Gov. Phil Murphy now has an election-year budget, packed with new spending on public-worker pensions, tax relief, debt reduction and more, a budget lawmakers rushed to his desk amid a flurry of activity this week.
The final votes on the Legislature’s record-high, $46.4 billion spending bill came Thursday afternoon in both the Assembly and Senate, with majority Democrats easily carrying the day in both houses.
Despite the haste with which the spending bill was sent to Murphy — it went from introduction to final passage in only a matter of days — the governor now has plenty of time to take action before the July 1 start of the next state fiscal year.
Murphy, a first-term Democrat who faces reelection in the fall, is expected to sign the Legislature’s spending bill unchanged.
But even before the final votes were cast in the State House on Thursday, many had already begun calling for a reform of the legislative budget process, suggesting this week’s events harkened back to a decade-and-a-half ago, when an opaque budget process helped foster a public-corruption scandal.
In all, the Legislature’s spending bill, buoyed by an unexpected tax revenue windfall in recent weeks, tacked on more than $1.5 billion to a spending proposal that Murphy put forward in February.
During the floor debates in both houses, Democrats praised the budget legislation, which calls for a nearly 15% year-over-year spending increase.
They highlighted the focus on addressing long-standing state fiscal issues like debt, while at the same time funding tax relief and other programs coming out of the coronavirus pandemic.
“This budget represents an important statement to all New Jersey residents: We are primed and ready to rebound from the pandemic,” said Senate President Steve Sweeney (D-Gloucester).
“In many respects, it’s a COVID-recovery budget that makes the best use of public resources to address the needs of New Jersey as we emerge from the most severe public-health crisis of a lifetime,” said Senate Budget and Appropriations Committee Chair Paul Sarlo (D-Bergen).
“It’s really more than just a spending plan. It’s also a plan for savings, for debt reduction … for tax relief and for investing in our future,” Sarlo said.
Too rushed, too secretive, complain Republicans
Republicans faulted the Democrats for rushing this record spending plan to the final votes without leaving adequate time to scrutinize several hundred million in last-minute additions, including funding for pet projects and other legislative priorities. Interest groups and activists as well called out lawmakers this week for a process that seemed to shut out public input.
“This budget was decided in private by Gov. Murphy and a handful of others. Republicans, and even many Democrats, didn’t have a say. The public didn’t have a say, either,” said Senate Minority Leader Tom Kean (R-Union).
“The biggest concern we have … is the out-of-control spending. How do we maintain that into the future? We can’t,” said Sen. Robert Singer (R-Ocean).
Last year, the Murphy administration projected steep revenue losses would be triggered by the coronavirus pandemic and lawmakers agreed to borrow roughly $4 billion to sustain the annual budget. A series of tax hikes was also enacted last year, including on millionaires and top-earning businesses.
But the shortfalls projected by the administration never materialized. Instead, the state’s coffers became flush with cash, helping to build a cushion that’s now projected to be more than $10 billion heading into the 2022 fiscal year, which begins on July 1.
New Jersey was one of the nation’s most indebted states before last year’s borrowing issue, and the spending bill approved on Thursday sets aside $2.5 billion for paying down state debt. Another $1.2 billion is being earmarked to fund planned capital projects on a pay-as-you-go basis rather than funding them with new borrowing.
Something for a rainy day
Meanwhile, the spending bill calls for there be to a $1.3 billion balance in the state’s “rainy day” fund by the time the next fiscal year closes on June 30, 2022. The fund is a restricted budget reserve that hedges against economic downturns. The fund has long been ignored or only partially replenished by governors and lawmakers, a practice that leaves the state vulnerable whenever revenues slide during a recession.
Another nearly $600 million is being left as an unreserved fund balance, which is another budget reserve, according to the spending bill. Taken together, those two budget reserves equal roughly 4% of total planned spending.
One of the biggest pots of money in the Legislature’s budget, as has been the case for decades, is funding for public education. About $18 billion is earmarked for public education, with roughly half of that going as aid to local school districts.
Lawmakers tacked on to Murphy’s own budget request another $100 million for extraordinary special education when they drafted the spending bill earlier this week. Still, the state’s school-aid law will remain underfunded, as it has for roughly a decade.
But the budget legislation earmarks nearly $7 billion for the public-worker pension fund, which will be a record contribution for a state that has failed to make full actuarially required contributions for more than two decades.
Election-year tax relief
Lawmakers have also set aside plenty of funding for election-year tax-relief initiatives. They include a new rebate program that is being offered to more than 750,000 New Jersey families.
Households earning up to $150,000 with at least one dependent child, and single parents with at least one dependent child, will be eligible to receive tax rebates this summer worth up to $500, according to details that have already been made public.
In addition to Murphy, all 120 legislative seats are on the November ballot.
The new budget will also increase the size of Homestead rebates for thousands of senior and disabled, and low- and middle-income New Jersey homeowners by ending a long-standing practice of using outdated property-tax bills to calculate benefits under the program. That practice had eroded the effectiveness of the Homestead program since New Jersey’s average property-tax bills have risen by more than 40% over the past 15 years.
Changes to the Earned Income Tax Credit for low-wage workers and another tax credit offered for child and dependent care are also funded under the new spending bill. It will also increase the exclusion for a state income-tax break for retirement income from $100,000 to $150,000.
Meanwhile, the legislative budget gives lawmakers some say in determining how the state will appropriate the more than $6 billion in COVID-19 relief New Jersey has received under the federal American Rescue Plan Act, including funding to help people who have fallen behind on their rent and utility bills during the pandemic.
Lawmakers have drawn praise in recent days for some of the additions they made to Murphy’s original budget plan, including aid for public colleges and hospitals, and for reversing a planned diversion from New Jersey’s Affordable Housing Trust Fund.
But the speed with which they drafted and approved this year’s budget bill, and some of the added spending for pet projects and other handpicked budget items was roundly criticized, including by Republicans, but also many activists and interest groups.
Some legislative leaders and Murphy have suggested in recent days a willingness to make improvements to the budget process, but none have advanced any specific proposals in response to the criticism.
“If we want the state to live up to its stated values, we cannot continue with business as usual. We’re not interested in lip service anymore. We’re interested in action,” said Brandon McKoy, president of New Jersey Policy Perspective, a progressive think tank based in Trenton.
So-called budget resolutions that are supposed to document each legislative addition to the budget bill were also not made public before it was passed out of both full houses. The budget resolution process was established among a series of ethics reforms adopted in the wake of the public-corruption scandal that engulfed the budget process in the mid-2000s.
“All proposed changes to the budget, as well as the author of each change, will be published at least 14 days prior to consideration of the appropriations bill by the Senate,” the Senate Democratic leadership promised in a news release at the time.