With the state’s coffers flush with cash and avoiding some of the dire financial straits that state officials predicted a year ago as the pandemic began to take hold, Gov. Phil Murphy presented a $44.8 billion, 12-month spending plan on Feb. 23 with no proposed tax or fee increases.
That marks a first in the final year of Murphy’s first term as governor as he seeks reelection in November.
The nine-month spending plan the governor approved in September included his long-sought millionaire’s tax, which increased the income tax rate from 8.97% to 10.75% for every dollar earned above $1 million. And it includes a four-year extension of a surtax on top of the corporate business tax, paid by the state’s highest-earning businesses. For now, at least, New Jerseyans will avoid the addition of any additional fees or taxes, under the proposal. Murphy last year sought added taxes on gun and ammunition sales, fees on cigarette transactions and opioid manufacturers, and on certain businesses with employees on Medicaid.
Murphy’s budget calls for $44.8 billion to cover finances between July 1 and June 30, 2022, which make up what’s known as the 2022 fiscal year. That’ll be financed by $47 billion in federal money, state tax revenue and borrowing.
“And, because of our focus on budgeting the right way, and focusing on people and not politics, the budget I am presenting today can make these investments and achieve these goals for the year to come with no increases in taxes,” Murphy said during his 5,326-word, 39-minute pre-recorded budget address in the Trenton War Memorial Theater in Trenton.
“Yet we’ll be able to maintain and grow our investments in the key areas that will power our state’s emergence from the pandemic and drive us confidently into the future.”
It doesn’t assume the presence of any added federal funds, beyond what came out of the Coronavirus Aid, Relief and Economic Security Act throughout last year.
Although President Joe Biden has proposed billions of dollars in funding to state and local governments, administration officials have maintained they cannot yet score any of those hypothetical monies in their budget. But the Murphy administration maintains that the funds are vital to help finance the state’s economic recovery and vaccination efforts, and long-term financial planning.
“We know our working and middle-class families need the additional direct economic benefit that $2,000 can bring,” the governor said. “And, as a state, we need direct state and local aid to ensure that the key programs and essential workers we all rely upon remain funded and employed.”
There are roughly $250 million in budget cuts – mainly through cuts on red tape – while another $415 million in the 2022 budget will be cut so that the federal government will cover costs for those same programs.
All told, the state got roughly $5.6 billion under the CARES Act last year, while New Jerseyans received a combined $6.7 billion in federal stimulus checks last year.
“Because of sizeable support from the federal government, these investments are all protected and maintained,” the governor said.
Lawmakers will have to send their own version of the budget to Murphy – which can include many of his proposals as well as their own – and he has to sign it by June 30 this year.
The state is expected to bring in $16.2 billion from the income tax next year, growing 6.4% from the $15.2 billion the state will bring in between last year through June 30. That $15.2 billion is a 6% hit to income tax revenue, which is a softened blow from the initially projected 7.3% hit. The millionaire’s tax brought in an added $504 million.
State officials estimate $10.9 billion from the sales tax, a growth of 2.7% from the $10.6 billion flowing through the state.
Financial figures showed the state initially expecting sales tax revenue to grow just 1% since last year when the new budget went into effect, or a closing balance of $9.8 billion. Instead, it grew by a whole 8.7%.
New Jersey State Treasuer Elizabeth Maher Muoio credited those numbers to the fact that COVID-19 business closures were far more muted in the winter than during the first wave in the spring, combined with “pent-up demand,” federal stimulus, and a shift towards taxable online sales, rather than nontaxable essential items.
State data showed a “less bad” hit to how much revenue came in from CBT, Muoio said. The state was expecting $3.23 billion through June 30, or a 16% hit. Instead, the state’s coffers will close with a 9.7% drop, scoring $3.4 billion. Murphy’s budget next year calls for $3.7 billion in CBT revenue, marking a growth of 8.2%.
“We have been clear in how, and where, and why, we would invest,” the governor said. “Our budgets have not been one-year bandaids to get us from election to election, but long-term plans focused on our future success.
We have focused on responsible decisions – not gimmicks, or smoke and mirrors,” he continued. “We’ve never pulled a bait-and-switch on the people of New Jersey or on the programs they rely upon.”
The budget calls for a one-time $600 million bump in revenue due to the timing of a tax payment feature for businesses to escape some of the financial pain from the $10,000 cap on state and local property tax deductions.
Last year, lawmakers greenlit Murphy’s bid to borrow $4 billion in order to plug holes in the state budget left by the pandemic. State officials anticipate spacing that money out across the current and upcoming fiscal year.
Whether federal aid and the borrowed funds will be available for the 2023 fiscal year, which begins July 1, 2022, remains up in the air.
State officials are not saying whether there would be any tax increases in store for that year, but GOP lawmakers in the state Senate accused the governor of delaying inevitable tax increase proposals as he vies for his reelection.
And state officials anticipate dipping into the state’s rainy day fund. The surplus fund is slated to be $4.9 billion by June 30, and over the ensuing 12 months, the state is expected to go through half of that money.
Muoio assured that the state would be in a healthy financial state as long as it keeps the rainy day fund above $2 billion.
This article was updated on Feb. 23, 2021 at 1:52 p.m. EST to include direct quotes from Gov. Phil Murphy’s Budget address.
We at NJBIZ broke down some of the other key metrics that you need to know about in this year’s spending plan: