Gov. Phil Murphy’s latest budget plan attempts to maintain state spending on key services like public education and property-tax relief while accounting for projected revenue losses tied to the ongoing coronavirus pandemic.
To meet his spending goals, Murphy, a first-term Democrat, is asking lawmakers to agree to raise taxes in several areas and to permit raising additional revenue from new borrowing.
A new budget must be in place by Oct. 1, leaving state lawmakers a few weeks to make some big decisions; the budget covers the nine months from October to the end of June 2021. The following is a list some of the state’s top budget issues, and how they would be impacted by Murphy’s latest budget proposals.
Spending: During a normal, 12-month fiscal year, the state spends nearly $40 billion. Murphy’s nine-month budget plan calls for $32.4 billion in spending. Earlier this year, Murphy and lawmakers passed a three-month extension of the 2020 fiscal year, in response to the pandemic; they also enacted a nearly $8 billion stopgap spending bill to cover the months of July, August and September. That means total state spending would still top $40 billion for a traditional 12-month fiscal year under Murphy’s latest plan even as he is projecting steep revenue losses due to the pandemic.
Revenue: The Murphy administration was projecting those big revenue losses earlier this year as the state’s economy went almost entirely on lockdown to try to slow the rate of COVID-19 infections. But the latest projections show an improved outlook, with total revenues for the traditional 12-month fiscal year projected to top $36 billion for fiscal year 2021, if lawmakers agree to enact a series of tax hikes that Murphy is proposing as part of his nine-month budget. That’s much better than the $34 billion originally forecast earlier this year for the same period. However, it still falls short of the $38 billion that was collected through the end of the state’s traditional 2020 fiscal year, according to budget documents.
Taxes: Among the new taxes Murphy proposed are some that he’s sought to get through the Legislature before. They include the establishment of a true millionaires tax, which would increase the rate on earnings over $1 million and up to $5 million, from 8.97% to 10.75%. Murphy is also asking lawmakers to keep in place a surcharge on the income of top-earning businesses that was supposed to be phased out over the next few years. A new tax on limousine services is also being proposed. Taxes and fees for guns and ammunition would also go up. And the tax rate on all retail boat sales would double under Murphy’s tax proposals, generating about $1 billion in new revenue.
Borrowing: A total of $4 billion in new borrowing without voter approval is assumed as part of Murphy’s overall spending plan for the nine months beginning Oct. 1. That would equal about 10% of the state’s total budget for the traditional, 12-month fiscal year. The state Constitution generally prohibits such deficit spending, but it allows for exceptions, including to help the state respond to a war or major emergency. However, though Murphy has budgeted for the $4 billion in borrowing, it’s not a given. The Legislature established a four-member panel of lawmakers with the power to approve or reject any specific borrowing proposal put forward by the Murphy administration.
Property-tax relief: The stopgap spending bill enacted in late June left out funding for popular state property-tax relief programs like Homestead and Senior Freeze. Murphy’s nine-month budget plan would provide full funding for those programs. Murphy administration officials also say they intend to make whole those who went without Homestead credits in May, and those who did not receive Senior Freeze reimbursements starting in July.
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 revenue losses. The Murphy budget would set aside more than $2 billion in reserve, which would cover roughly 5% of spending in the event a second wave of the virus led to a new round of shutdowns.
Pension funding: The governor’s budget plan would hike total spending on public-worker pensions by more than $1 billion, to nearly $4.9 billion. 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 consider to be a “full” contribution, even as the state sticks to a funding ramp-up plan that began during former Gov. Chris Christie’s tenure.
Federal aid: Murphy has repeatedly called for the federal government to provide additional assistance to New Jersey and other states to help them navigate budget problems triggered by the pandemic. But a deal on a new round of federal relief has yet to be approved and Murphy’s budget does not count on any of that money coming in before Oct. 1. However, his budget does rely on funding from the previously approved federal CARES Act, including to help offset state spending on things like mass transit and higher education.
Higher education: Murphy’s proposal holds four-year public colleges’ operating aid steady, administration official said Monday. Yet the revised budget report posted by the state treasurer’s office on Tuesday shows a decrease of more than $102 million to senior public institutions, compared with the 2020 fiscal year budget ending June 30. That document indicates the reduction is due to the elimination of spending items lawmakers had added to the budget through resolutions, often called “Christmas Tree” items, just before its passage. Still, some college officials questioned the total and a review of budget resolutions found that lawmakers had added at most $45 million through resolutions.
County colleges would lose $25 million in operating support for October through the end of June 2021, administration officials said. In a statement, the New Jersey Council of County Colleges said the state’s 19 two-year public institutions already are slated to lose $34 million in operating aid from last April through the end of September, which means a total loss of $59 million.
Baby bonds: Murphy proposed a state “baby bond” program similar to one U.S. Sen. Cory Booker (D-NJ) unveiled two years ago. Murphy said he wants to deposit $1,000 into an account for every child born in 2021 to a family with income of up to $131,000 a year, which is 500% of the poverty level and about $50,000 more than the state’s median household income in 2018 as measured by the U.S. Census American Community Survey. That would benefit about 72,000 children born in 2021, according to budget documents. Administration officials did not respond to a request for additional information, such as how the program would be administered and where the money would be deposited. It would cost at least $72 million just for the benefits, with likely additional costs for administration. Some social justice advocates welcomed the announcement; the New Jersey Institute of Social Justice, in a statement, called it “an important step in promoting wealth-building for families that have previously been left out of our state’s prosperity.”
Immigrants: Social and immigrant advocacy groups said they were disappointed the budget proposal does not include any assistance to undocumented immigrants who pay taxes but were ineligible for the direct federal stimulus payments to individuals last spring due to their status. Groups have been rallying for months for relief and calling on Murphy to use some of the federal COVID-19 relief funds the state has received to help immigrants.
“This budget does not address the struggles of our immigrants who have been cut out of federal relief efforts,” said Dena Mottola Jaborska, associate director of New Jersey Citizen Action. “These are our neighbors and friends, state residents who pay taxes and make up an important part of our workforce. Many risk their lives by performing essential jobs while the pandemic rages. We can address their and other unmet pressing needs by finding other equitable sources of revenue.”
Affordable housing: In his remarks, Murphy pledged to “protect our commitment to affordable housing through our investments into the Affordable Housing Trust Fund.” But the brief budget document released Tuesday shows Murphy seeking to divert almost $31 million from the trust fund to pay for other housing-related programs and “offset general expenditures” — something the governor has criticized his predecessor for doing. Still, Staci Berger, president and CEO of the Housing and Community Development Network of New Jersey, praised Murphy for continuing to invest in affordable housing, for his work to protect homeowners and renters during the pandemic and for calling on lawmakers to pass S-2340, which would provide mortgage payment relief and eviction protection for those impacted by COVID-19.
— Colleen O’Dea contributed to this story.