New Jersey Statehouse in Trenton (Dana DiFilippo | New Jersey Monitor)
Budget committees in both chambers of the Legislature approved a $56.6 billion spending bill in late-night votes that fell along party lines Wednesday, setting the stage for final budget votes Friday.
The spending bill will maintain a full payment toward the state’s pension obligations and will, for the first time, fully fund a school funding formula passed in 2008.
Assemblywoman Eliana Pintor Marin (D-Essex), the chamber’s budget chair, acknowledged the budget “is not perfect.”
“No budget is perfect,” she said. “But it’s about how we move in the process. It’s about what outweighs and what’s most important. I just want to say, as much we’re talking about all the spend in here, it’s really neutral because there was also a lot of cuts in areas where there were monies that were unspent.”
The Legislature’s proposal adds roughly $728 million in new spending compared to the budget proposal Gov. Phil Murphy made in February.
Some of that money goes to legislators’ pet projects — like baseball fields in Livingston and a parking lot in West New York — even as the state faces tightening fiscal conditions in coming years. Other appropriations go to reverse cuts Murphy made in his own budget proposal, like a $20 million reduction to community college operating aid.
Alongside the budget, legislators approved a series of tax hikes. The committees approved bills that would revive a 2.5% surtax on profitable businesses — but with a narrower pool of taxpayers than paid a recent version of the surtax — and raise an annual tax on health insurance premiums.
Other bills they approved would phase out a sales tax exemption for electric vehicles by July 2025 and end an annual sales tax holiday in August for school supplies and some electronics. Another would remove a provision that required the state to halt the collection of hotel occupancy fees if it did not send a certain amount of money from such fees to arts programs.
Lawmakers build fiscal cliffs
The budget approved by lawmakers would expand the $1.8 billion structural deficit proposed by Murphy to about $2.1 billion and would bring the state’s reserves down to $6.5 billion, a slightly higher level than the governor proposed in February.
That structural deficit is expected only to expand in coming years, and it’s likely the state’s fiscal health will only grow worse as it does.
The budget’s spending is supported by one-shot sources of revenue that will not recur, including a $393 million raid of a debt defeasance fund intended to save the state money on debt service payments.
“I’m concerned about going down that road on a long-term basis,” said Assemblyman Roy Freiman (D-Somerset), who sponsored the legislation creating the debt defeasance fund. “All this talk about the structural deficit we have in place, and that’s not sustainable. We need to be very mindful of this going forward.”
Revenue from the proposed new business surcharge — a 2.5% surcharge on businesses with more than $10 million in profit — would expand the state’s deficit by roughly $1 billion in fiscal years following the one that begins July 1.
Lawmakers intend to dedicate funds from that tax to close a $766.8 million fiscal cliff NJ Transit faces, and they expect it to generate roughly $800 million in future years. It will expire in five years.
It’s expected to generate more this year because lawmakers are applying it retroactively to the first six months of 2024.
The expiration of those one-shot revenue sources would balloon the state’s structural deficit to roughly $3.5 billion in the fiscal year that begins July 2025 absent big changes in state spending or revenue.
That means the next governor could come into office with steep budgetary shortfalls and little left in reserves to bridge those gaps. Murphy’s term expires in January 2026.
Opaqueness continues
Text for numerous bills — including ones creating the transit fee, ending sales tax exemptions for electric vehicles, and making a $37.4 million supplemental appropriation, among half a dozen others — were not publicly available when Assembly lawmakers voted to advance them.
Republicans in the Senate said they had first seen the 373-page budget bill roughly an hour before it came up for a vote before the chamber’s budget committee and had not had time to properly review it.
“We just got this budget — it’s 56-plus billion dollars,” said Sen. Mike Testa (R-Cumberland). “I just think that we as members of the Senate budget appropriations committee, and people who are here this evening, and the nine-plus million residents of the state of New Jersey deserve better.”
Both full chambers are expected to vote on the budget Friday.
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