Taxes, Trump, transit among headaches New Jersey's new governor will face

Dustin Racioppi and Nicholas Pugliese | The (Bergen County, N.J.) Record

Show Caption Hide Caption Watch: Phil Murphy greeting commuters N.J. Governor Elect Phil Murphy thanks commuters for his win at the Hoboken PATH Station.

TRENTON, N.J. — New Jersey's next governor will be sworn in Tuesday, and when he takes office, he’ll see challenges everywhere he looks.

Despite the accomplishments of his high-profile Republican predecessor, Chris Christie — an improved economy, slowed growth of property tax bills, pension and health benefits reforms for public workers — New Jersey remains mired in costly, entrenched problems. Phil Murphy, who will be one of two new Democratic governors to take office this month, will have to grapple with a strained budget, a pension system in crisis and threats to his agenda from Washington.

What follows is a look at what Murphy has promised and what major issues he will be confronted with once he takes over from Christie.

• Promises. Murphy has made a lot of them.

Those promises include fully financing public education, increasing the state's payment into the public employee pension fund, legalizing marijuana, creating a state bank, raising the hourly minimum wage to $15, offering free community college, expanding to universal pre-kindergarten and converting to 100% clean energy by 2050.

Some argue that he has made too many promises to too many people. He calls it bold vision.

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Regardless, one big question is how he pays for it all. The other is how he'll work with fellow Democrats in the state Legislature, a group prone to infighting, to get it all accomplished.

• Budget. Ambition will meet reality in the 2019 state budget.

About a month after he takes office, Murphy will have deliver a budget address laying out, in actual numbers, his vision for New Jersey into the new fiscal year, which begins July 1.

New Jersey's budget is constantly stretched thin. The $34.7 billion spending plan that Christie signed last year is likely to increase under Murphy, whose campaign told the Observer that he anticipates raising about $1.3 billion in new tax revenues to help pay for some of his campaign promises.

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But one idea that Murphy proposed for raising money — reviving a so-called millionaire's tax on high earners that Democrats repeatedly tried to pass under Christie — appears to have less support in the Legislature since Trump signed an overhaul of the U.S. tax code shortly before Christmas. Meanwhile, the Christie administration released a report last week warning that a millionaire's tax could cause high-income taxpayers to flee the state.

• Pensions. Crowding out spending on other priorities will be the need to pour money into the state’s public employee pension system, which was recently ranked the worst-funded in the nation thanks to years of mismanagement from governors of both parties.

Christie contributed $8.8 billion during his tenure, nearly three times more than the previous five governors combined. But the system's unfunded liability is $90 billion and growing, according to a recent report.

Legislation that Christie signed last year to transfer the state lottery into the pension system means Murphy only has to add $234 million to this year’s $2.5 billion pension payment to continue the state’s 10-year ramp up to a level actuaries say is adequate, according to an analysis by S&P Global Ratings. But that figure will continue to rise, and spending on pensions and health benefits for public workers is projected to consume nearly a quarter of the state’s budget by the end of Murphy’s first term.

• Property taxes. In a less pleasant parting gift for Murphy, the Christie administration cut the assumed rate of return on its pension investments to 7% from 7.65%.

The more conservative estimate will be good for the pension system in the long term, according to S&P. But in the short term, it means local governments, which are required by law to contribute the full amount recommended by actuaries, will have to cough up an additional $423 million for pensions in the coming fiscal year.

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As if that didn’t put enough pressure on local officials trying to reduce increases to New Jersey’s highest-in-the-nation property taxes, lawmakers this year let a law expire that caps at 2% the salary increases police and firefighters can win when their contracts go to arbitration. Because a separate 2% cap on property tax increases remains in effect, local officials fear they’ll have to cut services or find other sources of revenue should public safety officials start getting bigger salary bumps.

Murphy has avoided saying whether he supports renewing the so-called interest arbitration cap, explaining that he still wants to see a final report on the issue from a task force whose members say they have no plans to meet again or release such a report.

• Transportation. Christie stabilized the near future of road and bridge money with a gasoline tax increase last year, but long-term headaches await Murphy at the Port Authority of New York and New Jersey and New Jersey Transit Corp.

No reforms have occurred at the Port Authority since the George Washington Bridge lane-closure scandal exposed flaws at the massive bi-state agency. It's not for lack of trying, but the hurdle is that the legislatures of New York and New Jersey must pass identical reform bills and both governors must approve them.

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Christie and New York's Democratic governor, Andrew Cuomo, rejected reforms the two legislatures sent them in 2014, and the two sides have been unable to agree on changes since.

NJ Transit was once a national transportation leader, but now the agency is underfunded, under staffed and losing riders. Under Christie, the agency's subsidy was cut 90% and the governor diverted $3.44 billion from its capital budget to pay for daily operations, according to Bloomberg.

The news outlet also reported that the agency leads its peers in rail breakdowns, accidents and fines. It's also behind schedule to install a crash avoidance system.

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In the meantime, rates for riders have increased five times since 2000 and the agency's rates are higher than comparable transit systems nationwide.

Another potentially problematic — and costly — issue is the Gateway project that includes plans for new rail tracks beneath the Hudson River. It is a critical project for the region that's expected to cost billions.

New Jersey, New York and the Port Authority had agreed under President Obama to pay for half the cost of the project, but President Trump's administration has backed away from Obama's commitment to pay for the other half.

• Trump. Murphy has said he’ll have a “steel backbone” in standing up to Trump.

But so far the Trump administration has been standing in the way of Murphy’s ambitions.

Not only has the tax bill that Trump signed shortly before Christmas caused New Jersey Democrats to cool on the idea of introducing a millionaire’s tax, but Attorney General Jeff Sessions’ decision to rescind an Obama-era policy of non-interference with state pot laws has threatened Murphy’s plan to legalize and tax marijuana early in his first term.

► July 12: Former Christie ally, Bridgegate architect gets probation

► July 2: New Jersey shutdown: 'Gov. Christie, get the hell off the beach!'

Murphy also has bristled at the Trump administration’s plan to open up the Atlantic Ocean to offshore oil drilling, including the waters off the Jersey Shore.

Earlier this week, the Trump administration promised Florida, a swing state with a Republican governor, that it would be exempt from the plan. But it’s unclear whether the same consideration would be given to more reliably Democratic states like New Jersey.

Follow Dustin Racioppi and Nicholas Pugliese on Twitter: @dracioppi and @nickpugz