N.J. budget with $700M in tax hikes and $4.5B in borrowing passes. Republican calls it ‘insanity.’ – NJ.com

The state Legislature on Thursday approved a $32.7 billion budget that relies on $4.5 billion in new borrowing and higher taxes on wealthy households and corporations to combat the damage wrought by the pandemic recession on state income.

The budget represents a major policy achievement for Gov. Phil Murphy, who has sought to increase taxes on people with more than $1 million in income since taking office in 2018. It was negotiated with Democrats who control both chambers in the Legislature and without the brutal intra-party clashes of past budget cycles.

Murphy is expected to sign the budget (S2021) as is, Senate President Stephen Sweeney, D-Gloucester, told reporters Thursday.

Republicans panned the spending plan, arguing it ignores needed spending reforms, is loaded with hundreds of millions of dollars in “pork” spending and will weaken New Jersey’s competitive standing.

Sen. Paul Sarlo, D-Bergen, described it as an unusual budget that reflects the dire fiscal circumstances the state finds itself in — worse than after Hurricane Sandy and 9/11, worse than the Great Recession, he said.

“Nothing feels normal about today,” the budget chairman said. “We would not normally be here in the chamber today, on a September day in 2020 at 9 o’clock in the morning considering a budget. Most of us would probably be either working today or in our district offices serving our constituents or out perhaps enjoying the beautiful weather.

“But then again, nothing is normal about this year,” he added. “So this budget is not a normal budget either.”

Murphy and the Legislature extended the fiscal year that would have ended June 30 through the end of September as they scrambled to react to delayed tax filing deadlines and falling tax collections. The $32.7 billion will cover just nine months of spending, from Oct. 1 through June 30.

When combined with the $7.7 billion, three-month budget that covers July 1 to Sept. 30, the state plans to spend more than it spent last year and more than Murphy called for in his February, pre-pandemic budget proposal.

The governor introduced a revised budget plan in August after warning for months that the state’s tax losses could be as much as $20 billion and result in job losses for 200,000 public workers if lawmakers didn’t agree to borrow billions of dollars and the federal government doesn’t come through with more aid.

The Garden State’s budget hole, though, has been shrinking as the state gradually reopens and the economy perks up.

Murphy’s Aug. 25 budget proposal included tax increases totaling $1 billion on wealthy households, corporations with profits over $1 million, HMO plans, federally qualified business income, cigarette purchases, firearm sales, boat sales and limousine rides.

The Legislature jettisoned many of those tax hikes but agreed to raise taxes on millionaires, corporations and HMOs, which the administration estimates will generate about $700 million.

“I believe that the budget … is the most responsible under the circumstances that there could be,” said Assemblyman John McKeon, D-Essex.

The controversial millionaires tax increases from 8.97% to 10.75% the tax rate on gross income between $1 million and $5 million. Income above $5 million is already taxed at that top marginal rate.

Democrats who hold the majority in the Legislature voted in favor of restoring the millionaires tax, which expired after Gov. Jon Corzine left office, five times under Gov. Chris Christie, but had a change of heart in the months before Murphy, an avowed progressive, took office. Sweeney argued the ground had shifted after Congressional tax reforms capped state and local tax deductions at $10,000.

Fights over the millionaires tax brought the state to the brink of government shutdown in recent years, but Murphy was able to nail down the tax increase last week with a deal to send $500 tax rebates to 800,000 households next summer.

Republican lawmakers criticized the proposed tax rebates, which are limited to two-parent households with less than $150,000 in gross income and at least one dependent child and single-parent households with no more than $75,000 in gross income and at least one dependent child.

They called it “a hollow promise” — there’s no funding for rebates in this year’s budget — and an election year “gimmick” designed to improve Murphy and Democrats’ re-election chances next fall. An amendment to fund the rebates now and expedite those checks was rejected in the Assembly.

The budget also extends a 2.5-percentage point surcharge on the corporation business tax for businesses with more than $1 million in profits that was in the process of phasing out. The 11.5% top tax rate is instead scheduled to sunset in December 2023.

Opponents argued it’s the wrong time to raise taxes on the many businesses that were crushed by the state-mandated closures and are still strained by the pandemic recession.

While the governor’s proposed budget included $4 billion in deficit spending, negotiations with the Legislature yielded an even larger $4.5 billion borrowing plan.

New Jersey already had $44.4 billion in outstanding bonds as of June 30, 2019, according to the state’s annual debt report. Its debt per capita is among the highest in the U.S.

If more federal aid becomes available, Sweeney said those dollars will be used to reduce the planned $4.5 billion in borrowing.

“We’ve made it very clear, and the governor understands this,” the Senate president told reporters.

The state also will make a record $4.7 billion contribution to the pension fund for public workers, slightly less than the $4.9 billion payment Murphy had wanted and equal to more than a tenth of state spending.

At the same time, the budget contemplates closing out the fiscal year next June with more than $2.5 billion in reserves, made possible by the massive borrowing.

“A $2.5 billion surplus puts the state in a better position to withstand … a more significant and devastating wave with the combination of a flu season and this virus continuing to perpetuate,” said Assemblyman Louis Greenwald, D-Camden. “The reality is that this is smart planning.”

Republican lawmakers viewed the surplus differently.

“Borrowing money to create a surplus is insanity,” said Sen. Declan O’Scanlon, R-Monmouth.

On the floors of the Senate and Assembly, members of the minority party drew attention to the hundreds of millions of dollars in spending added by lawmakers for local projects. The Legislature restored cuts Murphy made to re-entry programs, cancer research, higher education and a school-based mental health program, among dozens of other line items, such as $15 million for demolition in Camden County and $1 million for the Battleship New Jersey museum.

“Fixing town halls? Doing dredging? Ridiculous things that are important to that individual community and should be done but done in good times with state dollars, not in tough times,” Sen. Bob Singer, R-Ocean, said. “You should be embarrassed about this. I’m ashamed of this.”

Sarlo noted many of those programs have enjoyed bipartisan support.

The Senate approved the budget 25-14, and the Assembly, 51-27 with one abstention.

NJ Advance Media staff writer Brent Johnson contributed to this report.

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Samantha Marcus may be reached at smarcus@njadvancemedia.com.