State lawmakers are planning to send Gov. Phil Murphy a budget bill later this week that calls for even more spending and borrowing than he originally asked for.
The first votes on a $32.7 billion spending bill formally introduced by lawmakers on Monday are scheduled to be held Tuesday afternoon in budget committees in the Assembly and Senate.
Also scheduled for committee review on Tuesday are a series of tax hikes proposed to back up the Legislature’s spending bill.
Millionaires tax on the table
Among them are a higher tax rate for individuals earning over $1 million and up to $5 million and an extension of a tax surcharge levied on top-earning businesses that was supposed to begin phasing out this year.
The Legislature’s budget bill also assumes $4.5 billion will be raised by issuing new debt without voter approval, tacking on $500 million to Murphy’s own request. The total amount of spending proposed by lawmakers for the next nine months is also slightly larger than the $32.4 billion requested by Murphy.
The budget details were made public just before 7 p.m. Monday, less than a full day before the budget committee hearings were scheduled to be held.
Under the current schedule, the budget bill and the separate pieces of tax legislation could all go through both houses of the Legislature on Thursday before landing on the governor’s desk by the end of the day.
Murphy and fellow Democrats who control the Legislature have until Oct. 1 to take action on the budget since the spending bill is needed to cover appropriations between Oct. 1 and June 30, 2021.
$1 billion in tax increases
Murphy proposed about $1 billion in tax increases to help offset revenue losses his administration has been projecting during the ongoing pandemic. His budget also called for increasing year-over-year spending despite the revenue losses. Among his proposed tax changes was a plan to increase the state income-tax rate on annual earnings over $1 million up to $5 million that he has been trying to enact since he took office in early 2018.
Democratic legislative leaders announced last week that they were dropping their long-standing opposition to establishing a true millionaires tax at the same time Murphy threw his support behind their plan to create a new tax-relief program that would benefit some New Jersey families, but not until next summer.
Murphy’s administration has estimated the proposed millionaires tax will generate nearly $400 million in new revenue by lifting the rate from 8.97% to 10.75%, retroactive to Jan. 1, 2020. Another $210 million would also be raised to support the new budget by keeping in place what was supposed to be a temporary surcharge levied on businesses with annual profits totaling over $1 million.
Lawmakers are also planning to vote on Tuesday on a proposal to increase a tax levied on what Health Management Organizations charge consumers for health policies. That tax-policy change was projected by the Murphy administration to raise a little over $100 million for the new budget.
Bye-bye ‘baby bonds’
But lawmakers appear to be rejecting several other tax hikes that had been sought by Murphy as part of the budget plan he put forward on Aug. 25. Among the tax proposals that appear to have been cast aside by lawmakers are higher rates levied on boat sales, cigarettes and firearms. The budget bill also doesn’t fund a “baby bonds” proposal that Murphy included in his original spending plan.
Meanwhile, the legislative budget appears to set the stage for up to $4.5 billion in new borrowing to support deficit spending amid the coronavirus pandemic. More details related to the new debt are expected to be released on Tuesday by the Department of Treasury.
The New Jersey Constitution generally prohibits deficit spending, but it allows for exceptions such as helping the state respond to a war or major emergency. Earlier this summer, lawmakers gave preliminary authorization for up to $7.2 billion in borrowing without voter approval over the next nine months.
The legislative budget sets aside roughly $2.5 billion as surplus, which is slightly higher than what Murphy requested in his own budget plan. New Jersey was among the states that went into the downturn caused by the pandemic earlier this year with only a small percentage of its annual spending socked away in reserve, even though lawmakers had been warned often to build up a better surplus. That left little cushion to absorb the revenue losses and forced the state to, among other actions, pursue emergency borrowing.
Less to public-worker pensions
But lawmakers appear to be slightly reducing Murphy’s planned contribution to the public-worker pension system by $200 million, to $4.7 billion. New Jersey’s pension system is already one of the nation’s worst-funded state retirement plans, and the legislative budget will continue a long-standing trend of not funding what would be considered by actuaries to be a full contribution.
The budget bill also continues the practice of using property-tax bills from 2006 instead of more current ones to calculate Homestead property-tax relief benefits that go to thousands of seniors, disabled and low- and middle-income residents.
The budget language effectively reduces how much homeowners should receive from the state under the law that established the Homestead program. While it’s hard to measure the exact impact of this practice on each Homestead recipient’s benefit, the average property-tax bill in 2006 in New Jersey was nearly 40% smaller than last year’s average bill, according to Department of Community Affairs data.