Reopening New Jersey: Murphy seeks tax hikes, some cuts, more debt in $40B budget
TRENTON, New Jersey -- New Jersey Gov. Phil Murphy proposed a nearly $40.1 billion budget, which slashes about $1 billion in spending but also calls for higher taxes on millionaires and $4 billion in new debt to close gaps stemming from the coronavirus pandemic.
Standing on a podium Tuesday at midfield at Rutgers' SHI Stadium in Piscataway to make social distancing easier than inside the confines of the statehouse, Murphy unveiled his second fiscal 2021 budget of the year.
The earlier, nearly $41 billion plan was scrapped because of the pandemic, which has killed more than 14,000 people in the state and resulted in about 190,000 positive cases.
Murphy recalled the earlier proposal with some nostalgia.
"There was no social distancing and not a face mask in sight. My how things have changed," he said.
The administration faces a nearly $5 billion shortfall in revenues compared with the earlier budget, state Treasurer Elizabeth Muoio said.
To close the gap, the governor is proposing a number of changes. Among them are higher tax rates on income over $1 million, from 8.97% to 10.75%. He's also proposing making permanent a 2.5% increase on the state's business tax that was slated to expire in 2022.
Among the cuts he's putting forward are estimated reductions in state Medicaid costs, though details are murky.
On the spending side, K-12 school aid would be flat compared with last year at $8.7 billion. The public pension payment would rise, according to a formula agreed under former Republican Gov. Chris Christie to $4.9 billion from $3.7 billion.
The unusual August budget speech came as a result of the COVID-19 outbreak.
Murphy, a Democrat, and lawmakers agreed on legislation to extend the current fiscal year from June 30 to Sept. 30. That law requires the governor to offer a new spending plan, which he unveiled Tuesday.
Murphy has long sought a so-called millionaires tax, but has been rebuffed by lawmakers.
Senate President Steve Sweeney, a fellow Democrat, didn't rule out any of the governor's proposals.
"It would be very irresponsible to say anything is off the table," he said in an interview.
Murphy only recently got the ability to take on more debt after winning a victory in an unprecedented case before the state Supreme Court. The state GOP challenged the governor over a recently enacted law that authorized him to borrow up to $9.9 billion because of the coronavirus hit to state finances.
REVISED BUDGET PLAN SUMMARY
Moving New Jersey Forward
Besides setting off an unprecedented public health crisis, COVID-19 unleashed an economic crisis that can only be rivaled by two other times in our state's entire 244-year history - the Great Depression and the Civil War.
Governor Murphy's budget is not simply about getting New Jersey back to where it used to be, but moving forward to where we need to be by building a new economy that grows our middle class and works for every single family, while asking the wealthiest among us to pay their fair share in taxes.
Unprecedented Challenges
The revised budget was proposed six months to the day after the Governor originally laid out his FY 2021 budget proposal. Since then, COVID-19 has ravaged New Jersey from both a public health and an economic standpoint, prompting the State to move important April tax filing deadlines to July and extend the fiscal year from the traditional June 30th ending to September 30th. As a result, the revised budget unveiled today addresses spending for only the nine-month period from October 1, 2020 through June 30, 2021.
- New Jersey's unemployment rate surged to a high of 16.8% in June, well above the Great Recession peak of 9.8%.
- Revenue collections took a massive hit as well, leaving the State facing a $5.7 billion shortfall over what was projected during
the Governor's Budget Message (GBM) in February.
Solutions to Close the Budget Gap
The Governor's proposed budget relies on a series of solutions to help close this gap and protect many shared priorities.
Governor Murphy's revised budget proposal includes $1.25 billion in spending reductions and solutions across all executive State departments, including: Medicaid solutions proposed by DHS totaling $336 million; DOC's inmate population management initiative and other reductions totaling $59 million; and $66 million in solutions proposed by DCF, which will help fund the increased investment in the Children's System of Care.
In order to curtail painful budget cuts, and limit the size of emergency borrowing, the Governor is also proposing a selection of progressive tax policy changes that are estimated to yield just over a billion dollars for the nine-month FY 2021 period, including:
- Imposing the millionaires tax on all income above $1 million;
- Permanently incorporating the 2.5 percent corporation surcharge;
- Restoring the sales tax on limousines;
- Removing the tax cap on boats; and
- Applying a 5 percent surcharge to high-income individuals with federally Qualified Business Income (QBI) who have benefited
from a regressive new deduction for pass-through entities created under the 2017 federal Tax Cuts and Jobs Act.
Core Programs Preserved
The Governor's revised budget overwhelmingly preserves many core State programs.
- It does not cut K-12 aid, post-secondary tuition assistance, or operating aid for senior public colleges and universities.
- It restores funding for the Homestead Benefit and Senior Freeze property tax relief programs and does not decrease core
municipal aid.
- It does not impose new burdens on Medicaid recipients or curb the Child and Dependent Care Tax Credit (CDCTC).
Governor Murphy's Revised FY 2021 Budget-at-a-Glance
"Stronger, Fairer, and More Resilient: Building New Jersey's Post-COVID Future"
Fair and Equitable Recovery
The Covid-19 pandemic has disproportionately impacted low income communities and communities of color. The Governor's budget recognizes those impacts and protects core programs to aid those communities in their recovery. The revised budget proposal also includes targeted growth to address long-standing disparities and ensure that the recovery includes all New Jerseyans. The budget:
- Launches a statewide Baby Bonds initiative, which will provide a $1,000 deposit for the approximately 72,000 babies born in
2021 into families whose income is less than 500 percent of the Federal Poverty Level, or $131,000 for a family of four. When
these residents turn 18, they can withdraw these funds to help them pursue higher education, buy a home, start a business, or
pursue other wealth-generating activities, which will assist three of four children born in New Jersey;
- Invests $60 million into the Clean Water and Drinking Water programs to ensure safe and modern water infrastructure
statewide;
- Increases the Earned Income Tax Credit (EITC) to 40 percent and proposes increasing EITC eligibility to assist tens of
thousands more young adults.
Fiscal Responsibility
- The budget includes a nearly $4.9 billion contribution to bolster the state pension system, which equals 80 percent of the
Actuarially Determined Contribution (ADC) and represents the largest percentage of the ADC contributed in 25 years.
- The Budget includes a robust $2.2 billion surplus, which represents 5.6 percent of appropriations over the 12-month period.
The Governor is committed to maintaining this surplus to address the very real possibility of another shutdown due to a
resurgence of the novel coronavirus.
Necessary Borrowing
The Governor's revised budget also proposes to borrow $4 billion to help address the massive economic fallout created by COVID-19 and better position the state to weather any future health and economic uncertainties. The proposed borrowing amount must first be approved by the legislative Select Commission on Emergency COVID-19 Borrowing.
Major Recovery Efforts
The revised budget proposal details the major recovery efforts the administration has launched using a combination of federal and state funds, which impacts numerous areas, including K-12 education, higher education, health care, social services, local government, economic development, and housing.
The proposal includes additional details on spending plans for the full $2.39 billion in CRF funding.
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