Lawmakers’ $46.5B budget to add money for pensions, debt-slimming (updated)

State leaders said June 21 they expect to hold their first votes on a record-high $46.5 billion state spending plan in the coming days and send it to Gov. Phil Murphy’s desk this week. The plan has the sign-off from both chambers of the state Legislature.

Murphy has until June 30 to sign the proposal; in February he suggested nearly $45 billion in spending.

The Fiscal Year 2022 budget will begin using the $6.5 billion in federal COVID-relief under the American Rescue Plan, according to a joint statement issued on the afternoon of June 21 from Senate President Stephen Sweeney, D-3rd District, and Senate Budget Chair Paul Sarlo, D-36th District.

That includes $500 million in rental assistance, $250 million in utility relief, $100 million in expanded child care so that more New Jerseyans can physically return to the workplace, $600 million over the next three years for adult special education services, and $180 million for HVAC improvements at schools.

The state’s three Level One Trauma Centers would get roughly $150 million to build up their public health capacity, including isolation rooms, according to senior staff.

Murphy would have $200 million that he could spend as he wishes, with a limit of $10 million for any one item.

According to Sweeney, the governor would need legislative approval for dipping into any of those remaining funds, something that lawmakers contended was lacking under the Trump-era federal aid to the state last year.

“We are ensuring that the Legislature has a shared responsibility” in how those funds are spent, Sweeney said.

Be prepared

A year ago, state officials feared an economic meltdown as tax revenue cratered amid mass business closures to stop the spread of COVID-19. Since then, the state has been buoyed by billions of dollars in added cash, thanks to $4 billion of new debt, budget cuts going into the pandemic, and post-COVID pent up consumer demand.

“We must be cautious and thoughtful in how these funds are used,” Sarlo said in a statement. “We cannot afford to be near-sighted about fiscal conditions that could quickly change and with the use of federal funds with a limited lifespan.”

According to senior staff in the Legislature, the state over the next year will eat into the $10 billion surplus it is expected to see by June 30.

Sweeney and Sarlo said the budget will include $3.7 billion toward debt-defeasance, or the process of paying down much older, more expensive debt.

That includes $2.5 billion to immediately pay off some of the state’s oldest tabs and $1.2 billion to forgo potential debt on new projects. They estimated that the practice could save the state hundreds of millions of dollars in the coming years.

None of the $4 billion in debt from last year could be paid off with this new money, but it nonetheless has much lower interest rates than the more expensive debt state officials want to get rid of.

State leaders, such as Sweeney, have said they regret the borrowing, though Murphy contends that the decision was justified when the debt was taken on in November, given the economic uncertainty at the time.

GOP lawmakers sued last year in an unsuccessful bid to block the borrowing, saying at the time that the funds weren’t needed.

Lawmakers were initially planning to introduce and vote on such a proposal during a June 17 committee hearing, but that was delayed last week. Republicans and open government activists have both decried what they contend is an opaque budget process, especially given the never-before flush fiscal picture for the state.

The budget could go before a vote in both the Senate and Assembly budget committees on June 22, and then full floor votes June 24.

The state plans to dip into $4 billion of its $10 billion surplus over the next year, and by June 30, 2022, expects nearly $6 billion in additional surplus. They’re expected to amass a $2 billion rainy day fund in the event of future economic woes.

“We must be prepared for unexpected economic changes and for unanticipated needs,” Sarlo added.

Lawmakers will vote on adding in $135 million of additional COVID-19 relief for businesses, on top of the $235 million Murphy is likely to approve this week.

The budget would not include a recurring source of revenue for New Jersey Transit, something that transportation proponents argue is vital to overhaul the struggling transit agency without raising fares and cutting services.

Everybody else has got a portion of this money, and to not put NJ Transit is absolutely mind-blowing. It’s bad government, bad politics, bad for our future.
– Senate Majority Leader Loretta Weinberg

“I am extremely disappointed,” retiring Senate Majority Leader Loretta Weinberg, D-37th District, told reporters following the June 21 Senate voting session. “It is short-sighted, and it certainly doesn’t live up to the governor’s promise to fix NJ Transit.

“So to [sic] everybody else has got a portion of this money, and to not put NJ Transit is absolutely mind-blowing,” she said. “It’s bad government, bad politics, bad for our future.”

The budget would also not include any federal funds to replenish the state unemployment trust fund, which has paid out tens of billions of dollars in benefits to residents over the past 15 months amid widespread business closures.

Republican lawmakers proposed spending $2.5 billion over a three-year period to refill the fund, of which $1 billion would go toward paying off loans the state Labor Department took out to cover jobless benefits.

Under the Republican proposal, the other $1.5 billion would go toward preventing business tax increases that will be phased in over the next three years to refill the fund. Businesses will now instead be on the hook for that money.

The budget will also include $10 million toward New Jersey’s aging unemployment computer systems, which last year buckled under the weight of hundreds of thousands of sudden claims. Republicans proposed half a billion dollars for computer and IT upgrades for both the unemployment system and Motor Vehicle Commission.

Lawmakers want to add in another $505 million in pension payments for this year, on top of the $6.4 billion Murphy already proposed. That would make this year’s budget the first time since the 1990s that the state has met its full yearly pension obligation.

The added pension funding – as well as added state funding to local K-12 schools – would come out of the $4 billion lawmakers expect the state would spend from its surplus over the next year, senior staff said.

And the budget includes hundreds of millions of dollars in tax cuts for homeowners and direct checks to roughly 720,000 New Jersey families.

“This budget emphasizes debt reduction, increased pension payments that will produce savings, and strategic investments that address emergent or long-term needs, including child care, upgrades to school heating and ventilation systems, and tax savings for retirement income,” Sweeney said.

Editor’s note: This story was updated at 5:18 p.m. EST on June 21, 2021, to correct the value of the budget from $45 billion to $46.5 billion. It was also updated to include additional details regarding the spending plan, including funding for the state’s Level One Trauma Centers; $200 million for the governor to spend as he wishes, with a limit of $10 million for any individual item; details regarding the state’s unemployment trust fund and upgrads for aging unemployment technology infrastructure; remarks from Senate Majoirty Leader Loretta Weinberger on the lack of inclusion of a recurring source of revenue for NJ Transit.