New Jersey should spend a record $44.8 billion in its next state budget, Gov. Phil Murphy proposed Tuesday, an increase in year-over-year spending by more than 10%, with aid for local schools, small businesses and offshore wind generation all among the areas in line for more cash.
Murphy’s new state budget proposal calls for yet another big boost in overall spending, but this time without new tax hikes, thanks in part to what’s expected to be New Jersey’s strong economic recovery from the coronavirus pandemic.
The spending proposal would also take a major step forward when it comes to funding the state’s long-troubled public-worker pension system. It proposes what would be considered by actuaries to be the state’s first full pension contribution in more than two decades.
Murphy, now seeking a second term in November’s election, also set aside funding for a new tax-relief initiative that he says will provide thousands of New Jersey families with up to $500 in previously promised direct payments later this year.
However, none of the tax increases that Murphy, a first-term Democrat, enacted last year amid emergency conditions triggered by the health crisis are being rolled back, despite what’s now forecast to be an improving outlook for long-term tax-revenues.
Funding for some of the state’s most popular property-tax relief programs would also be held flat — or even go down in some cases — in the new fiscal year, according to budget documents the Murphy administration shared with reporters on Monday in advance of the governor’s budget message.
Still on the hook for $4B in long-term debt
New Jersey taxpayers will also remain on the hook to pay down with interest nearly $4 billion in noncallable (meaning the bonds cannot be prepaid or paid off early) long-term debt. That debt was issued last year over objections from Republicans when Murphy and fellow Democrats, who control both houses of the Legislature, decided to sell bonds without voter approval to help offset projected revenue losses that haven’t materialized in full.
Instead, the Murphy administration upgraded revenue forecasts for the current fiscal year and is also projecting tax collections will grow by a healthy 4% year-over-year, according to the budget documents, during the 2022 fiscal year, which runs from July 2021 through the end of June 2022. The state could also receive more coronavirus aid from the federal government as talks in Washington, D.C. continue.
It will now be up to lawmakers to decide what to do with the governor’s spending plan. Tuesday’s budget announcement kicks off a lengthy review process that must end before July 1. Lawmakers now must either convert Murphy’s budget plan into an appropriations bill and enact it unchanged, or draft their own bill and send that to the governor for final consideration before the deadline.
This year, in addition to Murphy, all 120 legislative seats are also on the November ballot.
Democratic lawmakers were largely receptive to the governor’s spending proposals following his afternoon budget address, which was pre-recorded and delivered online instead of before a joint session of the Legislature because of the pandemic.
But Republicans criticized Murphy, accusing him of letting Treasury become flush with cash to fund his priorities rather than delivering assistance more quickly to businesses and others who have undergone hardships during the health crisis.
Meanwhile, public-worker union officials heaped praise on Murphy for planning to make a full pension contribution and business groups welcomed a budget with no new taxes though they also raised concerns.
In all, total spending would increase by well over $4 billion compared to the 12-month appropriations that Murphy and lawmakers approved amid the pandemic last year.
First full pension contribution in years
A big chunk of the planned new spending will cover the proposed step-up to full funding of the state’s annual public pension contribution. The payment made in the fiscal year that begins in July would total $6.4 billion, counting dedicated revenues from the state Lottery, Department of Treasury officials said during a background briefing held Monday.
The state has long shirked its responsibility to make a full pension contribution — including during the first few years of the Murphy administration — leaving New Jersey’s pension system as one of the nation’s worst-funded state retirement plans.
Since taking office in early 2018, Murphy had been following a gradual pension-funding ramp-up plan established by Republican predecessor Chris Christie.
But with the state’s fiscal position having improved in recent months thanks to the tax hikes, borrowing and the better-than-expected revenue collections, Murphy has decided to fund what would be considered the state’s first full pension contribution since 1996 a year ahead of his previously stated schedule. The annual pension payment in the current budget is $4.7 billion, counting the Lottery contributions.
“We’ve been able to get there,” Treasurer Elizabeth Maher Muoio said about the planned full payment during a briefing Monday on the budget.
“It has clearly been a priority for this governor and, frankly, it’s been an albatross around the neck of budgets for decades,” she said.
Treasury officials also said they expect making a full payment earlier than expected will generate long-term savings, in part by not adding to the pension system’s already substantial unfunded liability. But they did not offer a concrete plan to maintain pension funding at the new level beyond one year.
Big increase in K-12 school aid
Also in line for a big funding increase is direct aid for K-12 schools, known as “formula aid.” That allocation would increase by $578 million, according to the budget documents. Funding for preschool education would also increase under Murphy’s proposed spending plan.
Meanwhile, state funding for a Main Street business-relief program would also be renewed, pushing total two-year spending to $100 million, administration officials said. That’s still less than what’s being sought in a bipartisan bill recently introduced in the Senate that calls for some $300 million in immediate funding to support small businesses and nonprofit organizations hit hard by the pandemic.
An estimated 760,000 New Jersey families would be in line to receive direct payments from the state worth up to $500 later this year under a more than $300 million program that would be funded in the new budget, Treasury officials said.
Murphy and lawmakers had promised to establish that program last year when they also struck a deal to enact a true millionaires tax. But they did not immediately fund the relief program at the time, even though the millionaires tax went into effect immediately last year.
The governor’s budget proposal calls for once again expanding the state’s popular Earned Income Tax Credit for low-wage workers. This time, the expansion would additionally benefit seniors without any qualified dependents, administration officials said.
But funding for the state’s popular Senior Freeze property-tax relief program would be held flat under Murphy’s budget plan. So too would state aid to New Jersey municipalities, which can also help ease pressure on property taxes.
Budget documents also indicate the allocation for the Homestead relief program would be reduced slightly in the new fiscal year.
While the final allocations are subject to negotiations with lawmakers, the governor’s proposed funding for the direct property-tax relief programs suggest income limits for the Homestead benefits will again remain unchanged. A practice of using outdated tax bills to calculate benefits could also continue unless lawmakers intervene, meaning the Homestead benefits will again not keep pace with rising New Jersey property-tax bills, which hit a record average high of $9,112 last year.
Another raid on Clean Energy Fund
Murphy’s budget plan also calls for another $82 million to be raided from the state’s Clean Energy Fund to help support spending by New Jersey Transit, administration officials said. Environmentalists and other advocacy groups had called on Murphy to take advantage of the state’s brightening fiscal outlook to end Clean Energy Fund raids, and to also put NJ Transit on a more secure financial footing coming out of the pandemic.
Administration officials also said during Monday’s background briefing that NJ Transit will continue to use millions of dollars in capital resources to help fund its operating budget, a practice transportation advocates have long criticized. Funding from the New Jersey Turnpike Authority will also prop up the NJ Transit budget, as will a $100 million subsidy from the budget’s General Fund, the officials said.
In energy-related spending, the Murphy proposals include $200 million in funding for the development of the Offshore Wind Port being developed as a clean-energy project in the Delaware Bay off Salem County.
The new fiscal year is slated to begin in July with more than $6 billion in budget reserves, but the Murphy administration is planning to spend down of a good portion of the reserves rather than sock away funds for the next downturn. They defended the move as necessary given the need to boost the state economy, which continues to be saddled with high unemployment amid the ongoing health crisis.
Murphy is planning to maintain a surplus of nearly $2.2 billion by the time the 2022 fiscal year comes to an end, according to the budget documents. Those budget reserves would be roughly 5% of total planned spending.
“But for the pandemic, this is probably not the situation we would be in,” a Treasury official said during Monday’s briefing.
And while New Jersey voters approved marijuana legalization at the polls last year, and Murphy just signed into law on Monday legislation that clears the way for adults to use marijuana recreationally for the first time ever in New Jersey, no revenue from legalized cannabis is being counted on to balance the new budget, Treasury officials said.
Democrats and Republicans differ
In her response to Murphy’s proposals, Assembly Budget Committee Chair Eliana Pintor Marin (D-Essex) said lawmakers must be “cognizant of the current challenges we face due to COVID-19 and make investments to help our economy and residents recover.”
“We appreciate the breadth and positivity of the Governor’s proposals, and we share his goal of moving New Jersey forward,” she said.
Senate Budget and Appropriations Committee Chair Paul Sarlo (D-Bergen) credited Murphy for putting forward spending proposals that would “address emergent needs” while also boosting support for the pension system, schools and small businesses.
“The Governor has done his job by presenting us with a budget proposal and it is now the Legislature’s responsibility to give the proposal a thorough review and put in place a fiscally responsible spending plan,” Sarlo said.
But Sen. Steve Oroho (R-Sussex) said the goal of Murphy’s budget plan is “about protecting one job, his own.” He also estimated state spending will have increased by nearly 30% during Murphy’s tenure if all the new proposals are enacted by lawmakers later this year.
“If Governor Murphy is reelected, it’s an absolute certainty he’ll call for tax increases next year to keep his spending spree going,” said Oroho, who also serves on the Budget and Appropriations Committee.
Republican gubernatorial candidate Jack Ciattarelli also took aim at Murphy, repeatedly using the word “insult” to describe the governor’s new budget proposal.
“An insult to working families fighting to keep their business afloat. An insult to the parents watching their children suffer through another lost school year. An insult to the millions of New Jerseyans struggling to pay their bills and hold onto their jobs,” Ciattarelli said of the governor’s plan.
— 5:15 p.m. This story was updated with reaction to Gov. Phil Murphy’s speech, including from Democratic and Republican lawmakers.