In Annual Budget Address, Murphy Proposes 5% Hike in State Spending

JOHN REITMEYER | FEBRUARY 26, 2020

NJ Spotlight

Gov. Phil Murphy (left) shakes hands with Senate President Steve Sweeney after delivering his 2021 budget address.

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Gov. Phil Murphy is asking lawmakers to approve a state budget plan that calls for a record amount of spending backed by nearly $1 billion in added taxes to boost funding for things like education, mass transit and public-worker pensions.

Among the tax hikes Murphy is proposing to help balance his nearly $41 billion spending plan for fiscal year 2021 is an increase of the tax levied on a pack of cigarettes.

The first-term Democrat is also seeking a new tax on corporations that rely on Medicaid to help cover a large share of their employee health insurance.

In his third budget address, Murphy also renewed his call for a true millionaire’s tax during an hour-long speech to the state Legislature on Tuesday, which is something lawmakers have largely resisted in prior years.

“The millionaire’s tax is a matter of fairness to our middle-class homeowners and renters, our seniors, and the countless working families reaching to pull themselves up and into the middle class,” Murphy said.

Touting progressive agenda

He also took credit for sustained low unemployment that the state has enjoyed in recent years during the ongoing recovery from the Great Recession, and for helping to keep a lid on the growth of New Jersey’s much-hated property taxes.

“We are making progress not despite our progressive and forward-leaning policies, but because of them,” Murphy said.

But Republicans immediately faulted the governor after the budget address for prioritizing additional taxes and new spending over tax relief. Business groups also suggested Murphy’s budget would make the state less competitive and hasten the departure of companies out of state.

Meanwhile, fellow Democrats adopted more of a “wait-and-see” approach, saying the governor’s budget address is just the start of a longer process that will culminate in late June with the adoption of a formal appropriations act.

“The end goal is a fair, responsible financial plan for the next fiscal year that meets the needs of our working, middle-class residents,” said Eliana Pintor Marin of Newark, who chairs the Assembly Budget Committee.

Budget would top $40B for first time

In all, Murphy’s $40.85 billion proposed budget for the year that begins July 1 is roughly $2 billion, or 5%, larger than the spending plan the governor signed into law for the current fiscal year. The increased spending is sustained in part by an assumption of the continuation of the current rate of economic growth under all current tax rates, but also the nearly $1 billion in new revenue from the added taxes.

The true millionaire’s tax — which would extend the state’s top 10.75% income-tax rate to earnings over $1 million, not just those who make $5 million and up – is projected by the administration to generate nearly $500 million in new annual revenue. The proposed cigarette levy, which would hike the tax on each pack from $2.70 to $4.35, would generate nearly $220 million in new annual revenue.

Murphy is also seeking to establish a “corporate-responsibility fee” on private businesses with more than 50 of their employees enrolled in Medicaid. That new tax would generate an estimated $180 million in new annual revenue.

“There are large corporations in New Jersey that do not provide health benefits to their employees and their families, or who offer policies that their employees cannot afford,” Murphy said. “When these families turn to Medicaid, it’s our taxpayers who pick up their health-care costs.”

At the same time, the governor’s budget also embraces a planned phase-out of a special surcharge on top-earning businesses established in 2018, and does not renew his call for restoration of the 7% state sales-tax rate, which had been reduced slightly under former Republican Gov. Chris Christie.

There are also some new tax breaks in Murphy’s budget proposal, including a continued expansion of the state Earned Income Tax Credit for low-wage workers. It also counts on an elimination of a state income tax levy on combat pay earned by members of the armed forces.

Spending on public-worker healthcare is projected to decline slightly in FY2021, and the administration said another nearly $400 million in savings among the departments of state government is booked in his budget plan.

Familiar list of priorities

Meanwhile, much of the new spending would further boost line items that have already been identified as top priorities by Murphy and his administration, like education. For example, the allocation for what’s known as “formula aid” for K-12 school districts is increasing by $336.5 million. There’s also an $83 million hike in spending on preschool education.

Another $50 million in “stabilization aid” would be made available for school districts facing shortfalls due to changes to the state’s school-funding formula stemming from a 2018 law. There’s also $50 million set-aside for free tuition for some students attending four-year public colleges and universities, an expansion of a program Murphy created for community college students.

The administration will make a deposit into the state’s “rainy day fund” for the second straight year, helping to push overall budget reserves up to $1.63 billion, or roughly 4% of total spending.

The spending plan would also ramp up the state’s annual employees-pension contribution to a record total of $4.6 billion. And another $279 million is being added to the planned pension contribution for FY2020, which will now total more than $4 billion.

Despite the increases, Murphy will continue the trend of not covering the full annual payment calculated by the state’s actuaries, which would be $6.1 billion in FY2021. The state last made what would be considered by actuaries as a full pension payment in 1996.

No dedicated NJ Transit fund in speech

And even as Murphy is proposing to boost the direct state subsidy to New Jersey Transit by more than $100 million, to $589.5 million, his budget plan also relies on a continuation of the practice of diverting $460 million from capital resources to the NJT operating budget. It also counts on redirecting $129 million from the New Jersey Turnpike Authority, and $82.1 million from the state’s Clean Energy Fund.

Murphy also did not propose a dedicated source of operating revenue for NJ Transit in his new budget plan, something transportation advocates have called for and Murphy himself backed as a candidate in 2017.

That’s an area that has started to generate more interest among lawmakers, and Senate President Steve Sweeney (D-Gloucester) last week proposed earmarking $500 million for NJ Transit each year from the corporate-business tax and a continuation of some of the diversions that are already occurring. He also called for ending the diversions from capital to operating.

For property taxpayers, Murphy’s budget proposal does not include any major funding increases for direct-relief programs like Homestead and Senior Freeze, meaning benefits will remain flat for recipients even as average property tax bills continue to rise across the state.

In his response, Assembly Minority Leader Jon Bramnick (R-Union) took issue with Murphy claiming credit for economic growth in recent years, saying New Jersey is participating in a broader recovery that has helped the nation as a whole.

He also suggested Murphy’s policies are making it harder for businesses and the average taxpayer to afford to live in the state.

“There was not one iota of any evidence that he believes any reforms need to be made in government,” Bramnick said. “With the exodus in this state, how do you not address the tax climate?”

GOP talks ‘affordability’

The president of the New Jersey Chamber of Commerce, Tom Bracken, also said Murphy and lawmakers should take proposed tax increases “of any kind” off the table in FY2021, suggesting they could threaten the state’s economy at a critical time.

“Nothing in the governor’s proposed budget gets to the heart of the matter — addressing the core issues of New Jersey’s affordability and lack of competitiveness,” Bracken said. “We need to make the New Jersey economy stronger.”

But liberal groups praised Murphy, saying he had stuck his neck out to propose tax hikes that would enable the state to increase investments in key areas like public education and mass-transit.

“We can’t fund the investments we need to make New Jersey work for everyone without them,” said New Jersey Citizen Action, a group that advocates for and provides services to low-income residents.

In his own response to Murphy’s budget plan, Assembly Speaker Craig Coughlin (D-Middlesex) called the spending proposal “an encouraging first step.”

“We will continue to look for more government inefficiencies and cost savings, as we do each year,” Coughlin said. “I remain cautious of increasing broad-based taxes.”

Paul Sarlo, the Senate Budget and Appropriations Committee chair also promised to conduct a full “structural review” of Murphy’s budget plan, suggesting there will be a more intense evaluation this year than has occurred in prior years as part of the Legislature’s routine review of gubernatorial spending plans.

“We will work to produce a state budget that maximizes the effectiveness of government services and makes the best use of public resources,” the Bergen County Democrat said.

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