New Jersey Gov. Phil Murphy averted a government shutdown Friday, signing into law a record-setting $54.3 billion fiscal 2024 spending plan hours ahead of a July 1 budget deadline.
The budget records an $8.3 billion surplus and features $5.4 billion of new spending in addition to major tax code changes and tax-relief provisions.
For the third year in a row, the state will fund its full annual pension payment of $7.1 billion while directing more than $2 billion toward paying down debt and avoiding new issuances, including boosting New Jersey’s Debt Defeasance and Prevention Fund to $2 billion.
Tim Larsen/Tim Larsen
“When I first proposed this budget, I said it was a budget designed with a singular purpose — to continue building an economy where every family can afford to make their American Dream come true,” Murphy said in a statement. “We are accomplishing all of this in a fiscally responsible way.”
New spending on education includes an increase of $832 million of direct aid to public schools for a total of $11 billion. NJ Transit will receive a $137 million boost while $300 million will go to support hospital capital investment and $82 million toward green energy updates.
The Department of Transportation will receive $1.5 billion for capital construction.
The budget does not contain provisions to extend a 2.5% surcharge levied on corporate profits of over $1 million that’s set to expire at the end of the year.
The surcharge, instituted in response to pandemic-related budget woes, brought New Jersey’s corporate business tax rate to 11%, the highest in the nation, and was a focus of debate during budget negotiations.
The provisions have been extended annually since 2020 while “the state’s financial future was uncertain,” the governor’s office said. With a strong economic rebound since, it was now “fiscally responsible” to let it expire, they added.
The move will cost an estimated $1 billion of revenues by fiscal 2025, according to a state report.
The plan also extends the ANCHOR property tax relief program and doubles the state’s child tax credit.
Budget negotiations grew especially contentious over the late addition of a senior tax-relief proposal by Democratic Assembly Speaker Craig Coughlin.
The StayNJ proposal cuts property taxes for many seniors, establishing a property tax credit equal to 50% of the tax bill for anyone over 65 earning under $500,000 per year, with credits capped at $10,000. It also expands senior access to several public health programs.
The program will be funded through a dedicated, non-relapsing account with annual allocations requiring approval from the Department of the Treasury; the bill calls for $300 million of funding in fiscal 2023, $300 million in fiscal 2024, $600 million in fiscal 2025, $800 million in fiscal 2026, $1 billion in fiscal 2027, and $1.2 billion in fiscal 2028. The bill also allows for a committee to seek out additional funding options to back the cuts into the future.
The budget passed both arms of the Democratic-controlled state legislature with little Republican support.
It comes in $1.2 billion larger than the spending plan Murphy proposed in February, and GOP lawmakers railed against their inability to review last-minute additions that increased spending.
“We’re looking at almost 60 changes that occurred between the time the budget committee adjourned and we meet today,” Assemblymember Aura Dunn told lawmakers during final negotiations. “Which means, rest assured, this body has not reviewed them.”
Other Republican lawmakers, including Assemblymember Gerry Scharfenberger, complained about the increased spending amid an economic slowdown.
“With revenues dropping precipitously it is incomprehensible to actually increase spending at the same time,” he said. “Coupled with a surplus that is expected to evaporate in a few short years, it’s a fiscal time bomb for the future.”
New Jersey’s tax revenues fell by $1 billion in 2022, attributed by officials to declining stock market returns. There are further declines expected in future years.
“New Jersey faces a looming fiscal crisis,” said a recently published, five-year revenue report from the Steve Sweeney Center for Public Policy at Rowan University. “With state revenues projected to fall $3 billion to $4 billion short annually of the amount needed to continue state programs and state aid at current service levels” from fiscal 2025 to fiscal 2029.
Proponents of the increased spending, including Murphy, say fattened reserves, low debt, and increased economic activity will enable the state to carry the new costs into the uncertain economy ahead.
In a little over a year, New Jersey received six upgrades, one from each of the four major rating agencies, with four coming in April alone; S&P raised the state’s GOs to A from A-minus, Fitch upgraded the state to A-plus from A and Moody’s raised the GOs to A1 from A2.
The latest came from the Kroll Bond Rating Agency, which upgraded the state’s general obligation bonds to A-plus from A.
KBRA said New Jersey has “demonstrated a recent commitment toward restoring and maintaining actuarially sound annual pension contributions and has dedicated budgetary windfalls toward paying down long-term liabilities and bolstering reserves rather than toward recurring spending, which has supported its financial flexibility.”