Gov. Phil Murphy’s administration has requested state departments identify cuts to reduce expenses by 5% as New Jersey faces a growing structural budget deficit. (Dana DiFilippo | New Jersey Monitor)
Gov. Phil Murphy’s administration has ordered a pause to some pay raises for state workers, limits on new hires, and spending cuts to bridge structural deficits in the state budget, according to emails reviewed by the New Jersey Monitor.
The emails, sent last week and in early October, come amid an annual budget that calls for New Jersey to spend $2.1 billion more than it takes in through taxes and other revenue sources. Built-in cost increases and expiring one-shot revenue sources are set to expand the structural to more than $3.5 billion next year.
“To conserve state resources, effective immediately and with limited exception, the State will be pausing approvals for discretionary salary increases for departmental employees, including outstanding requests,” Tim Hillman, Murphy’s chief of staff, said in a Nov. 21 email to cabinet members first reported by ROI-NJ.
Raises required by law, a court order, or union collective bargaining agreements could still be applied, Hillman said. Though hirings and onboardings already in progress could continue, Hillman asked department heads to limit new hiring to critical positions.
A separate, early-October email sent from the office of Tariq Shabazz, the acting director of the Office of Management and Budget, told department heads that they would get preliminary budget targets around Oct. 4 for the next July-to-June fiscal year and they would be expected to identify savings equal to 5% of that target.
“Each agency will be required to submit budget savings for the upcoming budget fiscal year,” the email says.
The budget office could approve smaller spending reductions in some circumstances, the email adds.
The governor’s call for cuts follows years of spending swells that saw New Jersey’s annual budget rise from $34.7 billion in fiscal year 2018 — the final budget under Gov. Chris Christie — to $56.6 billion this year.
Much of that increase has come from increased state support for pensions and school aid, which have added roughly $8.2 billion to New Jersey’s annual spending compared to Christie’s final year in office. Expanded tax credits and rebates, like the $3.5 billion Anchor tax relief program, have also boosted the state’s expenses.
The next state budget will be Murphy’s last of his second term. He is barred from seeking a third consecutive term next year.
Murphy’s appeal for belt-tightening was well received by at least some legislators, including a top Statehouse budget official.
“I’m not really shocked that he’s doing this. I actually think it’s the right thing to do, even if revenues come in strong,” said Assemblywoman Eliana Pintor Marin (D-Essex), the chamber’s budget chairwoman.
Through September, New Jersey’s revenue met targets and was up 4.3% year-over-year, fueled mostly by strong personal income tax collections.
Republican officials welcomed spending reductions but worried a staffing freeze could worsen services at some already hard-to-reach offices.
Sen. Doug Steinhardt (R-Warren), a member of the Senate Budget Committee, said he’d prefer more targeted cuts — including to budget add-ons requested by lawmakers — over 5% reductions across the board.
“Just stop spending money on programs you don’t need,” Steinhardt said. “If you weren’t pissing it away in the first place, you wouldn’t need to just demand broad-brushed cuts here and broad-brushed cuts there.”
The administration did not identify any specific targets for cuts in its Oct. 1 email, though it noted some expenses, like debt service, could not be reduced.
Pintor Marin said she does not anticipate Murphy would back cuts to property tax relief programs.
“I think he’s going to care about helping seniors and helping people with their taxes in order to make New Jersey more affordable,” she said.
State governments are generally required to balance their costs and their revenue. When expenses exceed tax collections, the state can fill the gap using surplus, as New Jersey is doing this year.
New Jersey is forecasted to end the fiscal year with roughly $6.2 billion in reserves, from about $8.2 billion on July 1.
The nascent Stay NJ property tax relief program requires New Jersey to maintain a surplus equal to at least 12% of spending to avoid a pause, though lawmakers overrode that provision using budget language in the current fiscal year, when reserves added up to 10.9% of spending.
The program is one source of escalating costs New Jersey faces in the coming years. It will add $100 million in costs in the fiscal year that begins July 1 and is expected to cost roughly $1.2 billion annually once it goes into full effect in 2026.
New Jersey’s newly enacted corporate transit fee — a non-marginal 2.5% surtax on corporations with income of at least $10 million — will expand New Jersey’s deficit by about $1 billion after its revenue becomes dedicated to NJ Transit in the coming fiscal year.
The governor is due to deliver his annual budget address in late February.
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