What Do You Need to Know?
By Maria Nieves, President & CEO
Get the hot dog and buns ready, Memorial Day is upon us! And the unofficial start of summer can only mean we’re deep into the budget season in New Jersey. In what he called a “sharp break” from budgets of the administration past, Governor Murphy outlined his $34.7 billion FY 2019 budget in March: “It represents a sharp break from the direction we had been taking over the past eight years and turns our state’s trajectory to one of opportunity and fairness for all.”
His administration’s inaugural budget, and arguably his most important policy document as it lays out his long-term vision for New Jersey, it outlines a tax and spending plan that aligns with the progressive agenda Murphy won on last fall. The budget needs to be approved by June 30 with and the fiscal year beginning July 1. There’s a lot in this budget, so what do our Members need to know? We outline the top 8 items here.
#1 The Budget Proposal is $2.7 billion Larger than in Previous Year
The $34.7 billion budget proposal is an increase of $2.7 billion over Governor Christie’s budget for FY 2018. The budget proposed by Governor Murphy would use tax increases and new taxes to generate the additional revenue needed to help pay for his ambitious plan, which includes restoring the earned-income tax credit, significantly increasing funding for schools, expanding preschool and making community colleges tuition free. All-in, the Governor’s budget projects slightly more than $2 billion in additional revenue to be generated over FY 2018, which represents a 5.7 percent increase.
It may go without saying that the state’s tax revenue projections must also be accurate so as not to over-project tax receipts and thus over commit spending. That said, according to a May 21 NJ.com article, there was no improved estimate of taxes to be collected in the fiscal year that begins July 1: “In a new report, Moody’s Investors Service described New Jersey’s April income tax collections, which were down 1 percent from last year, as an outlier and ‘weaker than expected’.” This means lawmakers can not rely on an unexpected windfall and will have some tough choices to make as the June 30 budget deadline approaches.
#2 Did you say increased taxes? New taxes?
Where do we start? There are a number of proposed tax increases and new taxes in the Governor’s budget that are intended to “modernize and broaden New Jersey’s tax base, ensuring fiscal stability, a fairer economy and long overdue investment in our families, students and infrastructure” (see page 21 of Budget in Brief) and which are estimated to generate an additional $110 million in revenue:
- Millionaire’s Tax: $765 million is projected from an increase to 10.75% in the marginal tax rate applied to income above $1 million
- Combined Reporting with a limited “water’s edge”: Combined reporting essential means that a corporation with affiliates in other states must report the combined revenue (or losses) of all the entities. Combined reporting can take one of two forms: worldwide, which includes income from all operations, and water’s edge, which includes only income from U.S. affiliates.
- Market-based sourcing: which means sourcing sales of services to the state where the customer receives the benefit. Market-based sourcing would allow New Jersey to tax out-of-state service providers when they serve customers in New Jersey. More and more states have been moving to market-based sourcing.
- Reinstitution of the taxation of international holding companies
- One-time tax is proposed on the deemed repatriation of foreign-held assets, while further incorporating other revisions to hold New Jersey harmless for certain other provisions of the recent federal enactment
- Restoring the sales tax to 7.0%. You may recall that as part of a deal last year that introduced an increased gas tax to generate revenue for the Transportation Trust Fund, in return, the sales tax was reduced and is currently at 6.625%. In addition to restoring the sales tax to its previous 7.0% level, the budget proposes to include ridesharing services like Uber, transient accommodations like Airbnb, and e-cigarettes.
- Legalizing, regulating and taxing marijuana.
#3 Increased funding for NJ Transit and Roadway Projects
The FY 2019 budget proposal includes $2 billion for State Transportation Capital Program funding. The program includes over $1.2 billion for state and local highway and bridge projects, and another $760 million for mass transportation projects. Additionally, the program will be supported with $800 million in pay-as-you-go funding.
The budget also includes a General Fund appropriation of $383 million that “takes a critical first step towards addressing the chronic underfunding of the public transit system” (see page 15 of Budget in Brief). The funds will enable NJ Transit to address immediate shortfalls and hiring efforts, providing near-term relief to riders while structural improvements are implemented. This is in addition to Governor Murphy’s Executive Order No. 5, which calls for a comprehensive review of NJ Transit’s operations and finances.
#4 Increased funding for Pre-K to 12 Education
The FY 2019 budget provides for $14.9 billion (roughly 43% of the budget) for pre-K to 12 education, an increase of nearly $933 million over the previous year budget. This includes $8.4 billion, an increase of more than $283 million, for the State’s Formula Aid. We delve more deeply into the current debate surrounding New Jersey’s Formula Aid in another of our blog post entitle Battle Lines are Drawn.
#5 Higher Education Funding
Direct support for higher education and student financial aid programs get a boost in the FY 2019 budget proposal with a total of $2.4 billion. Governor Murphy proposed a $50 million investment to establish new assistance programs for recent high school graduates and adults who have yet to complete their degrees. This is projected to allow nearly 15,000 more students from families with incomes below $45,000 to attend community college tuition-free.
Additionally, funding for Tuition Aid Grants (TAG) will see an increase of $7 million for a total of $432.9 million, while the proposal increases the Educational Opportunity Fund (EOF) by $1.5 million to $45.32 million (see page 10 of Budget in Brief).
#6 Increased funding for State Pensions
The budget recommends a contribution of $3.2 billion for the state’s pension system and notes, “This single-year contribution will exceed the contributions made during the entire first term of the prior administration.” (see page 19 of Budget in Brief).
#7 Hospital Funding
The Governor’s proposal maintains charity care payments to hospitals at $252 million, focusing the majority of resources to those safety net facilities that provide the greatest volume of care to the uninsured relative to their total patient group.
#8 Property Tax Relief
Nearly half of the FY 2019 budget, or nearly $17 billion, is allocated to direct and indirect property tax relief programs. These programs include school aid, municipal aid, and direct property relief to residents. The governor’s proposal includes increasing the State property tax deduction cap from $10,000 to $15,000.
There are numerous other changes, but we’ll leave it here for now.
If you’re a Member of the Hudson County or Hoboken Chamber of Commerce and you have questions or concerns about the proposals in Governor Murphy’s budget, we encourage you to let us know at email@example.com.