State leaders debate how to best spend revenue windfall

“I want to back the truck up on property tax relief, even substantially more than we previewed in our budget address,” Gov. Phil Murphy declared during the May edition of his “Ask Governor Murphy” show on WNYC. It is a statement Murphy has reiterated in recent weeks as the budget process plays out in Trenton against the backdrop of nearly $11 billion in surplus tax revenue and unused federal COVID funds.

The extent of the windfall, which dramatically shifted the state of play, was revealed during budget hearings last month by the Office of Legislative Services and the Treasury.

“We saw an unprecedented April surge over its already elevated historical base,” said David Drescher, chief of the OLS revenue, finance, and appropriations section. “Accordingly, we’ve increased our [gross income tax] forecast by $3.6 billion over the two years. This will leave the state considerably better positioned than we originally envisioned, some $6.9 billion or 7.7% over the executive’s forecast of just a few months ago.”

Naturally, the amount of money at hand has led to a debate about how to best spend the funds to benefit New Jersey both in the short- and long-term, while avoiding the pitfalls of imposing unfunded mandates down the line.

“When you have more money than you expect, sometimes the discussions get more difficult, ironically, than when you have scarcer resources,” said Murphy during that same broadcast. “That’s not the case right now. I hope it won’t become the case.”

Murphy has said he is engaged in ongoing substantive budget talks with the legislative leaders in the Assembly and Senate. Murphy had previously proposed an ANCHOR Property Tax Program that his administration says would distribute $900 million in property tax relief to nearly 1.8 million homeowners and renters. But because of the tax windfall, it now appears he wants to go further than originally planned.

“We wanted to start with a rebate of 750, 700-something dollars and then, ultimately, work up to something in a couple years that looked more like 1,150 or $1,250,” Murphy said during his show. “I’m increasingly of the opinion I want to get to that couple of years level now.”

Assembly Speaker Craig Coughlin, D-19th District, is echoing those sentiments.

“We have additional money this year, and New Jersey needs tax relief now. In this year’s budget, I will insist on the largest tax relief program in state history,” Coughlin said in a statement following the update on revenue. “I look forward to working with legislative leadership and the governor over the coming weeks to craft this proposal and deliver on that promise for the people of New Jersey.”

Longtime Senate Budget and Appropriations Committee Chairman Paul Sarlo, D-36th District, has urged caution on spending the windfall but expressed openness to tax relief. “With the surge in revenues, I am open-minded to plans to cut taxes or deliver savings to N.J. residents in other ways,” Sarlo tweeted. “An increased surplus is achievable at the same time. We can find the right balance that is prudent & responsible, that helps taxpayers & the economy.”

While negotiations continue, details of just how far property tax relief will go remain scarce.

“The governor is in regular contact with the Legislature and is pleased with the productive conversations being held in regards to this year’s budget proposals,” Christi Peace, spokesperson for Murphy, told NJBIZ. “The governor is committed to working with legislative leadership to pass a budget that will make New Jersey stronger, fairer, and more affordable for residents. As the Treasurer said earlier this month, the administration remains focused on improving New Jersey’s fiscal health and delivering significant property tax relief for families through the ANCHOR Property Tax Relief Program.”

Coughlin also cited the ongoing discussion. “The speaker is working with the governor and legislative leadership toward his plan, the details of which will be released as part of the ongoing budget process,” Cecilia Williams, Coughlin’s spokesperson said in a statement to NJBIZ. “He’s indicated that the Democratic proposal will include tax relief in the place people need it most – property taxes.”

Meanwhile, Senate Republicans have introduced their own plan for the unexpected funds centered on relief in the form of “Give It Back” rebates totaling $1,500 for most New Jersey families.

“Senate Republicans have offered a detailed budget plan to make responsible use of an unprecedented $11 billion windfall of state and federal taxpayer funds to support struggling families, solve long-term problems, and ensure that New Jersey is well prepared for the next recession,” said Sen. Declan O’Scanlon, R-13th District, the Republican budget officer. “We’re leading the way in showing Gov. Murphy and the Democrat legislative majorities how to give back billions to taxpayers while building a responsible surplus and paying down the substantial additional debt. It’s no surprise that everyone else is suddenly rushing to find ways to ‘Give It Back’ as Senate Republicans have advocated for months.”

Senate Republicans say they have been driving the conversation on the importance of providing substantial tax relief to struggling New Jerseyans through the rebates.

“Legislative Democrats are clearly feeling the pressure to do something, but they’ve yet to offer any plans of their own to improve Gov. Murphy’s underwhelming budget plan that skimps on tax relief for New Jersey families,” the Senate GOP said in a statement.

“That is why I am taking a multi-year perspective in budgeting and why we have to use one-time resources to make strategic investments that address long-term needs,” Sarlo told NJBIZ. “We have to be careful about creating long-term commitments with non-recurring resources.”

In addition to further property tax relief plans, Murphy has also emphasized using this tranche of money to make a full public employee pension payment for the second consecutive year, debt reduction, and to keep a healthy surplus to help the state fend off any potential economic headwinds.

“I think the economy is going to get very choppy,” said Murphy during his WNYC show. “I think around the corner is not so pretty. I’d like a very fat surplus to spend down in a down economy to fund those very important social services and other investments that we make in education, health care, etc.”

“In light of the unprecedented surge in state revenue from an overheated economy, and the expectation by economists that we could experience a recession in the near future, I believe we should plan for a surplus of $7-8 billion. We need to be prepared for an economic downturn and we have the resources for now,” Sarlo said in a tweet.

“We recognize that much of the windfall at our disposal is likely nonrecurring, which would make it irresponsible for anyone to propose substantial permanent spending increases that we won’t be able to support when the next recession comes, which may be sooner rather than later,” said Sen. Sam Thompson, R-12th District. “Our plan ensures that New Jersey is prepared for the next downturn by establishing a healthy $5 billion surplus that amounts to 10% of the budget, while making substantial investments in critical infrastructure, including to fix broken computer systems at unemployment and the MVC [Motor Vehicle Commission].”

While there are many budget items that need to be ironed out and negotiated over this home stretch of the process, the action is focused on property tax relief. And whether this unprecedented windfall will actually yield real, meaningful, historic property tax relief for New Jerseyans who have paid more than their fair share over the years.

“I think we go into the month of June in a very good place,” said Murphy.