Tax fight, spending could force New Jersey government shutdown

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It’s a high stakes poker game, and from the point of view of Governor Phil Murphy’s administration, the other side will not show their hand.

As the idle showdown over the New Jersey budget heads into its final act, the points of contention – Murphy’s proposed tax hikes, how to fairly fund schools – haven’t changed much.

But three weeks before the June 30 deadline for a state budget, neither Murphy nor Senate Speaker Stephen Sweeney D-Gloucester appear to be budging. If the impasse is not resolved, non-core functions of state government will be closed on July 1, as happened last year when the then government. Chris Christie and the legislature clashed over Medicare reform.

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The dynamics this year are different: Conflict Republican Christie has been replaced by quiet Democrat Murphy, and the disputes center on education funding and taxes. Corn the threat of a shutdown looming again, Sweeney saying he would rather close state offices and put thousands of workers on leave rather than perpetuate what he calls an unfair school funding system.

“We have an administration that is new to politics, and we have a legislature that is grounded and full of veterans,” said Thomas Bracken, president of the New Jersey Chamber of Commerce. “This is where the conflict lies.

The budget showdown pits Trenton’s two most powerful men – Murphy and Sweeney – with Assembly Speaker Craig Coughlin, D-Middlesex and Republican lawmakers in both houses largely on the sidelines.

Here are the main challenges of the budget debate:

Taxes

Murphy proposes nearly $ 1.7 billion in tax increases, including raising the millionaire tax rate to 10.75% and restoring the sales tax rate from 7%, which fell to 6.625 % This year.

Sweeney, and to a lesser extent Coughlin, have expressed skepticism about the tax increases. The Senate Speaker said New Jersey cannot enforce its path to prosperity – it’s already tied to the nation’s second-highest tax burden, according to the Tax Foundation – and must consider spending cuts.

In March, Sweeney offered an alternative to Murphy’s taxes: raise corporate income tax from 9% to 12%, which he said would bring in around $ 657 million a year. Sweeney has since withdrawn from his own tax proposal, which Murphy never adopted. The Murphy administration argues that the 12% rate, which would be tied with Iowa’s as the highest in the country, would make New Jersey uncompetitive for business, which would favor the 6.5% tax. of New York or that of Pennsylvania by 9.99%.

It’s a variation on Sweeney’s argument regarding Murphy’s proposed income tax increase, which would make New Jersey’s millionaire tax the second highest in the country after California. The difference, according to Murphy’s aides, is that millionaires hardly ever run away from a state because of a higher tax rate.

With attention focused on these major taxes, Murphy’s proposed niche tax hikes haven’t sparked much protest. Airbnb has not opposed a tax on ridesharing services, while the vaping industry has spoken out against a tax on e-cigarettes and similar products, and a coalition has just formed to oppose to a 7% tax on ridesharing services like Uber and Lyft. . Lawmakers, however, do not seem to be focusing on these taxes.

Education funding

Sweeney said Murphy was not going far enough to address the disparities in funding for K-12 schools that sparked some of the loudest outcry during the budget process. While the disparities predate Murphy’s tenure, Sweeney said the governor’s proposal to increase state aid to schools by $ 284 million perpetuates an unfair formula.

The President of the Senate wants to gradually introduce a new formula over seven years, at a cost of up to $ 2 billion. He introduced a bill that would remove enrollment-based limits to increases in state aid to districts, allowing districts that currently receive less than their formula share to receive more, while reducing state aid. to other districts over time.

Murphy’s aides said the governor wanted to make school funding more equitable, but feared some districts would see sharp cuts in aid under the Sweeney plan. Specifically, according to the administration, Sweeney cannot demand more funding for schools without specifying how he would pay for it. Murphy’s assistants say any discussion of additional help to schools is moot without a conversation about new income, which they say Sweeney is unwilling to have. Sweeney’s camp offers no indication of what a compromise might look like, saying it would be unproductive to negotiate in public.

Pension

Murphy is proposing record $ 3.2 billion in funding for the state employee retirement system, which would exceed the $ 2.5 billion Christie budgeted for the year ending June 30 . Even so, the amount is only 60% of what actuaries recommend to help push the retirement system toward full funding – and full payout is not expected until 2023.

The pension payment has not been a source of controversy in budget deliberations, but it could be cut to offset spending increases elsewhere or a lack of movement on tax increases.

New Jersey Transit

Murphy is proposing to restore state funding for New Jersey Transit, after the Christie’s administration imposed drastic cuts. Murphy said his budget would almost triple the funding for the besieged agency, with $ 242 million on offer this year.

Yet the higher state subsidy primarily offsets losses from other sources of revenue, including tolls, passenger fares, and state and federal rebates. Lawmakers generally agree that the transport agency needs more money, and the budget item has not met with opposition during budget debates. That is not to say that it could not be reduced if none of the proposed tax increases materialize.

Other spending priorities

Sweeney is pushing for some $ 123 million in items program spending that Murphy withdrew from the budget, including about $ 4 million for a prisoner reintegration program championed by former Gov. Jim McGreevy. Other programs aim to stimulate tourism and help child victims of sexual abuse.

As with Sweeney’s position on school funding, the Murphy’s administration’s response can be summed up in one point: show us the money.


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