Dustin Racioppi and Ashley Balcerzak
Trenton Bureau, North Jersey.com
Gov. Phil Murphy on Tuesday proposed a $40.9 billion budget that raises taxes on millionaires, cigarettes and guns while setting aside a record amount of money for NJ Transit — but he helps pay for that by diverting money from other accounts, moves he has denounced as budget gimmickry.
In a speech coming just days after he announced a likely cancer diagnosis, Murphy enthusiastically declared he is "not going anywhere" and said his third state spending plan builds on the progress his administration has made in growing New Jersey’s middle class.
And he boasted that "no other administration has done so much in its first two years to control property taxes," a claim his predecessors would likely challenge. The late Brendan Byrne in his second term enacted the income tax, which must by law go solely to property tax relief. Jim McGreevey sent taxpayers rebates. Chris Christie signed a 2% cap on annual property tax increases.
Murphy hailed his overseeing the lowest and fourth-lowest year-over-year increases in property taxes on record, but despite that slow growth New Jersey's average of $8,767 ranks No. 1 nationwide.
Since introducing his first budget in 2018, Murphy has offered no big new policy ambition. Instead, he has chipped away at, and built upon, campaign pledges he made in 2016 and 2017, such as increasing funding for public education and launching a free community college program. He now plans to extend that program to the first two years of four-year colleges.
"I stand here today with a vision for how our state can work for everyone, with a proposed budget built to see it to fruition, and with our progress as prologue," Murphy said.
Having failed to legalize marijuana and restore the state sales tax by a fraction of a penny, Murphy has made passing a so-called millionaires tax his raison d’Ítre. Raising the top rate on incomes over $1 million to 10.75% from 8.97% would add $494 million in revenue for the state, according to the Treasury Department.
Will fellow Democrats support tax hikes?
Despite being blocked by fellow Democrats in his first two budgets, Murphy seems to have a more willing partner in Senate President Stephen Sweeney, D-Gloucester. He has backed off his resistance to the millionaires tax and said he would be willing to support it in exchange for an additional $1 billion into the public employees' pension fund.
But Assembly Speaker Craig Coughlin, D-Middlesex, does not appear ready to embrace the millionaires tax or any of the other increases Murphy included in his budget, saying Monday that he is "cautious of increasing any broad-based taxes on an already overburdened state."
Murphy also included increased fees that the Legislature rejected last year: on bear hunts, opioid manufacturers, and gun buyers and concealed carry permit holders. And he wants to impose a corporate responsibility fee on companies that don't offer their employees affordable health care plans.
Sweeney rejected other increases and said the cigarette tax specifically "is a big problem."
"I said I was open to the millionaires tax if there is a billion dollars in new funding for the pension. I don’t think we really need the other taxes, period," Sweeney told reporters after the speech.
Pension fund, NJ Transit and more
New Jersey has one of the nation's largest unfunded pension liabilities, at about $100 billion. And paying nearly $5 billion a year — and rising — into the fund to keep its commitments to public workers hamstrings the state from paying for its many other needs, such as NJ Transit, public education and eradicating lead from paint and water supplies.
Murphy's budget also includes $80 million for "safe and modern drinking water infrastructure," which he said is a "down payment" to help municipalities replace lead water service pipes.
Although he is seeking a multitude of increases, Murphy is also cutting government costs — $174 million in employee health benefits and $393 million in departmental savings, according to his office.
That is not enough for Republicans, who raised the familiar rejoinder that New Jersey has a spending problem, not a revenue problem. Doug Steinhardt, chairman of the state Republican Party, said Murphy's budget "is built around yet another income tax" and is the largest in state history.
"His communications team has been working overtime to try and sell New Jersey residents on the idea that if we only tax people who can 'afford' it, he’ll have enough taxes to fund his radical, liberal agenda," Steinhardt said in a statement.
Sweeney's softening stance gives Murphy the best opportunity yet to pass a true millionaires tax. He argued for it Tuesday in sharper terms than he has in the past, saying a property tax is "the most unfair, regressive, and cruelest of taxes."
"A middle-class family in Merchantville or Milford or Moonachie, after all, pays a greater percentage of their income in property taxes than a millionaire anywhere else," Murphy said. "It’s easy to see how our middle class can feel cheated."
In his first year, 2018, he and lawmakers agreed to raise rates on incomes over $5 million from 8.97% to 10.75%. But Murphy has pushed ever since to apply that top rate to every dollar over $1 million, something he had promised as a candidate.
Such a tax change would net the state about $500 million a year — half the amount Sweeney said he would like to see added into the public workers' fund. That would mean Murphy would have to come up with another $500 million for pensions and cut $500 million in programs from the state budget.
Murphy's budget speech is just a starting point. Now lawmakers will begin months of public hearings and, if history holds, Murphy, Sweeney and Coughlin will spend the final days of the fiscal year in June negotiating state spending.
The governor's budget also calls for increasing funding to NJ Transit by $132 million, for a record total subsidy from the general fund of $589 million that Murphy said will avoid fare increases for riders. He has been critical of his Republican predecessor's reduction in that subsidy, saying it contributed to the agency's decline in service and reliability.
He was also critical of Christie's diversions from other funds to support NJ Transit's budget, saying they were "gimmicks" he wanted to "get away from," but Murphy wants to continue that practice for the third straight year.
He plans to transfer $82.1 million from the Clean Energy Fund, $154 million from the Turnpike Authority and $460 million from NJ Transit's capital fund to cover its $2.5 billion in operational costs for the upcoming fiscal year, according to Treasurer Elizabeth Maher Muoio.
Murphy's handling of NJ Transit's finances may be more heavily scrutinized by the Legislature. In addition to the normal budget process, a select legislative committee is holding hearings to try to find solutions to the agency's many troubles.
And Sweeney has proposed memorializing some of the diversionary practices of Murphy and his predecessors. Doing so would guarantee $500 million for the agency. Advocates have called for years for a dedicated funding source rather than patching the agency's budget together with fund diversions and fare increases.
New Jersey would join two other states with the highest taxes on cigarettes under Murphy's budget. He plans to raise it $1.65 per pack, for a total excise tax of $4.35, the same rate as Connecticut and New York, according to the Tax Foundation. Combined with the state sales tax, a pack of cigarettes could cost as much as $12 or more.
Dustin Racioppi is a reporter in the New Jersey Statehouse.