New Jersey is facing a one-two punch when it comes to the state’s fiscal health.
Revenue collections for the current fiscal year that ends on June 30 have been below projections, leaving a deficit that will have to be patched before a new budget can be enacted. The State Treasury has put revenue growth at just 3 percent. Gov. Phil Murphy projected more than double that rate, leaving a gap of almost $740 million.
The Murphy administration is hopeful of a boost in April collections as taxpayers adjust to new federal tax laws, but if that does not happen some hard choices will need to be made.
Speaking at a Newark Church on Dec. 19, Murphy said “nothing is off the table” when he was pressed by reporters about tax hikes in 2019, Politico reported at the time.
That’s before talks can even begin on a new budget for the fiscal year that begins on July 1. That spending plan presents its own challenges as the governor’s intention to increase funding for schools, state pension and health benefits and funding for NJ Transit will require a large infusion of cash. The 2020 spending plan could face a deficit of $2 billion without adding additional spending.
There are only so many options for raising the kind of revenue the governor will need. While the governor’s budget plan remains a work in progress, here are the most likely scenarios.
Murphy repeatedly talked about “tax fairness” when promoting a tax hike on millionaires in his last budget. Democratic leaders rejected his proposal, but eventually agreed to a tax hike on those making over $ 5 million. Murphy is likely to argue not enough revenue has been generated from the tax, and that New Jersey will need to lower the threshold to $1 million.
Is it likely? Yes. This is the most likely tax hike to be included and passed by the legislature. It allows Murphy to continue his “tax fairness” mantra, and allows both state Senate President Stephen Sweeney and Assembly Speaker Craig Coughlin to stick to their no “new” taxes pledge by claiming it is simply and expansion of an existing tax.
Increase and/or expansion of the sales tax:
In his budget address last year, Murphy proposed raising the sales tax back to 7 percent from 6.625 percent. It was cut by former Gov. Chris Christie as part of the deal to hike the gas tax. At the time, Murphy argued no one noticed the sales tax cut, and wouldn’t notice if it went back up.
“The three-eighths of one percent sales tax decrease has been nearly imperceptible to the average New Jersey family, but it has directly impacted our ability to provide services to and greater future investment,” he said in last year’s budget address.
In the end, the rate was kept the same, but expanded to include things like short-term rentals. Murphy will again propose raising the sales tax to 7 percent, and could propose expanding it to goods and services that are not currently taxed. There has also been some discussion of applying an even higher tax, up to 10 percent, on so-called luxury items. This could include cars and homes.
Is it likely? Probably not. Not this year, anyway. There is no doubt Murphy wants this tax hike, but Sweeney and Coughlin are staunchly opposed. Assembly Democrats facing re-election in the fall will also not support it. There has been talk Murphy may leave this out of his budget entirely (for now) to avoid a nasty fight with Sweeney and Coughlin.
It’s not clear how serious discussions are about an outright toll hike for the New Jersey Turnpike, Garden State Parkway and Atlantic City Expressway, but the Murphy budget is likely to seek the addition of High Occupancy Vehicle lanes on the turnpike.
The lanes would help you avoid traffic, but charge higher tolls based on the level of congestion. This seems like to happen, since it has already been proposed by Sweeney. One option would be for a modest increase in all tolls on the Parkway and AC Expressway, and the HOV lanes on the Turnpike.
Is it likely? In some form, yes. The HOV lanes are in line with what Sweeney has talked about, and Coughlin could support it. A broad-based fare hike is not likely to survive the budget process.
NJ Transit Fare Hike:
Last October, New Jersey Transportation Commissioner Diane Gutierrez-Scaccetti said she didn’t “want commuters to get frightened by that conversation,” when asked about the possibility of fare hikes at NJ Transit. Those conversations have been ongoing in the Murphy administration, and seem likely to result in commuters paying more. A recent audit of New Jersey Transit supported fare hikes to provide a stable funding source. Murphy is likely to tie the fare hikes to efforts to improve the dysfunctional agency and pay for dozens of new train engineers.
Is it likely? Possibly. Given the sorry state of New Jersey Transit the optics on this would be horrible, but most agree more funding is needed for the agency.
While the gas tax is technically not a new tax, or even one we can blame on Murphy (It was raised by Christie), it is likely to go up in the fall. The 2016 law that hiked the gas tax 22.6 cents per gallon guaranteed $1.9479 billion in revenue. If that revenue number is not met, the tax automatically goes up. In October of 2018, it went up another 4.3 cents a gallon.
Is it likely? Yes. There is no indication gasoline sales have increased enough to avoid another increase in the gas tax this fall. The gas tax is likely to rise at least 2 cents per gallon later this year.
While these are considered the “revenue enhancers” that would impact the greatest number of people, dozens of other options are also being considered. Murphy is likely to propose some monetization of state assets. That could include everything from selling naming rights to state facilities, some form of privatization of toll roads, and allowing development on state land. Treasury staffers have also been looking at various ways to raise fees on everything from motor vehicle transactions to professional licensing.
Are these likely? Yes. The tax hikes listed above will not close a $2 billion gap. There will need to be additional ‘revenue enhancers’ and this is where the governor and legislative leaders will go to add a little bit here and a little bit there. In an op-ed to the Star Ledger, Murphy mentioned “a deep bench of assets” held by the state. It is likely he will propose selling, privatizing or monetizing them to generate revenue for this budget. Whether that is a sustainable source of future revenue is questionable.
Aside from the asset monetization, many of the governor’s proposals are going to have a tough sell in the legislature. In recent days, both Sweeney and Coughlin have restated their opposition to any new tax hikes. Sweeney issued a strongly worded statement saying he would not support new taxes, and took a dig at Murphy by using one of the governor’s own catch phrases: “Period. Full Stop.” Still, it is worth noting that both Sweeney and Coughlin have softened to the idea of expanding the millionaires’ tax.
Note: With the deadline fast approaching for Murphy to present his spending plan to the legislature, it appears he and legislative leaders are not engaged in substantive budget talks. Murphy, Sweeney and Assembly Coughlin were scheduled to meet Saturday in Princeton. That meeting was cancelled. Tentative talks Sunday evening may be delayed or moved to phone call due to possible bad weather.