Gov. Phil Murphy Unveils N.J. Budget Plan With No New Taxes

on Feb28
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It has been five months since New Jersey officials warned of a coronavirus-related financial calamity. The dire outlook contributed to lawmakers’ decisions to increase taxes on income over $1 million and to become one of the first states to borrow billions to cover operating costs.

But the doomsday forecast has since brightened considerably, officials said, enabling the Democratic governor, Philip D. Murphy, to unveil a $44.8 billion spending plan on Tuesday that calls for no new taxes, few cuts and tackles head-on a chronic problem — the state’s underfunded pension program — for the first time in 25 years.

The governor also said there would be no increase in New Jersey Transit fares.

“The news is less bad,” the state’s treasurer, Elizabeth Maher Muoio, said. “I wouldn’t say it’s good, but it’s less bad.”

The governor’s election-year financial blueprint relies on better-than-expected revenue from retail sales and high-earners, who have lost fewer jobs during the pandemic than low-income workers and are reaping the benefits of a prolonged Wall Street rally.

“This is the time for us to lean into the policies that can fix our decades-old — or in some cases centuries-old — inequities,” the governor said Tuesday in a budget address, which he delivered virtually.

A key pillar of the budget is a proposal to fully fund the state’s public sector pension obligations for the first time since 1996.

The state has not set aside the full amount of its pension obligation for 25 years, leading $4 billion in extra debt to accrue over time, Ms. Muoio said. Under a deal brokered with the Legislature, Mr. Murphy had been on track to fully fund the state’s share by the 2023 fiscal year. But the spending plan released on Tuesday sets aside $6.4 billion for the pension system, accelerating full funding by a year.

“New Jersey is done kicking problems down the road,” the governor said. “We are solving them.”

Under the plan, the state’s surplus, which proved to be a vital resource during the first wave of the pandemic, would not grow, officials said, but would remain at about the same level it was at the end of 2020.

Mr. Murphy’s spending plan, which must be approved by the Legislature, which is controlled by Democrats, by the end of June, also sets aside $20 million to create a “Cover All Kids” insurance program for the state’s estimated 88,000 children without health care.

When lawmakers approved a 10.75 percent tax rate on all income over $1 million in September, they also established a rebate of up to $500 for taxpayers who earn less than $75,000 a year. The proposed budget sets aside $319 million to fund the first year of rebates, which would be issued in July — three months before the governor and state lawmakers are up for re-election.

The proposed budget is 8.8 percent larger than the current fiscal year’s.

State Senator Declan O’Scanlon, a Republican who represents much of the northern Jersey Shore, said the increases in spending were unsustainable.

“We must remember where we started, fiscally, before the pandemic mayhem because that’s exactly where we’re going to end up when it’s over,” Mr. O’Scanlon said in a statement. “Except, the hole will be deeper, the debt our children owe will be even more massive and the path to true solvency even more insurmountable.”

In November, the state borrowed $3.67 billion to cover its operating costs, a move that Republicans unsuccessfully tried to block, citing the burden it would place on future generations of taxpayers.

James W. Hughes, the former dean of the Edward J. Bloustein School of Planning and Public Policy of Rutgers University, said the state’s decision to turn to borrowing made sense at the time.

“It’s so overused, but whatever the term is — unprecedented, uncharted waters — five, six months ago that was truly the case,” Mr. Hughes said.

“In the summer we still weren’t sure the scale of layoffs that could have occurred if we followed a conventional recession,” he added.

During the peak of the pandemic, when most businesses were shuttered in an effort to slow the spread of the virus, 831,000 residents lost jobs. That was twice the number of jobs gained over the last 10 years, Mr. Hughes noted.

“If that’s not terrifying,” he said, “I don’t know what type of metric is terrifying.”

Since then, the state has recovered about 58 percent of those jobs, but an estimated 350,000 residents remain out of work.

State Senator Michael L. Testa Jr., a Republican who sued on behalf of the state Republican Party to try to prevent the November borrowing, said the rosier revenue projections prove that the $4 billion debt was unnecessary.

“This was pretty much our entire argument: that revenues were going to be far better than the dismal projections set forth by the Murphy administration,” Mr. Testa said. “All it has done is allow the Murphy administration to play Santa Claus with giveaways in an election year.”

State Senator Paul Sarlo, a Bergen County Democrat who leads the Senate’s budget committee, praised the governor’s proposal, but warned that the uptick in revenue may be short-lived.

“The economy continues to be fragile,” Mr. Sarlo said. “Because we have been relying on federal aid with a limited life span and on long-term borrowing to bridge the gap, we should put this spending plan into a two-year perspective so we avoid a ‘fiscal cliff’ with the drop-off of revenue in the near future.”

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