Expect the millionaire’s tax, education funding and New Jersey Transit to be among top priorities for 2021.







TRENTON — Gov. Phil Murphy put forward his third state budget proposal of his tenure once again calling for New Jersey’s wealthiest to pay more taxes to support increased state spending on education, mass transit and other initiatives.

But while the so-called "millionaires tax" that Murphy promised during his 2017 campaign — but has yet to deliver — is once again a central plank in the Democrat’s proposal for the upcoming 2021 fiscal year, he also stressed his financial blueprint would deliver significant property tax relief and savings without putting the state in financial peril.

Murphy also argued the new plan builds on the successes of his first two years and accomplishments like an increased minimum wage and expanded school funding.

"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 Tuesday to a joint session of the state Legislature.

The budget calls for the state to spend a total of $40.8 billion, or about 2.2% more than the current fiscal year plan, and it continues to ramp up state funding for public schools, higher education and NJ Transit that the governor has touted as critical to the state’s economic future.

The plan includes a historic-high $4.6 billion in payments into the state’s chronically underfunded pension funds, an amount that keeps pace with the scheduled ramp up to full actuarially recommended payment in 2023, as well as an extra $279 million payment in the current fiscal year.

The budget also continues to grow the state’s surplus to $1.6 billion, or roughly 4% of total spending.

The administration has described building the surplus as critical protection against a future recession and also a key factor in their push to convince Wall Street ratings agencies to reverse some of the numerous credit downgrades during the eight-year tenure of Republican Chris Christie.

The money for the higher spending, pension and surplus is expected to come from a mix of economic growth, savings and reforms and higher taxes.

The administration is also relying on some $566.8 million in anticipated savings to remain balanced, including $174 million in reductions to be culled from public employee health care, which along with the state’s pension and debt is often cited as one of the biggest cost drivers annually.

In addition to those savings, Murphy trumpeted the few so-called "one-shot" budget revenues, which amount to less than 1% of the total plan. Past administrations have often been criticized for relying too heavily on such budget fixes because they are not sustainable.

Millionaires tax

The biggest proposed tax increase is the millionaires tax surcharge that would raise the state’s income tax rate from 8.97% to 10.75% on all earnings over $1 million.

The administration expects the increase will impact just over 20,000 state residents and another 21,300 out-of-state residents and generate close to $500 million more tax revenues.

Murphy has included the tax hike in each of his previous two budgets but has yet to convince enough lawmakers in the Democratic-controlled Legislature to approve it, in large part due to concerns that the state’s taxes are already too high and that the increase would prompt more of the state’s wealthy to move out.

Murphy contends the increase is needed to help the state’s middle-class.

"There is not one iota of hard economic evidence that has proven the myth of millionaire tax flight," he said Tuesday. "And, yet, I have heard from countless middle-class families and seniors, who are afraid that they may have to leave because of high property taxes."

For the first time during Murphy’s tenure, opposition to the millionaires tax hike may be softening, as Senate President Stephen Sweeney, D-3 of West Deptford, has signaled he’d be willing to support the millionaires tax if the administration adds $1 billion more to the scheduled pension payment.

Such a large pension boost may be difficult, if not impossible, without dipping into the surplus or Murphy acquiescing to major public employee benefit reforms that Sweeney has pushed the last two years.

Murphy has resisted both options previously. However, he still reacted favorably to Sweeney’s overture.

"I thank the Senate President and welcome his willingness to embrace a millionaire’s tax in this budget," the governor said. "When we have tax fairness, we can continue our historic investments in our pension systems and in our middle-class families."

Other taxes

Unlike Murphy’s first budget proposal, his 2021 plan does not call for raising the state’s sales tax. But the administration did propose some additional tax hikes. One of those is $1.65 increase in the tax on cigarettes that will bring the state’s tax from the 10th highest in the nation to $4.35 a pack, the same level as both New York and Connecticut.

The budget proposal also brings back new tax proposals rejected by the Legislature last year, such as corporate responsibility fee that would be assessed on businesses that don’t provide health insurance to employees. That’s expected to generate about $180 million in additional tax revenues.

Other proposed tax and fee increases include $20 million tax on opioid manufacturers to help cover the expense of the state’s response to the addiction crisis and $8.5 million from raising state fees for gun permits and ammunition permits.

While Sweeney has shown some willingness to move on the millionaires tax, he was less open to the idea of the cigarette tax hike and other increases Murphy floated.

"I said I was open to the millionaires tax with a billion dollar in new funding for the pension. I don’t think we really need the other taxes, period," he said, adding that there is enough strong growth that the new taxes aren’t needed.

The Senate’s Republican Minority Leader Tom Kean Jr., R-21 of Westfield, was also critical of the tax increases for both businesses and residents.

"When you’ve got a budget proposal that seeks to increase taxes and spending for the third year in a row — that’s the wrong signal to send," he said.

School funding

On the spending side, the budget continues to make huge investments in public education, including a $336.5 million increase in formula aid to public school districts that will be distributed according to the state’s controversial school funding law.

Growing school districts such as Delran, Chesterfield and Bordentown that were short changed for most of Christie’s tenure can expect to continue to see increases, which the governor touts as a key control on property taxes.

"Every new dollar in school funding is a new dollar of property tax relief," Murphy said. "Every new dollar we provide is a dollar that doesn’t have to come out of the pockets of property taxpayers."

But the funding formula law has also caused some districts, such as Lenape Regional, Pemberton Township and Burlington City that have experienced enrollment losses to receive aid cuts due to the phase-out of adjustment aid, a special category of aid that was apart from the state’s funding formula to ensure that districts with shrinking enrollment did not lose funding. The extra aid is being phased out and redistributed to growing districts.

The change has proven controversial and created a backlash from districts losing aid.

Murphy’s budget does not abandon the adjustment aid redistribution, but it does create a $50 million pool of funding that school districts losing aid will be able to apply for assistance to help preserve key programs.

The budget also has an additional $83 million for the expansion of public preschool programs. And it also boosts funding for higher education too, including the expansion of Murphy’s tuition-free college initiative.

Tax relief

While much of Murphy’s speech Tuesday revolved around a defense of his proposed millionaires tax increase, some of the biggest applause lines were for some of the budget’s tax relief items, including exempting the combat pay of active-duty service members and continuing the higher income eligibility for the Senior Freeze property tax program while also maintaining the Homestead Benefit program.

The plan also continues to pay out millions in tax credits awarded to businesses by Christie and other prior administrations, though Murphy continues to rail for reforms to control the costs of future incentive awards and make them more transparent and accountable.

"Tax incentives cannot be about rewarding special interests. They must be about making our state more competitive, creating jobs, and growing the next great wave of New Jersey-based companies. Period," Murphy said.

Now that the plan is introduced, it falls to the Legislature to undertake a review of the proposal, a process that will feature several public hearings and information sessions over the next several months. Once the review is completed, lawmakers will either negotiate changes to Murphy’s plan or approve their own budget for the governor to consider.

The one certainty is that a balanced budget must be approved and signed into law by July 1 or the state’s government will shutdown.

Other spending initiatives

In addition to increasing school funding, Murphy’s plan makes big investment in NJ Transit, with the beleaguered transportation agency due to receive $132 million more, bringing the total state budget subsidy up to close to $590 million.

Other big spending items include $80 million for improvements to water infrastructure, such as lead pipe removal and $263 for energy efficiency projects and other "green energy" programs, such as the state’s new rebates for electronic vehicles. There’s also money for affordable housing, economic development and infrastructure.