Millionaires, certain businesses and HMOs will face increased taxes, and New Jersey taxpayers will have to pay back billions of dollars in borrowing, with interest, that the state intends to use to plug revenue holes caused by the coronavirus, under the $32.7 billion state budget Gov. Phil Murphy signed into law on Tuesday. 

"The budget safeguards key programs that our families and residents are relying on to see themselves through the pandemic, especially our most vulnerable residents, and it does not pull the rug out from under them," Murphy said, standing onstage at the Trenton War Memorial's Patriots Theater, an ornate gilded auditorium that allowed more than 50 people to sit comfortably 6 feet apart. "And importantly this budget lives up to the ideal of shared sacrifice in trying times by including meaningful tax fairness.” 

Outside, more than a dozen clergy and members of immigrants' rights groups chanted and waved signs, urging the governor to provide relief to workers and undocumented immigrants.

The 251-page appropriations bill sped through the Legislature, giving the public less than three days to read the legislation and weigh in on decisions that will affect taxpayers for years. 

Because New Jersey had roughly $5.3 billion less to work with than expected back in February, leaders agreed to borrow $4.5 billion by issuing bonds, despite warnings from fiscal experts that this debt will make it harder to craft budgets and pay for priorities in the future. Democrats pitched the plan as difficult but necessary decisions required to help residents struggling through the pandemic to get back on their feet in the midst of an economic crisis worse than the Great Recession.

Republicans decried the decision to borrow heavily — which will cost New Jerseyans down the line to pay back — in order to fund millions of dollars of pet projects, or "pork," included in the budget that they deemed unnecessary in a time when fiscal restraint is needed. They pointed to $4 million for an Essex County youth golf program and $100,000 for "shade tree management" in Metuchen, among other payments for things like debris removal and parks.  

"With this budget, Governor Murphy might as well be signing a letter addressed to every New Jersey taxpayer that reads 'move to Florida or Pennsylvania, I don't care,'" said New Jersey Republican State Committee Chairman Doug Steinhardt. "In the middle of an economic crunch made worse by his decisions, Phil Murphy's lack of understanding for struggling New Jersey businesses and families was never more evident." 

The budget covering Oct. 1 to June 30, 2021, restores many of the cuts Murphy made in a supplemental three-month budget he signed earlier in the year, such as the property tax relief programs Homestead Rebate and Senior Freeze. 

The budget keeps K-12 education funding flat for the current school year at $8.7 billion, instead of meeting the state's goal to increase payments year over year. The budget does bump up special education aid to $275 million, and it adds $22 million to help pay for public school lunches and child care, fill teacher vacancies and aid private schools in paying for nurses.

The spending plan also restores a $15 million program that pays for mental health services, crisis intervention and suicide prevention in schools. Murphy had proposed defunding the school-linked services program to offset spending more on the New Jersey Children's System of Care, which provides similar services but is not limited to in-school programs. But parents, teachers and districts pushed back, noting that the pandemic had upended typical school routines and would increase stressors on children.

Lawmakers also restored some, but not all, cuts Murphy made to programs that aim to reduce bias and promote racial equity, such as a wealth disparity study and anti-discrimination training. The spending plan adds more than $5 million to fund reentry programs, or services designed to help people leaving prison to transition back into society and obtain social service assistance, like health care or housing.

And New Jersey will spend $60 million to prioritize removing lead water pipes, and another $5 million to help families remove lead paint from their homes. The money, however, falls vastly short of the billions needed to remove the toxic pipes and paint from homes around the state, and that lawmakers and Murphy pledged to fund via borrowing. The pandemic, they said, required them to put that borrowing on hold.

As Murphy, lawmakers and union leaders praised the budget inside, organizers, workers and immigrants outside lined up on the sidewalk overlooking the War Memorial, chanting, "We are essential and excluded, we are here and we're not moving, our families deserve to be included, relief for all today, Phil Murphy," in both English and Spanish, to the tune of the "Battle Hymn of the Republic." 

"I'm sick and tired to see that our families have been left out, and mothers and workers are living without money to pay their rent, to bring food to their tables," said Jorge Torres of Jamesburg, who is with the National Day Laborer Organizing Network.

Heidi Cordero, a 43-year-old from Trenton, lost her job at a nail salon after Murphy urged all nonessential businesses closed to prevent the spread of COVID-19. She has not been able to find work since, and picks up food at a local church to feed her daughter and granddaughters, who also came to the rally to ask for help.

New taxes

Murphy finally won on his major campaign pledge to increase the tax on income over $1 million from 8.97% to 10.75%, after the Legislature rejected the millionaires tax over the last two full budget seasons. 

The measure is estimated to create $390 million in new revenue for New Jersey, and will affect 16,491 New Jersey residents and 19,128 nonresidents who create income in the state, the Murphy administration said. 

To seal the deal, political leaders pledged to give certain low- and middle-income families up to a $500 tax rebate next summer, leading up to presumably the legislators' and Murphy's reelection campaigns.

Single parents earning up to $75,000 a year and married couples earning up to $150,000 a year with at least one child would be eligible. The proposal — which would need to be approved in next year's budget — would cost an estimated $335 million and benefit close to 800,000 families, according to the Treasury Department. 

Corporations with more than $1 million in income will be hit with a 2.5% surcharge until the end of 2023. Under a previous deal, the 2.5% surtax lasted two years, decreased to 1.5% at the beginning of 2020 and was supposed to disappear after two years at that rate. This corporation business tax increase is expected to generate about $210 million.

The HMO assessment on net written premiums will increase from 3% to 5%, to bring in about $103 million of new revenue. 

Left on the cutting room floor are a list of other tax increases and fees that Murphy proposed but lawmakers rejected, including on cigarettes, firearms and ammunition, yacht and boat sales, opioid manufacturers and limousine rides. Those taxes and fees would have generated another $316 million; instead, lawmakers chose to borrow $500 million more than Murphy proposed. 

Borrowing and future financial questions

Republicans criticized the budget for not including substantive structural fiscal reforms, and fiscal experts warned that borrowing to cover operating expenses will create problems down the line. 

"If there's ever a time when you should look beyond the immediate horizon as you're making budget decisions, this is the time," said Frank Haines, legislative budget and finance officer, commenting during a budget hearing on Murphy's original proposal to borrow $4 billion, instead of the Legislature's $4.5 billion. "The larger you make that structural deficit, the harder it’s going to be to craft the next budget without disruptions, without lots of additional decisions that may be difficult to make, that may be difficult to get any agreement around."

Richard Keevey, New Jersey's former budget director and comptroller, wrote that such borrowing "is not appropriate and flies in the face of long-held best budgeting practices."

New Jersey is already one of the most indebted states in the nation, having about $44.4 billion worth of outstanding bonded debt as of June 2019. 

And it's still unclear exactly how much this new borrowing will cost taxpayers, as the Treasury Department hasn't nailed down how long it will take to repay, how much the interest will cost, and on which markets they will sell. In a September budget hearing, officials said they were considering paying back the bonds over 10 years and around 2% interest. 

Before a panel of four lawmakers separately approved the borrowing on Monday, representatives from the Commerce and Industry Association of New Jersey, the New Jersey Business & Industry Association and the Chamber of Commerce Southern New Jersey testified against the proposal. 

“The longstanding impact of the borrowing cannot be understated, adding to the state’s already enormous debt, which can only lead to higher taxes on already overburdened residents and businesses," said Hilary Chebra, manager of government affairs for the Chamber of Commerce Southern New Jersey. 

Legislators said that if the federal government agrees to direct cash assistance for states and localities, that money would be used to pay off the debt early. The latest House stimulus plan in negotiations includes an estimated $8.7 billion for the state of New Jersey, and about $5.3 billion for counties and localities, according to congressional figures. 

As paying off debt remains a large chunk of the budget, the state's pension payments to public workers is growing and continues to crowd out other spending priorities. 

The state will pay $4.7 billion this fiscal year, which is still only 80% of what experts recommend to pay to keep costs from further ballooning. 

New Jersey needs to tackle pension reform and cutting government costs through things like shared service agreements, said Senate President Stephen Sweeney, D-Gloucester, and budget chair Sen. Paul Sarlo, D-Bergen. That was part of the deal with the governor, they said.

And still it's to be seen whether the $2.5 billion surplus lawmakers set aside will be enough to ward off economic damage that a second wave of COVID-19 cases would bring. 

Ashley Balcerzak is a reporter in the New Jersey Statehouse. For unlimited access to her work covering New Jersey’s legislature and political power structure, please subscribe or activate your digital account today.

Email: balcerzaka@northjersey.com Twitter: @abalcerzak