New Jersey Budget Eyes $1 Billion in
New Taxes, Most From Millionaires
New Taxes, Most From Millionaires
By Elise Young and Danielle Moran
August 25, 2020, 3:19 PM GMT+1 Updated on August 25, 2020,
6:55 PM GMT+1
6:55 PM GMT+1
Borrowing for revenue
drops by more than half, to $4 billion
drops by more than half, to $4 billion
Shortened nine-month
fiscal year looking brighter after all
fiscal year looking brighter after all
Phil Murphy
New Jersey Governor Phil Murphy on Tuesday proposed more
than $1 billion in new taxes -- mostly from millionaires -- and $4
billion in borrowing to support spending after the novel coronavirus sent
revenue plunging.
than $1 billion in new taxes -- mostly from millionaires -- and $4
billion in borrowing to support spending after the novel coronavirus sent
revenue plunging.
The governor, a first-term Democrat and retired Goldman
Sachs Group Inc. senior director, would make a record pension payment and
boost the surplus. He also counts on $1.25 billion in spending
reductions during an unprecedented budget cycle, shortened to nine months.
Sachs Group Inc. senior director, would make a record pension payment and
boost the surplus. He also counts on $1.25 billion in spending
reductions during an unprecedented budget cycle, shortened to nine months.
The overall spending plan is less bleak than Murphy’s
earlier doomsday assessment of finances in a state hit harder than most by the
virus. He plans no cuts to
school and municipal aid and intends to restore funding for the popular
Homestead Benefit and Senior Freeze property-tax abatement programs.
earlier doomsday assessment of finances in a state hit harder than most by the
virus. He plans no cuts to
school and municipal aid and intends to restore funding for the popular
Homestead Benefit and Senior Freeze property-tax abatement programs.
He also proposes “baby
bonds,” or $1,000 gifts for infants from low-income families. The
proceeds could be withdrawn at age 18 for education, home buying or to
“pursue other wealth-generating activities,” according to budget documents.
That would cost the state about $72 million.
bonds,” or $1,000 gifts for infants from low-income families. The
proceeds could be withdrawn at age 18 for education, home buying or to
“pursue other wealth-generating activities,” according to budget documents.
That would cost the state about $72 million.
Though Murphy won a fight in the state’s highest court this
month to borrow as much as $9.9 billion to fill revenue holes, he’s now
counting on using less than half that. Still, if the revenue doesn’t
materialize to repay those bonds, New Jerseyans would face higher sales and
property taxes.
month to borrow as much as $9.9 billion to fill revenue holes, he’s now
counting on using less than half that. Still, if the revenue doesn’t
materialize to repay those bonds, New Jerseyans would face higher sales and
property taxes.
Historic Crisis
“Besides setting off an unprecedented public health crisis,
this pandemic also unleashed an economic crisis that can only be rivaled by two
other times in our state’s entire 244-year history: the Great Depression and
the Civil War,” Murphy said at SHI Stadium at Rutgers University in Piscataway.
this pandemic also unleashed an economic crisis that can only be rivaled by two
other times in our state’s entire 244-year history: the Great Depression and
the Civil War,” Murphy said at SHI Stadium at Rutgers University in Piscataway.
The open-air venue was chosen over the Trenton statehouse to
reduce the chance of viral transmission. Almost 16,000 deaths in New Jersey
have a lab-confirmed or probable coronavirus link, and Murphy has yet to reopen indoor dining, gyms and
theaters.
reduce the chance of viral transmission. Almost 16,000 deaths in New Jersey
have a lab-confirmed or probable coronavirus link, and Murphy has yet to reopen indoor dining, gyms and
theaters.
Since March, 1.4 million unemployment claims have been
filed. In June, the jobless rate hit 16.8%, while the Great Recession’s peak
was 9.8%.
filed. In June, the jobless rate hit 16.8%, while the Great Recession’s peak
was 9.8%.
In 12 months during that crisis, sales tax revenue declined
by $672 million. In just four months of the pandemic, it dropped $505 million.
The current fiscal year has a $1.44
billion revenue shortfall, led by sales and use tax declines.
by $672 million. In just four months of the pandemic, it dropped $505 million.
The current fiscal year has a $1.44
billion revenue shortfall, led by sales and use tax declines.
Record Payment
The fiscal 2021 budget amount, $34.91 billion, is an
anomaly: It covers Oct. 1, 2020 through June 30, 2021, nine months that follow
a 15-month year. The typical cycle is 12 months; the state extended it to
reflect a delayed tax deadline and to allow flexibility after revenue plummeted
when Murphy closed nonessential businesses March 21.
anomaly: It covers Oct. 1, 2020 through June 30, 2021, nine months that follow
a 15-month year. The typical cycle is 12 months; the state extended it to
reflect a delayed tax deadline and to allow flexibility after revenue plummeted
when Murphy closed nonessential businesses March 21.
The governor pledges a $4.89 billion pension contribution, a 32% increase over the current fiscal year.
Although a record high, the amount is 20% short of the actuarially required
payment, the fallout after previous governors from both parties skipped or
shorted contributions, increasing the burden.
Although a record high, the amount is 20% short of the actuarially required
payment, the fallout after previous governors from both parties skipped or
shorted contributions, increasing the burden.
Murphy’s budget also leaves a $2.24 billion fund balance --
8% higher than that for the extended fiscal year -- “a much-needed cushion
against revenue shocks from a second wave,” the governor said.
8% higher than that for the extended fiscal year -- “a much-needed cushion
against revenue shocks from a second wave,” the governor said.
Eric Friedland, director of municipal bond research at
Jersey City-based Lord, Abbett & Co. LLC called the spending plan “very
measured” by incorporating revenue increases and spending cuts. He also noted
the state didn’t include potential congressional stimulus aid, which has
been scuttled by a partisan stalemate in Washington.
Jersey City-based Lord, Abbett & Co. LLC called the spending plan “very
measured” by incorporating revenue increases and spending cuts. He also noted
the state didn’t include potential congressional stimulus aid, which has
been scuttled by a partisan stalemate in Washington.
“There are some states out there that are factoring in large
amounts of further stimulus money into their budgets, if they don’t get it will
have to take some pretty dramatic actions,” said Friedland, whose employer has
$30 billion in municipal bonds under management, including New Jersey debt.
“New Jersey is willing to swallow some of the medicine now by imposing revenue
increases and taking some cuts.”
amounts of further stimulus money into their budgets, if they don’t get it will
have to take some pretty dramatic actions,” said Friedland, whose employer has
$30 billion in municipal bonds under management, including New Jersey debt.
“New Jersey is willing to swallow some of the medicine now by imposing revenue
increases and taking some cuts.”
The budget marks the third time -- fourth, if counting
Murphy’s scuttled February plan -- that the governor has proposed a
millionaires tax. Each time it was blocked by Senate President Steve Sweeney, a
fellow Democrat who has cited New Jersey’s highest-in-the-nation property
taxes, averaging $8,767 last year, and other steep living costs.
Murphy’s scuttled February plan -- that the governor has proposed a
millionaires tax. Each time it was blocked by Senate President Steve Sweeney, a
fellow Democrat who has cited New Jersey’s highest-in-the-nation property
taxes, averaging $8,767 last year, and other steep living costs.
The new marginal tax
rate on such earners, 10.75% rather than 8.97%, would apply to every
dollar in excess of $1 million. Murphy anticipates raising $390 million,
the biggest amount among the proposed new levies. The higher rate already applies to those earning $5 million or more, a
change Murphy put into effect for the 2018 tax year.
rate on such earners, 10.75% rather than 8.97%, would apply to every
dollar in excess of $1 million. Murphy anticipates raising $390 million,
the biggest amount among the proposed new levies. The higher rate already applies to those earning $5 million or more, a
change Murphy put into effect for the 2018 tax year.
Political Will
“This might be the year he succeeds -- he has the political
will and the political argument to voters for this tax,” Dora Lee, director of
research for Belle Haven Investments, said in an interview. Belle Haven, in Rye
Brook, New York, has $12.9 billion in assets under management, including New
Jersey debt.
will and the political argument to voters for this tax,” Dora Lee, director of
research for Belle Haven Investments, said in an interview. Belle Haven, in Rye
Brook, New York, has $12.9 billion in assets under management, including New
Jersey debt.
The Democratic-controlled legislature must approve the
budget before Murphy signs it. State Senator Paul Sarlo, a Wood-Ridge Democrat
and chairman of the Senate budget committee, said he was “confident that we can
come together on a spending plan that makes the most of limited resources and
does the best to address the needs of New Jersey in a time of crisis,”
according to a statement issued by his office.
budget before Murphy signs it. State Senator Paul Sarlo, a Wood-Ridge Democrat
and chairman of the Senate budget committee, said he was “confident that we can
come together on a spending plan that makes the most of limited resources and
does the best to address the needs of New Jersey in a time of crisis,”
according to a statement issued by his office.
Four Republican committee members, though, criticized Murphy
in a joint statement.
in a joint statement.
“He wants to borrow billions, which will compound to
billions more in interest and fees, to support a budget that demonstrates not
one shred of creative cost-cutting reform,” said Senator Declan O’Scanlon of
Little Silver.
billions more in interest and fees, to support a budget that demonstrates not
one shred of creative cost-cutting reform,” said Senator Declan O’Scanlon of
Little Silver.
Business Surtax
In all, Murphy anticipates $1.02 billion from new taxes. The
budget proposes making permanent a 2.5%
corporate business surtax, to raise $210 million; a cigarette-tax boost to $4.35 per pack,
for $143.1 million; a higher fee
for health-maintenance organizations, for $102.7 million; a surcharge
for those with qualified business income
greater than $1 million, for $75 million; and higher rates on limousine services, yacht and boat sales and
firearm and ammunition taxes, for $26.3 million.
budget proposes making permanent a 2.5%
corporate business surtax, to raise $210 million; a cigarette-tax boost to $4.35 per pack,
for $143.1 million; a higher fee
for health-maintenance organizations, for $102.7 million; a surcharge
for those with qualified business income
greater than $1 million, for $75 million; and higher rates on limousine services, yacht and boat sales and
firearm and ammunition taxes, for $26.3 million.
For the 12 months ending June 30, 2021, New Jersey will have
budgeted $42.57 billion. The fiscal 2021 spending plan that Murphy proposed on
Feb. 25, prior to New Jersey’s first reported coronavirus case, was $40.9
billion.
budgeted $42.57 billion. The fiscal 2021 spending plan that Murphy proposed on
Feb. 25, prior to New Jersey’s first reported coronavirus case, was $40.9
billion.
To make up for lost revenue, the governor has said the state
needs tens of billions of dollars from borrowing, including from the U.S.
Federal Reserve’s municipal liquidity fund, plus as-yet-uncertain federal
grants.
needs tens of billions of dollars from borrowing, including from the U.S.
Federal Reserve’s municipal liquidity fund, plus as-yet-uncertain federal
grants.
(Updates with “baby bonds” for low-income families in fourth
paragraph)
paragraph)
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