NJ budget: Legislature sends $32.7B budget to Gov. Murphy's desk
New Jersey legislators sent Gov. Phil Murphy a $32.7 billion spending plan on Thursday afternoon that includes tax increases on millionaires, certain corporations and health insurers, as well as $4.5 billion worth of borrowing that taxpayers will have to pay back with interest.
Things moved quickly in Trenton, with lawmakers taking final votes on the budget just three days after the spending plan was made available to the public. Now Murphy, who has indicated he will sign the bills, must do so by Oct. 1.
Senate leaders didn't expect much controversy because the budget was negotiated with Murphy's staff. The budget covers nine months of spending after the coronavirus upended the normal process as revenue stalled and officials pushed back tax due dates.
Reporters in the Trenton Bureau of the USA TODAY Network New Jersey dug through the 251-page appropriations bill. You can read it here, too. Here are highlights of the votes and budget items.
Assembly passes budget bill
The Assembly passed the budget with a 51-27 vote about 2 p.m. on Thursday, sending the bill to Gov. Murphy’s desk.
Assembly members also passed three related pieces of legislation that include increasing the tax rate on millionaires (A-10), freezing the corporate business tax at 2.5% through 2023 (A-4721), and increasing an assessment on HMOs from 3% to 5% (A-4722).
Republicans objected to the budget, specifically citing the new and increased taxes, the amount of borrowing — $4.5 billion — and spending more year-over-year amid a pandemic.
“In my opinion it is the absolute worst time to be implementing new taxes,” Assemblyman Hal Wirths, R-Sussex, said, noting the state's high unemployment rate and economic turmoil felt by businesses that had to shut down for months.
Democrats say the budget supports the middle class and vulnerable populations who lost their jobs and need a financial leg-up because of coronavirus. They pointed to $20 million for food pantries and the $500 rebate lawmakers promised as they brokered a deal on the millionaire’s tax.
“We cannot and will not neglect our weak and or vulnerable neighbors, or our children, just to say that we’ve saved a few dollars,” Assemblywoman Eliana Pintor-Marin, D-Essex, and chair of the Assembly budget committee.
Full Senate passes budget
The Senate approved the appropriations bill by a vote of 25-14, along party lines. Democratic leaders said the next step would be to pass pension and shared services bills in order to reign in government spending.
“This budget is not a normal budget,” said Sen. Paul Sarlo, D-Bergen, the budget chair. “It’s a budget that was passed in one of the worst fiscal times that our state will ever realize, worse than post [Superstorm] Sandy, post 9/11 and post-recession of 2009… This crisis should be taken as a tipping point as well to take action on cost cutting.”
Republicans decried the decision to borrow $4.5 billion, raise taxes and include millions of dollars of priorities in a year where revenues are down and families are struggling to get by.
“I wore my Christmas tie because with the presents included in the budget I thought we may be starting the holidays a little early this year,” said Sen. Declan O’Scanlon, R-Monmouth, referencing hundreds of millions of dollars worth of legislative priorities that lawmakers added to the budget according to an analysis by NJ Spotlight.
Sen. Steve Oroho, R-Sussex, said this budget cycle should have been when the Legislature passed structural overhauls to cut government costs.
“It’s shameful that the Legislature did not push further and get more of those reforms,” he said.
Racial justice programs
Murphy was criticized as “tone-deaf” for walking back his pre-pandemic proposal to spend $1.4 million on programs that reduce bias and promote racial equality. His latest budget proposal restored a majority but not all of those programs, and lawmakers want to add another $150,000 back in.
The budget bill includes $50,000 each for a task force to study wealth disparities, anti-discrimination training and an initiative to reduce racial bias, all within the Department of Community Affairs. Still those funds are less than Murphy had proposed in February.
Murphy’s proposed budget restored $250,000 for implicit bias reduction training within the Department of Health, about $200,000 for the Amistad Commission, which includes African American history in social studies lessons in schools, and a $500,000 restorative justice pilot program that seeks to reduce punishment disparities for students of different races. Those items are also included in lawmakers’ spending plan.
Meanwhile lawmakers and Murphy point to other big-ticket budget items — like removing lead pipes from homes and funding re-entry services — as crucial investments to address systemic racism in the state.
Murphy: Baby bonds 'not if, but when'
Murphy said while he was proud of the budget he and the Legislature agreed on, he would keep pushing for priorities that didn't make the cut, including baby bonds. The proposal, inspired by U.S. Sen. Cory Booker, would give certain children born in 2021 an $1,000 bond they could use when they turn 18 to pay for college, start a business or buy a home.
"Especially on baby bonds, it is something that I remain committed to, and I put it very much into the category of not if, but when," Murphy said at a Wednesday briefing.
Democratic lawmakers said that while it was a laudable goal, now was not the time to spend money on future children, as opposed to investing in schools. The proposal was estimated to cost $40 million over 9 months.
Lead pipe and paint removal
The budget includes money to remove lead water pipes and paint from homes and schools across the state, but far short of what lawmakers and Murphy say is necessary to keep children safe from the metal that, if ingested, can cause permanent developmental delays and behavioral problems.
Lawmakers’ budget includes $60 million for water infrastructure improvements that Murphy had proposed, which administration officials say will be prioritized for removing lead. Murphy had proposed spending $80 million but reduced that citing the pandemic’s hit to the state’s income.
Legislators also added $5 million in a “Single Family Home Lead Hazard Remediation Fund” within the Department of Community Affairs to help families remove lead paint from their homes.
Lawmakers and Murphy pledged last year to borrow billions of dollars to finally remove dangerous lead water pipes from around the state. But lawmakers never sent a bill authorizing that borrowing to Murphy, and then the coronavirus hit. Now leaders say they need to borrow billions to cover other costs.
“We were talking about $2.3 billion as a minimum to fix our water infrastructure," Senate President Stephen Sweeney, D-Gloucester, said Tuesday. “It’s unfortunate we’re doing this kind of borrowing which is crowding out what we really need, the tangible, because of COVID.”
“It’s not enough,” Sweeney said of the budget’s allocation for lead.
New Jersey should spend $250,000 on COVID-19 training, prevention and treatment at the Department of Military and Veterans Affairs, and $25,000 on burial assistance, the Legislature said in its budget proposal.
The coronavirus tore through two state-run veterans homes in New Jersey: 81 residents and one staff member died due to COVID-19 complications at the Paramus Veterans Memorial Home, the highest death toll of all long-term care facilities in the state. At the 312-bed facility in Menlo Park, 62 residents and one caregiver died since the beginning of the pandemic.
Federal health inspectors concluded the Paramus home left residents and staff in “immediate jeopardy,” finding that residents in the dementia unit who tested positive mingled with residents still awaiting results, and that nurses aides wore the same protective gear when around people who tested positive, negative or didn’t yet have results.
Murphy has said there will be a “full accounting” of what happened at the homes, but didn’t specify what that would look like or who, if anyone, would be held accountable.
K-12 education funding
Lawmakers have funneled millions more to K-12 education in their appropriations bill. They want to spend another $25 million, for a total of $275 million next year, to help school districts pay for special education costs. Murphy had proposed spending $250 million.
Lawmakers also put another $6.5 million into their budget to help private schools cover costs, including for nurses, and added $3 million for a total of $7.2 million in public school lunch aid.
The budget includes $4.5 million for some school districts to reduce costs to families for childcare outside of school hours. The 31 districts that the Schools Development Authority oversees are eligible for those funds. The bill also creates an “Education Rescue Grant Program” that authorizes the Department of Education to spend up to $5 million to help districts fill vacant teaching positions.
Otherwise Murphy and lawmakers’ negotiated plan keeps total state funding to districts stable year-over-year, though some districts will see fluctuations as part of the continued implementation of the state’s funding formula known as S-2.
Lawmakers added $15 million for "early voting" in New Jersey, bringing the total allocation to $20 million. The funds will be used to help reimburse counties for new expenses required for the upcoming majorly vote-by-mail election, according to Senate staff. This could include postage, as all registered voters are supposed to receive a ballot with a stamp in the mail, or costs to purchase additional drop boxes where voters can deliver their ballots.
To check if you are registered to vote, click here. The deadline to register to vote in New Jersey is Oct. 13.
Largest-ever pension payment
After years of not fully funding public employee pensions, lawmakers committed to a $4.7 billion injection, slightly down from the $4.9 billion amount Murphy proposed, and still about 80% of what experts recommend is needed to keep costs from ballooning further.
While Murphy said months ago that the pension was not up for debate, Sweeney said the $200 million difference comes from a “pension true-up” that the Legislature and governor’s office agreed upon. Murphy had proposed adding $279 million to make up for new calculations to get the most accurate read on pension obligations. Instead of doing that all at once, they agreed to pay that out over three years, Sweeney said.
But the Senate President, who has for years pushed a bill package called the “Path to Progress” to consolidate government resources and deal with financial structural issues, said New Jersey had to turn to that as soon as budget season ends.
“Reforms start as soon as this budget gets passed,” Sweeney said. “The governor had made a commitment to working on reforms when we announced the millionaires tax.”
Senate budget committee approves appropriations bills
After an hour of discussion, the Senate voted 8-4 to move the appropriations bill out of the budget committee on Tuesday afternoon and approved three accompanying bills that raise revenue to pay for the spending priorities.
The vote fell largely along party lines, though Sen. Dawn Addiego, a former Republican turned Democrat, voted against freezing the corporation business tax surcharge at 2.5%.
Republican senators blasted the tax increases, called the proposed $500 rebate an “election-year gimmick” and Sen. Declan O'Scanlon, R-Monmouth, warned the amount of borrowing proposal was “sheer lunacy.”
Only three members of the public testified in person: representatives from the New Jersey Education Association, the New Jersey Chamber of Commerce and the New Jersey Business & Industry Association. Outside the committee room, dozens of live event planners set up empty tables and chairs and a DJ booth to ask the federal government for stimulus help. Organizers were unaware that a state budget committee was meeting.
The full Senate is expected to vote on the legislation on Thursday.
Assembly committee approves budget
The Assembly budget committee passed the budget bill at about 2:30 p.m. Tuesday in a party-line vote, 9-4, with Republican committee members opposed. Republicans and business groups spoke against the budget, objecting to the year-over-year spending increase and tax increases, citing the ongoing economic turmoil wrought by coronavirus.
“To spend more than we spent last year, pre-pandemic, is really tough for me to fathom,” Assemblyman Hal Wirths, R-Sussex said.
The 80-member Assembly is expected to vote on the budget bills Thursday.
Transparency vs. speed
As Senate leaders tell it, the budget is close to a done deal thanks to behind-the-scenes negotiations with the Murphy administration. Those came into public view last week, when legislative leaders joined Murphy to announce a deal on increasing the tax rate for people who earn more than $1 million a year.
The public did not see the budget bills until Monday evening, and lawmakers are expected to send them to the governor in a total turnaround of three days. A coalition of unions, policy groups and non-profit advocates urged more transparency last month, when at the time no public hearings had been scheduled, and their concerns continue.
“You can’t expect really equitable outcomes from the budget if you don’t have an equitable process where transparency and participation is paramount," said Sheila Reynertson, senior policy analyst for the left-leaning New Jersey Policy Perspective. “Why does the governor have a deadline for the budget document and the Legislature does not? Where is that accountability?”
Extra $300 a week in unemployment in NJ: What you need to know, including who would get it
Sen. Paul Sarlo, D-Bergen, who has led the Senate budget committee for nearly 12 years, said last week the budget was being done in a “very open and a very transparent manner.”
“When I say transparent, I mean I've been here when a budget, deals were struck overnight and we voted on July 1 in the dark of the night,” Sarlo said Tuesday. “What I'm getting at here is, this is a short version, it’s as transparent as we can be."
Typically the process can take four months, but this year lawmakers had just over one month.
Just a handful of lobbyists showed up Tuesday to comment on the spending plan. Meanwhile, Republicans objected to the expedited timeframe and being left out of negotiations.
“We had a superficial hearing process that didn’t even have an outline of a budget to review, the public was excluded, and the details were negotiated in a private, partisan manner that could not have been more opaque,” Sen. Steven Oroho, R-Sussex, said in a statement. “It’s disappointing that backroom Trenton politics has won out once again.”
Leaving the Senate budget committee hearing on Tuesday afternoon, Oroho quipped it wasn’t common to wrap up while it was still daylight outside.
“Most transparent of all time,” Sarlo responded as he left the committee room. “3 o’clock in the afternoon."
School-based mental health programs
Murphy proposed cutting funding for school-based programs that provide crisis intervention, suicide prevention and other mental health services to students. The administration defended the cuts saying they would be offset by an additional $45 million going to the Children’s System of Care, a wraparound program that includes mental and behavioral healthcare for families and students across the state.
The proposed cut drew backlash from families and schools who argued that the turmoil of coronavirus — which has upended two school years and left many kids at home learning via computer screens — would only increase the need for mental health support for children.
Lawmakers’ budget bill restores $15 million in funding for school-linked services programs within the Department of Children and Families.
Borrowing $4.5B to fund budget
Lawmakers proposed borrowing $4.5 billion in order to make up for revenue losses caused by the coronavirus, which is $500 million more than the governor included in his budget. The bonds would cover about 13% of spending over the nine-month period.
It is unclear what this borrowing will end up costing taxpayers in a state that already has $44.4 billion worth of bonded debt outstanding as of June 2019.
Legislators also added about $286 million into the surplus in case of a second uptick in COVID-19 cases that causes additional economic pain, as well as restoring a long list of priorities Murphy proposed cutting. Republicans blasted the move.
“Borrowing to increase surplus is sheer lunacy,” O’Scanlon said. “Virtually every previous treasurer…concurs that this is extraordinarily bad policy. It’s horrific policy put forward by an irresponsible governor and with the complete abdication of responsibility on the part of the Democratic Legislature.”
The bonding proposal survived a state Supreme Court challenge, but in his opinion, Chief Justice Stuart Rabner put restrictions on a borrowing plan: "In other words, if, at the time the state seeks to borrow money or issue bonds, the governor or the treasurer certifies that the shortfall resulting from the pandemic is estimated to be $7 billion, the state cannot borrow more than that amount," Rabner wrote.
When asked about why legislators want to borrow more than what the governor proposed, Sweeney said “It has to do with what we feel we’re going to need going forward and we’re concerned about a second wave and then having to go back and borrow again so we came up with an agreement.”
The general obligation bonds will be sold either through the U.S. Federal Reserve program or in public markets. Treasury officials suggested earlier they would aim to repay the bonds back in ten years and pay 2% interest. The plan needs to be approved by a four-member legislative committee.
Helping former prisoners when released
Lawmakers added millions of dollars to fund re-entry programs, or services designed to help people leaving prison to transition back into society and obtain social service assistance, like healthcare or housing.
“We’re getting people out of jail...well if you don’t help them, you’re going to put them back in jail and it’s going to cost you more,” Sweeney said.
The appropriations bills increased funding for the following programs:
- Added $2 million to the New Jersey Re-entry Corporation, for a total of $9 million
- Allocated $1 million each to a Mercer County Reentry Pilot Program and the Re-entry Coalition of New Jersey, both of which were not funded in Murphy’s budget.
- Added $1 million to Volunteers of America Re-entry Services, for a total of $6 million.
- Directed $350,000 to the Pre-Release Employment Navigation and Re-Entry Services Program, which was not funded in Murphy’s budget.
What taxes made it in
Millionaires, corporations and health insurers will see tax hikes if the Legislature’s proposal is passed and signed by the governor. These three taxes will bring in an estimated $700 million in new revenue.
- Millionaires tax: New Jersey's tax rate on income over $1 million will likely increase from 8.97% up to 10.75%, bringing in an estimated $390 million over 9 months. Legislators agreed to approve the millionaires tax -- a central campaign promise of Murphy -- in exchange for distributing up to $500 vouchers to certain low- and middle-income families next summer, around the time lawmakers and Murphy are expected to be running for reelection. The rebates are expected to cost $335 million. Single parents earning up to $75,000 a year and married couples earning up to $150,000 a year would be eligible.
- CBT surcharge:Lawmakers agreed to freeze a surcharge on the corporate business tax rate at 2.5% until December 31, 2023, instead of decreasing to 1.5% for two years before disappearing after December 2021. The measure is predicted to create $210 million in new revenue.
- HMO assessment: Lawmakers proposed increasing the HMO assessment on net written premiums from 3% to 5% to bring in $103 million in new revenue.
A list of other taxes and fees Murphy proposed to bring in about another $400 million didn't make the Legislature's cut, such as increased taxes and costs on cigarettes, new and used yachts and boats, firearms and ammunition.
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.