FIVE THINGS TO WATCH FOR IN GOVERNOR’S BUDGET ADDRESS TOMORROW

JOHN REITMEYER | MARCH 4, 2019

NJ Spotlight

Gov. Phil Murphy

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Gov. Phil Murphy will put forward his budget proposal for fiscal year 2020 tomorrow during a joint session of the state Assembly and Senate in Trenton, marking his second time to give lawmakers a fiscal-year spending proposal. Last year, there was almost a government shutdown as Murphy, a Democrat, had trouble convincing fellow Democrats who control the Legislature to enact a series of new policies ranging from new taxes to increased aid for community-college students.

Here are five key issues to watch for in his budget address:

Taxes

One of the main points of contention from last year’s budget season is carrying over into this year as the leaders of the Democratic-controlled Legislature have already staked out a firm stance against enacting any big new tax increases as part of the FY 2020 budget. Disagreements over taxes brought the government close to a shutdown last year, and lawmakers are even more dug-in this year with the full Assembly up for re-election in the fall.

But Murphy has yet to adopt his fellow Democrats’ hardline position and he has also remained committed to covering increasing costs related to big-ticket items like the public-worker pension system in FY 2020. That means it will be hard for him to meet those commitments while also holding the line on taxes, suggesting he may try again to establish a higher income tax on earnings over $1 million or to restore the state’s 7 percent sales tax.

Revenue

In the run-up to tomorrow’s budget address, tax collections for FY 2019 were running behind the year-end rate of growth needed for the state to close out the year in balance on June 30. While there’s been some year-over-year growth — about 3 percent as of the end of January — it’s fallen short of a year-end target of 7.5 percent.

It’s not clear how much ground the state has to make up in raw dollars because Murphy has continued a change in revenue reporting enacted by former Gov. Chris Christie that conceals the precise monthly revenue targets for each tax source. While there’s still time to make up the gap, the sluggish pace of tax collections in FY 2019 signals potential trouble for FY 2020, coming as it does even after a series of tax hikes were enacted last year. The lagging growth could also mean the Murphy administration has miscalculated the size of the state’s economic base, an error that would make it even more difficult to keep up with the state’s rising costs without hiking taxes.

Public-worker benefits

Before the governor’s budget message, Senate President Steve Sweeney (D-Gloucester) has been hitting the road to make the case for changes to public-employee pension and healthcare benefits. Sweeney argues that doing so would free up more money in the budget to spend in other areas that need investment, like mass transit or higher-education aid.

Murphy has not embraced Sweeney’s proposals, which include creating a new, hybrid retirement system for non-vested government employees and shifting more healthcare costs onto public workers. The governor has adopted a more incremental approach that involves working with public-worker union leaders to identify savings opportunities that don’t shift costs or measurably reduce benefits. But this year poses a big test for the governor’s approach as the scheduled pension contribution will increase to near $4 billion, roughly 10 percent of total spending. And that payment will represent only 70 percent of what the state should be contributing, according to actuaries — meaning the funding hole will continue to grow.

Education aid

One area where Murphy and Sweeney seem to be in agreement is on the need to increase state funding for K-12 schools that’s known as “formula aid.” They went down to the wire last year trying to reach a deal on school funding, and ultimately $350 million was added to the line item for formula aid. Other changes to the way the state distributes aid to K-12 districts were also made at the same time to make the funding process more equitable.

It would seem another boost in funding is likely in FY 2020, especially since Murphy has made increased education aid a key talking point on the issue of property taxes. He’s argued that boosting funding for K-12 districts is essentially property-tax relief since local schools rely heavily on revenue from local property taxes to balance their budgets.

New Jersey Transit

Despite making some progress last year, including updating safety equipment in time to meet federal mandates, the state’s mass-transit agency remains a source of daily complaints from commuters. A major audit released last year faulted NJ Transit’s current revenue model, which relies heavily on rider fares and a subsidy from the state budget that rises and falls from year to year, depending on the state’s own fiscal health.

Murphy increased the budget subsidy for NJ Transit last year, but heading into Tuesday’s budget address, he has yet to provide the agency with the dedicated source of funding he promised to establish when he was a gubernatorial candidate in 2017.

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