Home>Feature>Murphy’s budget, devoid of tax hikes, fit for election year

Gov. Phil Murphy delivers a virtual budget address for the 2022 fiscal year.

Murphy’s budget, devoid of tax hikes, fit for election year

Voters to receive tax rebates as governor proposes increased property tax relief

By Nikita Biryukov, February 23 2021 1:09 pm

Gov. Phil Murphy offered a budget fit for an election year Tuesday, putting forward a proposal devoid of tax increases and new fees for the first time since entering office in early 2018.

“Because of our focus on budgeting the right way, and focusing on people and not politics, the budget I am presenting today can make these investments and achieve these goals for the year to come with no increases in taxes,” he said. “Yet we’ll be able to maintain and grow our investments in the key areas that will power our state’s emergence from the pandemic and drive us confidently into the future.”

The nearly $45 billion budget comes coupled with a tax rebate for families making less than $150,000 annually, or $75,000 for individuals, approved as part of a deal to enact a tax on the state’s millionaires in September.

Administration and Treasury officials declined to rule out tax hikes in future budgets, saying they’d examine one appropriation bill at a time and citing uncertainty surrounding the pandemic and its effect on revenues.

The Treasury estimates more than 760,000 of the state’s families — fully a quarter of New Jersey households — will see some benefit from that proposal, with joint filers, who account for more than 90% of expected recipients, receiving an average rebate of $425.

Single filers will, on average, see $297 in benefits from that program. Those awards cap out at $500.

At the same time, property tax relief programs, like the Homestead Benefit and Senior Freeze Programs, absent in some past budgets will return this year.

“Our administration’s first three years have seen the slowest rate of property tax increase of any administration since the start of the millennium. Since we’ve taken office, the budgets we’ve presented have contributed to three of the lowest year-over-year increases in property taxes on record,” Murphy said. “This year, we aim to keep this progress going.”

The state expects residents to save nearly $710 million through the Property Tax Deduction Act. The Homestead Benefit is will see a drop in funding from the previous year, to $260 million from about $270 million in the previous fiscal year.

Administration and Treasury officials said that reduction reflected a downward trend in eligibility. No one who qualifies for the benefit will see their awards cut, they said.

The Senior Freeze will provide just under $220 million in tax relief for the state’s elderly, and Murphy proposed expanding the state’s Earned Income Tax Credit to seniors without dependents, though it’s not clear how much money such residents will save because of it.

At the same time, veterans, including those who served in peacetime, would receive $51.5 million in tax deductions.

Under Murphy’s proposal, the state would make its first full pension contribution — one worth roughly $6.39 billion — in more than 25 years. That step, buoyed by a dip into the state’s $4.9 billion surplus, comes a year ahead of schedule.

Officials said it would save the state $860 million over the next 30 years by reducing future pension payments.

“The problems in our pension system, rather, have everything to do with past administrations, of both parties, and going back 25 years, who simply and short-sightedly decided not to pay. In fact, some suggest, even today, that we skip out on our pension obligation,” Murphy said. “We won’t go back to those failed, old ways.”

Ratings agencies will likely be wary of the state’s reduced surplus, which would fall to about $2.2 billion, about 5% of the total budget, under Murphy’s proposal. That reduction would come just a year after the state’s surplus met a 10% threshold favored by raters.

That increase was spurred by the state’s borrowing $4.5 billion to help reel it out of its pandemic-fueled fiscal tumble.

The COVID-19 crisis slashed tax collections for much of last year, skyrocketing unemployment as businesses closed amid government-ordered shutdowns meant to stem the spread of the virus.

Last Spring, sales tax revenues dropped by a staggering 29%. Casino tax collections fell by 66%, and gas tax collections were reduced by 59%.

Those revenues streams have since recovered, and the Treasury is forecasting modest 2.7% sales tax growth. Income tax is expected to rise by a rosier 6.4%, while officials predict the state’s corporate business tax collections will grow by about 8.2%.

The increases still leave the state’s revenues short of where they were last year, though unprecedented federal aid and borrowing that skirted voter approval helped boost last year’s revenues.

The governor’s budget address doesn’t factor in the latest round of federal stimulus currently being negotiated in Washington. That package could see New Jersey’s government receive $6 billion in direct federal aid.

Still, Murphy’s proposed spending plan of $44.8 billion is roughly 8.8% larger than last year’s $41.2 billion budget, and one-shots still make up a significant chunk of the difference, somewhere between 11 and 14% of the total budget, officials said.

The $2.7 billion in proposed surplus spending accounts for most of the one-shot spending, with Pass Through Business Alternative Income Tax, normally a revenue neutral program, expected to bring in $1.9 billion in gains that won’t be offset until the following budget.

The state’s also receiving $415 million in federal Medicare matchable aid that won’t recur in future years.

Though Murphy has railed against diversions in the past, NJ Transit’s budget is still supported by diversions from the beleaguered transportation network’s capital fund and the Clean energy Fund, though the capital-to-operating transfer is down about $100 million from last year, though the administration again avoided hiking fares for consumers.

“I can stand here today and tell NJ TRANSIT’s riders that, for the fourth year in a row, you will not see a fare hike. Under prior administrations, fares went up while service went down,” the governor said. “Well, this administration is improving service and not putting the burden on the hundreds of thousands of New Jerseyans who will come back to a much-improved NJ TRANSIT.”

The administration scored no revenues from the state’s legal marijuana market, though it appropriated between $7 million and $8 million for the Cannabis Regulatory Commission, which will establish the state’s legal market over the next six months.

School funding aid would rise about 7%, to about $9.3 billion under Murphy’s proposal, and the governor wants $50 million in funding for Garden State Guarantee, which would allow students from families making less than $65,000 annually attend college for two years tuition-free.

There’s still $20 million appropriated for early in-person voting, though that appropriation will likely have to be raised as lawmakers grapple with costs related to the purchase of electronic poll books, high-tech voting machines and high-speed printers needed to administer such a program.

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