Budget talks are apparently off to a good start this year, at least according to some of the state’s top lawmakers. But Gov. Phil Murphy’s $40.9 billion spending plan — unveiled during a Feb. 25 statehouse speech — left Republicans fuming and many fellow Democrats on the fence over some provisions. So, everything is New Jersey normal.
Negotiations over the budget should begin in earnest, with hearings likely stretching well into the spring. And if the last two years are any indication, the governor, Senate president and Assembly speaker will quicken the pace of the process in the two weeks leading up to the June 30 deadline.
“This is the best budget, the best numbers that I’ve seen since I’ve been Senate president,” Sen. Stephen Sweeney, D-3rd District, told reporters following the budget address.
And a source within the Legislature, who requested anonymity to speak freely on the matter, said many lawmakers reacted warmly to the speech, “for the most part.”
The sticking points come down to taxes — on millionaires, cigarette sales and businesses with employees on Medicaid. According to the source, lawmakers and insiders are skeptical about the prospects of a deal on the millionaire’s tax, under which Sweeney would support it in exchange for an additional $1 billion in state pension funding.
The corporate responsibility fee on businesses that have employees enrolled in Medicaid, and the cigarette tax increase from $2.70 to $4.35 a pack already had support, this person said. The latter increase could bring in an additional $218 million, meaning the state would earn a total of $742 million every year from the sale of cigarettes.
While Sweeney quickly staked his position on what taxes he would support and oppose, his counterpart in the lower house, Assembly Speaker Craig Coughlin, D-19th District, took a more reserved approach.
“I remain cautious of increasing broad-based taxes,” he said in a statement following the budget address.
“For the state to create an economy that works for the many, New Jersey needs big and bold tax reform to fully fund programs and services that were slashed over the past decade,” New Jersey Policy Perspective President Brandon McKoy said in a Feb. 25 statement.
“The millionaires tax is an important step toward that goal but, with wealth inequality at an all-time high, the state can and must do more to ensure millionaires and big corporations pay their fair share.”
Business groups and Republican lawmakers were quick to criticize Murphy’s proposed revenue increases.
Assembly Republican Leader Jon Bramnick, R-21st District, decried the budget as a “missed opportunity” to address what he argued are affordability issues in the state. He was particularly critical of the cigarette tax.
“We’re competing with Pennsylvania, so all those businesses on the border are simply going to be hurt and those people who want the cigarettes are driving across the border,” Bramnick said at a news conference following Murphy’s address.
“If the governor continues driving taxes higher and shunning reforms proposed by the Legislature to cut the cost of government, we’re going to see a continued exodus from New Jersey,” added Senate Republican Leader Tom Kean Jr., R-21st District, in a Feb. 25 statement.
Business groups agreed that none of the affordability issues they have been pressing this past year have made their way into Murphy’s budget proposal.
Given that the budget calls for a $1.6 billion surplus, Michele Siekerka, president and chief executive officer of the New Jersey Business & Industry Association, questioned then why the state needs the millionaire’s tax. Under the proposal, the state would levy a 10.75 percent rate on every dollar earned above $1 million, which is expected to generate $494 million next year.
“How can tax increases be justified at a time of a budget surplus, built largely on the backs of business, and when spending on discretionary items is going up by hundreds of millions of dollars?” she asked in a statement.
“Without that fiscal discipline and political resolve, New Jersey will continue along the path of ballooning budgets and ever-escalating taxes,” Siekerka added. “And our affordability crisis will worsen as we wonder what new or increased tax will be proposed next year to fund the pension system.”
The governor maintained in his budget address that “there is not one iota of hard economic evidence that has proven the myth of millionaire tax flight” – an argument that did not sit well with Tom Bracken, president and chief executive officer of the New Jersey Chamber of Commerce.
“All the governor’s proposed new tax will do is make New Jersey less competitive and less affordable,” Bracken said.
“Combine this tax with the tax increases and fiscal mandates that New Jersey has enacted over the past two years, along with the fact we still have no tax incentive program, and it makes our state that much less competitive as a destination of choice for business.”
Murphy did not propose raising the sales tax, nor does the administration contemplate extending the 2.5 percent surtax on the corporate business tax, which will fall to 1.5 percent for the next two years.
Those existing tax rates are “on top of New Jersey’s onerous regulatory climate,” said Ralph Albert Thomas, who heads the New Jersey Society of Certified Public Accountants.
“We applaud the governor for not including in his proposed budget an increase in New Jersey’s sales tax and changes to the state’s overall corporate business taxes, but his proposal to expand the millionaires’ tax will drive high-earning residents and their tax dollars out of the state and hurt small businesses that flow their income taxes through personal returns, while doing nothing to address New Jersey’s ballooning pension liability,” he said.
The governor did propose paying $4.9 billion into the pension system this year, still far short of the $6.1 billion per year the state is actuarially required to make. New Jersey would not reach that level until the 2023 fiscal year, which starts on July 1, 2022.
Murphy contended during his budget address that he would be a trailblazer in property tax relief. “No other administration has done so much in its first two years to control property taxes, or to deliver more property tax relief,” he said.
His budget includes over $1.2 billion in programs that would reduce the tax bill for seniors, veterans and many lower-income residents. And it includes nearly $19 billion in direct aid to local governments to take pressure off residents. At an average of nearly $9,000 a year, New Jersey’s property tax bills are often considered the highest in the nation.
But former-Gov. Chris Christie enacted a 2 percent cap on annual property tax increases, and the late Gov. Brendan Byrne actually signed the law creating the income tax, which is required to go to property tax relief.
“[D]espite revenue collections over $1 billion ahead of last year’s collections, and the governor’s stated plan to reduce structural costs, for the third straight year, Governor Murphy presented a budget that raises taxes and increases spending even more. With all of the promises of relief, why aren’t property tax payers seeing tax reductions?” Regina Egea, president of the conservative-leaning Garden State Initiative, said following the budget address.
The American Cancer Society of New Jersey Cancer Action Network, Home Care & Hospice Association of New Jersey, the New Jersey Pharmacists Association, the New Jersey Council of Chain Drug Stores, in a joint statement after the address, criticized Murphy’s proposal to impose $20 million in fees on opioid manufacturers.
“Combating opioid addiction must be a focus of the legislature. However, opioid-based medications are a crucial component of pain management, particularly for end-of-life and at-home care,” HCHANJ President Nancy Fitterer said in the statement.
“Our members use opioid-based medications daily when caring for patients with chronic pain, cancer, or degenerative and terminal diseases—all of which can be extremely painful,” Fitterer added. “That is why it is imperative that our hospice and home care patients and providers are able to access prescription opioids at affordable prices.”
On the rails
Environmental groups were widely critical of the New Jersey Transit funding mechanism, because it depends on $82 million from the Clean Energy Fund, a state program that provides utility assistance to the state’s lower-income residents.
“Historic investments in NJ Transit are desperately needed and welcome. But NJ Transit budgets still rely on habitual raiding of the Clean Energy Fund,” Doug O’Malley, director of Environment New Jersey, said in a statement following the budget address.
“There needs to be a commitment to provide a stable, dedicated funding source for NJ Transit, to use Clean Energy Fund transit dollars to electrify NJ Transit buses and then permanently dedicate the Clean Energy Fund.”
Still, top lawmakers on transportation issues, such as Senate Majority Leader Loretta Weinberg, D-37th District, a member of the Senate committee examining NJ Transit, were optimistic about the governor’s proposal.
Murphy proposed a $132 million increase to the state subsidy for the agency. That is far higher than the $25 million net increase his administration insisted on during budget talks last year, even though they ultimately agreed to another $50 million from the state Legislature.
“Even with that $50 million added, NJ Transit acknowledged it would be facing at least an $86 million deficit for the upcoming year,” Weinberg said. “That is why we are pleased that the governor provided a $132 million increase in his budget proposal that the Legislature will surely support.”
The rail and bus operator also gets $129 million from the New Jersey Turnpike Authority.
Fares, which Murphy promised not to increase, make up roughly half of the agency’s budget. NJ Transit still depends on $466 million from its capital expense budget, meant to finance long-term upgrades – a practice Murphy has criticized and repeatedly vowed to end.
Lawmakers hope to push through $500 million funding proposal for NJ Transit, which would bar those kinds of raids from long-term capital, on the November ballot, and include bumping up the corporate business tax to bring in $300 million for the often cash-strapped agency.
“The biggest and most successful mass transit agencies in the country get 50 percent or more of their non-farebox revenue provided through dedicated funding, and our proposed constitutional amendment – which also includes $300 million in Corporation Business Tax revenues – will help us get to that percentage,” Weinberg added.
Activists and other groups aligned with the governor voiced support for many of the administration’s proposals. Murphy’s budget calls for effectively breaking away from the Christie-era Chapter 78, which currently requires participants of the School Employee Health Benefits plan to pay between 3 percent to 35 percent of their health insurance premiums.
“This is a budget that charts a path to a stronger, fairer New Jersey for everyone. The record investment in K-12 schools will help New Jersey’s public schools maintain their status as the best in the nation,” the New Jersey Education Association, the powerful teacher’s union that backs the proposal and has financed Murphy’s campaign, said in a statement.
The NJEA opposes many of the public worker retirement and health care cuts backed by Sweeney and Murphy has also resisted the proposals.
By the end of the 2021 fiscal year – June 30, 2021 – the state will have deposited $735 million into its rainy day fund, which is a sort of lockbox to help the state weather an economic downturn.
“This budget also takes necessary steps to meet the state’s obligations and prepare for the next economic downturn or superstorm with a record-setting payment into the public pension system and another deposit into the state’s Rainy Day Fund,” New Jersey Working Families Executive Director Sue Altman said following the budget address.
Michael Seilback, national assistant vice president for State Public Policy of the American Lung Association, said that the proposed cigarette tax hike would help discourage would-be smokers and help encourage cigarette-users to quit smoking.
“Not only would the tax directly reduce smoking rates, the increase would help direct much-needed funds to the state’s tobacco control program,” Seilback said.