The Murphy administration is agreeing to another half a billion dollars of debt that the leadership in the Democratic-controlled state Legislature wants to borrow for the upcoming budget.

All told, the state will borrow $4.5 billion, without voter approval, to finance a $32.7 billion spending plan from the Legislature, as opposed to the $32.4 billion in costs Gov. Phil Murphy proposed in his budget.

Lawmakers in both the Senate and Assembly budget committees approved the spending plan and proposed tax increases on Tuesday. It is slated for a Thursday vote in both chambers, after which it heads to the governor’s desk for consideration.

Despite the havoc the COVID-19 pandemic has wrought on the state’s finances, both the governor’s office and legislative leadership are proposing record-high levels of spending for the 12 months that would typically make up the 2021 fiscal year: $40 billion from the administration and $40.3 billion from the Legislature.

“There’s the revenues here that have been to ensure the government can continue if there’s a second wave, if the economy doesn’t rebound as quickly as are hopeful it will,” Senate Budget Chair Paul Sarlo, D-36th District, told reporters following the afternoon hearing.

He acknowledged that ultimately, lawmakers want to spend more than what Murphy proposed.

This new debt would be issued through a Federal Reserve program meant to bolster the finances of cash-strapped states and through bonds in the public market. Federal Reserve bonds would be paid back in three to five years, but any other bonds could take decades to repay.

“As part of the budget agreement reached last week, it was determined that this amount ($4.5 billion) would provide the state with greater flexibility in the event of further revenue declines due to a second coronavirus surge or other unforeseen circumstances,” said a spokesperson for the state Treasury. “Prior to any issuance of [general obligation] bonds, the governor or the treasurer must publicly certify to the revenue shortfall due to the COVID-19 pandemic.”

Treasury officials approved the bid by lawmakers earlier Monday. It now heads to a four-person legislative committee, consisting of the Assembly and Senate budget chairs, Assembly Speaker Craig Coughlin, D-19th District, and Senate President Stephen Sweeney, D-3rd District.

The budget includes a millionaire’s tax that increases the income tax rate from 8.97 percent to 10.75 percent on anything earned above $1 million. It includes a four-year extension of the 2.5 corporate business surtax tacked onto the 9 percent levied on the state’s highest-earning businesses, rather than letting the CBT sunset to 1.5 percent for two years before expiring. And an increase to the annual assessment on HMO premiums from 3 to 5 percent would bring in more than $100 million for the state.

The legislative budget takes out many of the tax increases that Murphy sought in his own plan, such as those on cigarette, gun and ammunition, and yacht sales; opioids; bear hunting permits; and limousine services.

Sarlo argued on Tuesday that borrowing would be better than these options because, should the federal government come through on state aid via a new iteration of a COVID-relief bill, then “any federal dollars that will come in will offset” the new debt.

Republican lawmakers questioned why both the tax increases and new debt were necessary, arguing that the latter would negate the need for the former.

And they questioned the necessity of a $500 rebate for hundreds of thousands of New Jersey families, included as part of a deal for the millionaire’s tax.

“We heard how this tax increase was essential to avoid a meltdown in our budget and total budgetary destruction,” Sen. Steven Oroho, R-24th District, said during the Senate budget hearing on Tuesday afternoon. “Now 10 minutes later we just give this away” with the rebate.

The millionaire’s tax is slated to bring in $390 million through June 30, 2021, while the rebate to families making up to $150,000 would cost the state $325 million. All told, the state nets just $65 million.

Lawmakers proposed a $2.5 billion surplus by the middle of next year, which they argue would act as a monetary cushion against the economic shock of a second wave of COVID-19. Murphy had proposed just $2.2 billion in the state’s rainy day fund.

The budget also calls for $4.7 billion in pension payments, rather than the $4.9 billion Murphy proposed on Aug. 25.

Lawmakers and state treasury officials were at odds earlier this month when the Legislature’s financial analysts projected the state would take in $1.3 billion more than what the treasury predicted. Instead, the legislative budget calls for essentially meeting in the middle, with its estimates now just $584 million more than what the administration pegged.

Editor’s note: This story was updated at 4:50 p.m. EST on Sept. 22, 2020, to include remarks from Sen. Paul Sarlo, Sen. Steven Oroho, and additional information regarding the budget proposals and progress.