New Jersey plans to approve a record-setting $46.5 billion state budget this week, clocking in at nearly $6 billion higher than the current fiscal year. The state has a $10 billion surplus this year as a result of heavy borrowing last fall and billions in unspent federal stimulus funds. Democrat legislators are seizing the opportunity to hand out cash to their pals with $500 million in graft.
After three years of tax hikes under Governor Murphy, no tax hikes are planned in this budget, but it still manages to add to New Jersey’s unfolding fiscal disaster, making life more unaffordable for families, and a worse place to do business.
The state, which already has the highest taxpayer debt burden in the country, borrowed roughly $4 billion in bonds in November to supplement its finances during the pandemic. But instead of witnessing a shortfall, revenue projections are up by $1 billion, leaving taxpayers on the hook for billions in unnecessary debt and interest. The top Democrat in the state legislature, Senate President Stephen Sweeney, said he regrets the decision to issue the bonds.
Like most of the state’s debts, New Jersey’s November bond purchases are not “callable” and cannot be paid off early, meaning that the state can’t simply eliminate its debt. Instead, New Jersey will spend $2.5 billion of its surplus on debt-defeasance to pay older debts when they come due. Another $1.2 billion will be reserved as a fund for new projects that would otherwise have contributed to the state’s debt. Those figures, however, pale in comparison to the state’s bond debt that totals nearly $50 billion.
The budget agreement will fully fund New Jersey’s pension plans for the first time since the 1990s at a cost of $6.4 billion. In fact, Democrats plan to add an additional $505 million to the pension program, which could pose significant long-term viability issues for the state.
Meanwhile, Republicans have proposed allocating $2.5 billion toward New Jersey’s unemployment trust fund, which was drained of tens of billions last year in response to the pandemic. The legislature plans to vote on including an additional $135 million in COVID-19 aid for small businesses, on top of the $235 million Governor Murphey signed this week.
Another $319 million will allow the government to send annual checks directly to New Jersey residents. Families making under $150,000 will receive up to $500 this summer in the form of a property tax rebate. Which is a small token gesture given the state’s absurd property tax burden – an average bill of $9,112. A September agreement adding new taxes on the rich will provide the necessary revenue. Known as the Millionaires Tax, the legislation lowers the top tax bracket from $5 million and above to $1 million, while increasing the top rate from 8.97% to 10.75%. That makes New Jersey the state with the third highest top tax rate in the country, behind California and Hawaii.
The state also plans to start allocating $6.5 billion in unused federal funds from the American Rescue Plan to fund new welfare programs and other government services. Major spending items include:
$500 million – payments to renters
$250 million – utility relief
$100 million – expanded childcare services
$600 million – adult special education services (over 3 years)
$180 million – HVAC improvements in schools
$150 million – public health funding for Level One Trauma Centers
$200 million – discretionary fund for Governor Phil Murphy (keep an eye on this one)
Republicans have criticized the budget proposal in recent months, citing its dependency on borrowed and surplus funds to advance an ambitious agenda. Senator Sam Thompson, a Taxpayer Protection Pledge-signer, called it “fundamentally broken and structurally unbalanced,” while the Republican Budget Officer, Senator Steven Oroho, is concerned about “an avoidable payroll tax increase on small businesses” that could result from prioritizing additional spending over tax relief.