What a difference a decade makes.
Ten years ago, then New Jersey Governor Chris Christie used his veto powers to keep total state spending below $ 30 billion after lawmakers sought to increase the budget of nearly a billion dollars.
But last week, current Gov. Phil Murphy signed a new state budget that included all the additions proposed by the Legislature, pushing total spending to a record high of $ 46.4 billion.
Christie’s budget cuts came as New Jersey still struggled to recover from the 2007-09 Great Recession and the two-term Republican tried to focus in Trenton on fiscal discipline and lowering taxes.
This year, the spending additions just approved by Murphy, a first-term Democrat due for re-election in the fall, followed an unexpected rise in income that occurred despite the coronavirus pandemic in Classes.
How much is spending increasing?
The FY2022 budget increases spending year over year by approximately $ 6 billion. An unexpected tax windfall helped support this sharp increase and left the state full of liquidity at the end of June. A big borrowing problem lawmakers approved last year after the Murphy administration predicted the pandemic would trigger huge revenue losses – which never materialized – has also inflated state coffers .
Several taxes were also increased last year in response to the health crisis, especially on millionaires and top-paying companies, and the new budget also calls for cutting budget reserves as a sole source of revenue.
In total, the size of the state budget has now grown by more than 30% since Murphy took office in early 2018. Since Christie’s budget cuts were enacted ten years ago, total spending have increased by more than 50%.
Where does the money come from?
Total revenues have increased by more than 20% since the start of fiscal 2018, according to Treasury Department budget documents.
State income tax revenue – which is the budget’s main source of revenue – grew by more than $ 3 billion through the end of fiscal 2021, according to the documents. It comes after Murphy and lawmakers raised taxes for the state’s wealthiest residents, in 2018 and 2020. The first increase raised the income tax rate by more than $ 5 million, and the second did the same for all income over $ 1 million.
The second largest source of revenue for the annual budget, state sales tax, has increased by about $ 1.5 billion since Christie’s last budget in 2017, according to the documents. The hike came without a rate hike Murphy previously called for in the Democratic-controlled legislature. But New Jersey has started collecting taxes from online retailers under a new law enacted in 2018.
New Jersey’s corporate tax revenue also increased by more than $ 2 billion during Murphy’s tenure, after the governor and lawmakers agreed to increase the rate levied on the profits of the largest corporations. profitable New Jersey.
Meanwhile, the nearly $ 4 billion borrowed last year when the Murphy administration predicted the state would suffer significant revenue losses from the pandemic have also helped fill the state’s coffers. cash over the past year.
A change in state tax policy to give owners of pass-through entities and other partnerships a way to avoid a limit on the federal state and local tax write-off adopted by the former President Trump also generated a significant windfall, according to Treasury officials.
Where has spending increased?
On the general ledger spending side, one area that has seen a huge increase in funding is in state contributions to the long-neglected New Jersey public service pension system.
The new budget funds $ 7 billion for the annual deposit into pension funds, which is a record total and well above the amount state actuaries would consider a “full” payment.
In contrast, in Christie’s last budget, the contribution to the pension plan was $ 2.5 billion, barely half of what actuaries would have considered a full payment that year. Over Christie’s two terms, a combined nearly $ 9 billion has been deposited into pension funds, while more than $ 11.5 billion will have been paid by Murphy and lawmakers in fiscal years 2021 and 2022 alone. .
Total state funding for K-12 education also increased significantly during Murphy’s tenure, from around $ 14 billion in Christie’s last budget to over $ 18 billion in the FY2022 spending plan. This includes increased funding for the Direct School District Assistance Formula, which the last budget increased by nearly $ 580 million year-over-year.
Total state-funded direct property tax relief programs, such as Senior Freeze and Homestead Benefit, are also on the rise, rising from nearly $ 900 million in Christie’s last year in office. over $ 1.2 billion in the last budget. This includes a recently approved increase of nearly $ 80 million in funding for the Homestead program. The increase will serve to end the long-standing practice of using obsolete 2006 property tax bills as the baseline for calculating Homestead benefits. As a result, Homestead’s average annual individual benefit will increase by at least $ 130.
Meanwhile, the latest state budget also spends over $ 300 million on a brand new state tax rebate program that will result in checks of up to $ 500 being sent this. been to over 750,000 New Jersey families who meet program income and dependents’ qualifications. .
The new budget also includes several other tax policy changes, including a further expansion of the earned income tax credit for low-wage workers and an expansion of tax exclusions for retirees which were last increased in Christie’s mandate.
Murphy also created new programs that offer free tuition to county students and some four-year college students, and the new budget also establishes new incentives to help families earning less than $ 75,000 a year. to save for college.
What about government debt?
The Treasury’s latest annual borrowing report released earlier this year found total government bond debt to be just over $ 44 billion at the end of fiscal 2020, up from almost 14% compared to ten years ago.
But that report did not count nearly $ 4 billion borrowed without voter approval last year in response to the pandemic.
This borrowing problem left taxpayers funding principal and interest payments in the 2030s because so-called COVID-19 bonds were structured in such a way as to prevent them from being withdrawn prematurely – something that has been widely criticized by Republican lawmakers, who serve in the minority in both houses.
The New Jersey Debt Defeasance and Prevention Fund was also established with the passage of the new budget last week.
This fund, with a credit of $ 3.7 billion, allocates $ 2.5 billion to repay existing debt, which probably has an interest rate higher than the approximately 2% charged to the State for last year’s COVID-19 borrowing problem. The remaining $ 1.2 billion is set aside to fund planned capital projects on a pay-as-you-go basis instead of having to issue new bonds.
Murphy inherited budget reserves of around $ 600 million from Christie, while the new budget for fiscal 2022 projects a closing surplus of $ 2.356 billion. Granted, the overall budget is now much larger than it was when Christie was in power, but today’s budget reserves are also a higher percentage of planned spending. This should leave the state better prepared for any unexpected revenue losses during the next economic downturn.
However, even with a recent windfall in tax revenue, the new budget has drained the state’s rainy days fund, an account that is supposed to be replenished during times when the state’s general fund is overflowing with cash.