To howls from the GOP, Democratic majority rallies around plan that boosts taxes and spending, and adds to state debt load during pandemic-shortened fiscal year

This story was written and produced by NJ Spotlight. It is being republished under a special NJ News Commons content-sharing agreement related to COVID-19 coverage. To read more, visit njspotlight.com.

Lawmakers advanced a nine-month spending bill and several tax hikes needed to support it Tuesday, keeping the state budget legislation on course to go to Gov. Phil Murphy’s desk for final approval later this week.

Sign Up for Morristown Newsletter
Our newsletter delivers the local news that you can trust.

In a separate action that took place simultaneously, Department of Treasury officials also met to finalize plans to borrow up to $4.5 billion for the new budget, a sum that has already been incorporated into the Legislature’s spending bill.

Democrats, who hold wide majorities in both the Assembly and Senate, defended their $32.7 billion budget as it came up for votes in committee Tuesday afternoon. They suggested the tax hikes and the $4.5 billion in new borrowing are needed to maintain important services and programs amid revenue losses tied to the ongoing coronavirus pandemic.

“It’s an investment during a very difficult time in our state’s history, in our country’s history,” said Senate Budget and Appropriations Committee Chair Paul Sarlo (D-Bergen).

But Republicans faulted the budget plan, which proposes a year-over-year spending increase despite the projected revenue decline, thanks largely to the borrowed money.

“It’s horrific policy, put forward by an irresponsible governor, with the complete abdication of responsibility on the part of the Democrat Legislature,” said Sen. Declan O’Scanlon (R-Monmouth).

The budget bill and the separate pieces of tax-hike legislation are now slated to go before the full Assembly and Senate on Thursday.

From there, the budget legislation would go to Murphy, who is expected to sign it unchanged. Action on a new budget must be taken by Oct. 1 this year because the spending bill is needed to cover appropriations between Oct. 1 and June 30, 2021.

Murphy, a first-term Democrat, put forward a budget plan late last month that proposed about $1 billion in tax increases to help offset revenue losses his administration has been projecting during the ongoing pandemic.

Murphy also called for $4 billion in new borrowing to finance deficit spending equal to roughly 10% of what the state will spend this year. The New Jersey Constitution generally prohibits deficit spending, but it allows for exceptions such as helping the state respond to a war or major emergency.

Some tax hikes on the way

Lawmakers ultimately decided to enact three of the governor’s tax-hike proposals as part of the legislation they advanced Tuesday. That will net about $700 million in new revenue to support their spending bill, according to budget documents. They also boosted Murphy’s borrowing request by another $500 million to keep spending and revenues aligned.

Among the proposed tax hikes approved Tuesday is a plan to apply the top marginal income tax rate of 10.75% to all earnings over $1 million, retroactive to Jan. 1, 2020. Long sought by Murphy, that tax-policy change — from a top tax bracket that now starts at $5 million — is projected to yield nearly $400 million in new revenue. The so-called millionaires-tax legislation approved Tuesday would hike the rate for those affected from 8.97%.

Another $210 million would be raised by retaining what was  a temporary surcharge levied on businesses with total annual profits over $1 million. Instead of being phased out as originally planned, the surcharge will instead remain in place at least through the end of 2023.

Lawmakers also voted to increase a tax on what Health Management Organizations charge consumers for health policies, from 3% up to 5%. That change is projected to raise new revenues of over $100 million.

Others not

Left out of the Democrats’ spending bill was budget revenue from several other tax hikes that had been sought by Murphy as part of the budget plan he proposed Aug. 25. They include tax hikes on boat sales, cigarettes, firearms and limousine services.

Still, business groups criticized the tax hikes that survived the committee hearings — which both occurred at roughly the same time, making it hard for those seeking to testify to appear before each panel.

Chris Emigholz, vice president of government affairs at the New Jersey Business & Industry Association, said the tax hikes will make the state a regional outlier.

“We have to think about the collateral damage that occurs to our economy,” he said.

But several labor unions and other groups backed the budget package, highlighting how the new revenue will be used in part to make a record contribution into the state’s significantly underfunded public-employee pension system.

“Thank you for a $4.7 billion pension payment, the largest pension payment so far I’ve heard of,” said Francine Pfeffer, associate director of government relations for the New Jersey Education Association, the state’s largest teachers union.

Hedging against a coronavirus resurgence

The legislative spending bill seeks to set aside $2.5 billion as surplus, something Democratic sponsors suggested will provide a necessary hedge if a resurgence of the pandemic leads to a new round of economic restrictions. That’s a significant sum considering lawmakers had been warned numerous times prior to the pandemic they were operating with inadequate reserves that left their budget vulnerable to the type of revenue losses experienced during the public health crisis.

“I think the most important thing to me, and to a lot of us, especially on this side of the aisle, is to make sure that we are prepared, if unfortunately, we do get a second wave,” said Assembly Budget Committee Chair Eliana Pintor Marin (D-Essex).

But several Republicans stressed their concerns with hiking taxes, year-over-year spending and adding to the state’s already significant debt burden as they cast votes in opposition to the budget bill and the tax legislation.

“All of these things are just not good policies,” said Assemblywoman Nancy Munoz (R-Union).

To read the article in the original format, click: Approval likely for $32.7B budget and millionaires tax hike