Gov. Phil Murphy and legislators enacted a law earlier this month that will allow up to $11.5 billion in state tax breaks to be awarded to businesses within seven years.
In response to the economic downturn and revenue losses triggered by the coronavirus pandemic, they also agreed to hike taxes and issue roughly $4 billion in long-term debt to help sustain the state budget.
On the heels of two recent credit-rating downgrades, Murphy and fellow Democrats who control the state Legislature, have, at least in the short-term, chosen to combat fiscal challenges presented by the health crisis with increased spending and new taxes and tax expenditures.
An improving economy coming out of the pandemic could lift the budget outlook by boosting state tax collections. But whether there will be enough revenue to fully fund all the state’s recent spending commitments over the long term remains an open question.
The borrowed money that’s helping to sustain the current state budget also runs out later this year, even as the cost of many big line items is still rising, like the state’s required annual public-worker pension system contributions.
Time to talk?
That’s leading many to signal that it’s now time to discuss new ways to reduce state spending or enact cost-saving reforms to help keep the budget in balance.
Among them are Senate President Steve Sweeney, who repeatedly said during a recent meeting with NJ Spotlight News reporters and editors that “reforms have to happen.”
“I’m telling you right now, I’m not doing (increased) taxes or fees until (there’s) reform,” Sweeney (D-Gloucester) said.
Last year, Murphy furloughed some state workers and enacted a hiring freeze as part of the state’s response to the pandemic and the revenue losses triggered by it. But the governor was also able to secure support for a true millionaires tax, something he’d sought since taking office in early 2018.
To help support a year-over-year spending increase, Murphy and lawmakers also agreed that a temporary surcharge on top-earning businesses would become permanent. They kept in place the Earned Income Tax Credit expansion for low-wage workers.
New Jersey’s new tax policies were among those highlighted last week by the Center on Budget and Policy Priorities, a left-leaning think tank based in Washington, D.C., during a broader discussion of ways state tax policies can influence economic recovery, including in communities of color.
Helping those hit hardest by crisis
“The health of state finances is critical to addressing the dire needs of those hit hardest by the crisis,” said Erica Williams, the group’s vice president for state fiscal policy.
“It’s critical to dismantling long-standing racial and economic inequality, and it’s critical to creating strong economies, through our schools, our health system (and) our roads and bridges,” she said.
Murphy is due to propose a new state budget next month; during his State of the State address last week, he gave no indication that a major change in fiscal policy is coming. Instead, he blamed cutbacks pursued during the Great Recession by prior administrations for bringing on “the slowest recovery of any state in the nation.”
“We must accept the fact that we can’t grow and strengthen the middle class by pulling the rug out from under it — and that we can’t cut and slash our way to growth and opportunity,” Murphy said.
Asked for a response to Sweeney’s comments about taxes and the need for reform, Murphy spokesman Darryl Isherwood said the administration is “examining all options in preparation for the rollout of the Governor’s proposed budget.”
“The upcoming budget will continue to present challenges and we look forward to working cooperatively with the Legislature to meet them,” Isherwood said. “As we have done in past years we are looking for both reforms and cost-saving measures to be sure every dollar is spent wisely “
This isn’t the first time that Sweeney, the longtime Senate leader, has led a charge for spending reforms during the tenure of Murphy, a fellow Democrat who faces reelection later this year.
Sweeney spent much of 2018 and 2019 advocating for school consolidations, changes to public-worker pension and health benefits, and other fiscal-policy reforms that were included in a “Path To Progress” package of proposed legislation while Murphy was consistently backing tax hikes and increased spending.
Sweeney largely sidelined his push for new spending policies in response to the pandemic, and he and other Democrats rallied in support of the governor as he led the state’s response to the health crisis.
But Sweeney said he now wants to see the state resume increases in K-12 education aid when New Jersey emerges from the pandemic, and he is again talking about enacting new spending policies and reforms. The Senate leader also believes he has a new commitment from Murphy to pursue at least some of those reforms.
“I was given commitments from the administration’
“We’re not done. I was given commitments when we did this last budget,” Sweeney said, referring to deals lawmakers cut with the governor in September that cleared the way for emergency borrowing and the adoption of the true millionaires tax.
“I was given commitments from the administration that I’m going to hold them to,” Sweeney said.
Also making a case for New Jersey to get serious about reforms amid the latest economic downturn have been business-lobbying groups like the New Jersey Business & Industry Association.
Michele Siekerka, the association’s president and chief executive officer, praised the corporate tax-break law Murphy enacted this month, when responding to last week’s State of the State address. But she also issued a warning, saying “more must be done to reverse our untenable increases in spending and borrowing and deepening fiscal deficits.”
“For the sake of our affordability and fiscal survival, impactful fiscal reforms must now supplant the excessive taxation on our overburdened residents and businesses,” Siekerka said. “Without that commitment, New Jersey’s considerable challenges will only grow greater.”
Meanwhile, on the political front, Republican Jack Ciattarelli, Murphy’s likely opponent in the fall gubernational election, has also been preaching a message of lower taxes and reform.
“Gov. Murphy has been in power for three years now,” Ciattarelli said in a message on social media in response to Murphy’s State of the State address. “It’s time for us to ask ourselves, are we better off?”