The top budget lawmaker in the state Senate floated the prospect of using dollars from Gov. Phil Murphy’s proposed millionaire’s tax – now agreed upon by other top lawmakers – as a means to ride out a potential economic recession.
“A millionaire’s tax may be because we’re worrying about what’s going to happen to the economy after the next presidential cycle – toward a rainy day fund,” Senate Budget Chair Paul Sarlo, D-36th District, told reporters outside of the first budget hearing on the governor’s $40.9 billion spending plan.
Tuesday’s hearing at the New Jersey of Technology campus in Newark was the first of four legislative budget hearings that will occur over the next two weeks. Dozens of advocates and lobbyists turned out over the daylong process to throw their weight behind spending proposals they either want kept, or added, into the upcoming budget.
This comes as the stock market sank and hit bear territory on Monday in light of the worldwide coronavirus outbreak, and the administration eyes a rainy day fund which the state can tap into during times of national economic woes.
“We’ve got to look at the economy, look at how this small blip from the coronavirus is going to impact,” Sarlo added.
The governor made the controversial call when he signed the fiscal year 2020 budget to stow away surplus dollars, which drew the ire of legislative leadership who worried the state had more pressing bills to be paid. Murphy’s 2021 budget calls for the state to have $745 million in its rainy day fund by the end of that fiscal year on June 30, 2021, with $401 million of that in by June 30, 2020.
The budget calls for a $1.6 billion surplus for next year.
Senate President Stephen Sweeney, D-3rd District, said a month ago that he would support a millionaire’s tax proposal – twice blocked by the state Legislature – in exchange for an additional $1 billion of funding into the state pension, which is underfunded by upwards of $100 billion. The tax proposal calls for increasing the income rate from 8.97 percent to 10.75 percent for every dollar earned above $1 million; Murphy’s office said it would generate almost $500 million for the state next year.
That deal has yet to garner the support of Sweeney’s counterpart in the lower house, Assembly Speaker Craig Coughlin, D-19th District, who said in his post-budget address statement that he was “cautious of increasing broad-based taxes.”
Sweeney, like Sarlo, has in recent weeks nodded toward the rainy day fund as a means to ride out market uncertainty associated with the COVID-19 outbreak.
“I think we really have to be guarded because you see the market that’s been crashing the last so many days,” he told NJBIZ at an unrelated event in Piscataway earlier in March. “If you have to tap into it for years like that, that’s what the surplus is for.”
The rainy day fund is effectively in a “lockbox,” and there are limited circumstances that would justify dipping into that pot of money—namely an economic recession. Prior to last year’s deposits, New Jersey was just one of three states without a rainy day fund, which the Murphy administration said would need to be changed to reverse the state’s 11 credit downgrades over the past decade.
“Our revenue projections for the upcoming fiscal year do not factor in any assumptions of a financial downturn,” Jennifer Scrioritino, a spokesperson for the State Treasury, told NJBIZ in a March 5 statement. “However, we continuously monitor the market and economic conditions and the Treasurer will provide a revenue update to the Legislature twice during budget hearings this spring.”
Income tax – such as one on millionaire’s – is required under the state constitution to go toward property tax relief. But Sarlo opined that the dollars “could” go into the rainy day fund should the need arise.