt less — to do more so we can strengthen the middle-class families who are the backbone of our state,” Murphy said.
But even before the governor began speaking inside the stadium, Republican lawmakers were already voicing concerns about what they portrayed as an overly ambitious spending plan propped up with non-recurring revenue from proposed borrowing.
Language in New Jersey’s Constitution generally prohibits the type of deficit spending that Murphy is proposing as part of his budget plan. But it provides for exceptions to ensure the state can respond to a war or major emergency.
O’Scanlon: No fiscal restraint
“With the state credit card in his pocket, Gov. Murphy’s budget plan shows none of the fiscal restraint that virtually every family and small business has been forced to exercise due to the coronavirus,” said Sen. Declan O’Scanlon (R-Monmouth).
“He wants to borrow billions, which will compound to billions more in interest and fees, to support a budget that demonstrates not one shred of creative cost-cutting reform,” said O’Scanlon, who serves on the Senate Budget and Appropriations Committee.
Business-lobbying groups also raised concerns, with New Jersey Chamber of Commerce president Tom Bracken issuing a statement that called the governor’s budget plan “confusing and disappointing.”
“Businesses across the state have been economically decimated and many are still waiting for clarity as to when they can reopen. They are struggling to stay afloat and keep their employees on payroll,” Bracken said. “For the governor to propose new taxes in this environment is cruel and irresponsible.”
New Jersey’s typical fiscal year runs from July 1 to June 30, and the state budget usually hits close to $40 billion. But earlier this year Murphy pulled back a proposed $40.85 billion spending plan for a 12-month fiscal year 2021 because of the pandemic. The governor and lawmakers also agreed to delay the end of the 2020 fiscal year by three months to buy time as Murphy’s administration was projecting steep revenue declines as a result of the health crisis and a series of economic restrictions that Murphy ordered to help slow the rate of new infections.
A nearly $8 billion stopgap spending bill was enacted at the end of June to cover state operations during July, August and September. Taken together, total spending would hit $40.07 billion, counting the three-month budget and Murphy’s proposal for the nine-month fiscal “year” 2021.
Initial reactions: mixed
While Murphy administration officials say the state’s revenue outlook has brightened somewhat in recent months, they are forecasting total revenues will fall short of the governor’s original spending goals for the full fiscal year by more than $5 billion. And without any tax hikes being enacted, total revenues would drop year-over-year from roughly $38 billion to $35.5 billion, according to the budget documents. But some lawmakers were already questioning whether Murphy’s previous revenue projections were too pessimistic, and the issue is likely to be a point of friction in the weeks ahead.
On the heels of the governor’s budget address, the task of drawing up an appropriations bill now shifts to the Legislature. Lawmakers have until Oct. 1 to determine whether to accept Murphy’s budget plan or draft their own and send it to the governor for final consideration.
So far, there are no public budget hearings on the official legislative calendar, although lawmakers say they are being planned.
Among the state’s top legislative leaders, initial reactions were mixed.
Senate President Steve Sweeney (D-Gloucester) told reporters inside the stadium that it was too early to rule out any of the proposals Murphy floated. Sweeney also promised there would be “a very healthy discussion of all of this” and hinted lawmakers may want to put their own stamp on the nine-month budget as well.
“There’s some things we’re looking at that I’m not ready to talk about,” Sweeney said.
A statement issued by Assembly Speaker Craig Coughlin (D-Middlesex) praised Murphy for proposing to restore funding for the property-tax relief programs but stopped short of endorsing any of the measures that would provide funding for it, such as the tax increases.
“We will keep an open mind as we understand every option and proposal must be thoroughly reviewed and vetted,” Coughlin said. “All options are on the table.”
Senate Minority Tom Kean Jr. (R-Union) called on Murphy to lift some of the restrictions that remain in place across the state while the rate of new infections has decreased in recent months. Doing that, he said, would “further improve the State’s finances and support the State budget in a fiscally responsible manner without the unnecessary taxes or debt the governor has proposed.”
Assembly Minority Leader Jon Bramnick (R-Union) told reporters at the stadium that he hopes Sweeney and Coughlin “bring some common sense to the table.”
— John Mooney contributed to this story.