State lawmakers on Thursday sent Gov. Phil Murphy an election-year budget packed with new spending on public-worker pensions, tax relief, special education, debt reduction and more.
The record-high, $46.4 billion budget plan takes advantage of a recent windfall of tax revenue that is helping the state amass a more than $10 billion surplus heading into the new fiscal year that begins July 1.
But a good portion of that surplus will be used over the next 12 months to support spending that will increase by nearly 15% year-over-year, according to the legislative spending bill. The budget cleared the Assembly with a 49-26 vote and the Senate in a 25-15 vote.
Murphy is now expected to sign the budget legislation without making any changes.
Democrats, who control both the Senate and Assembly, praised the spending bill, which they just drafted earlier this week before advancing it to the floor of both houses in a matter of days. They highlighted the budget plan’s focus on addressing long-standing state fiscal issues like significant bonded 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
But Republicans faulted the Democrats for rushing a 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.
Senate Minority Leader Tom Kean (R-Union) said, “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.”
“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). “This budget just represents bad public policy, and is wrong for New Jersey, and the citizens of New Jersey,” said Sen. Michael Testa (R-Cumberland).
Last year, the Murphy administration projected steep revenue losses 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, $1.3 billion is being left in the state’s “rainy day” fund, which 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.
And $500 million is being left as an unreserved fund balance, which is another budget reserve, according to the spending bill.
One of the biggest pots of money in this budget, as has been the case for decades, is funding for public education. About $18 billion is earmarked for education, with roughly half of that going as aid to local school districts.
The budget legislation also 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
But 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 bills to calculate benefits under the program, according to Murphy and the legislative leaders. 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.
Among other additions, lawmakers added to a budget proposal Murphy put forward in February another $100 million for extraordinary special education, and they reversed a planned diversion from the state’s Affordable Housing Trust Fund.
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.