Special Issue: 2018 Budget Address

Declaring “we can be both pro-growth and progressive at the same time, and with equal effectiveness,” Governor Phil Murphy presented his first budget today in an address before a joint session of the New Jersey legislature. Murphy’s one hour speech was both optimistic and upbeat and reprised themes from his gubernatorial campaign, namely building a “stronger and fairer” New Jersey. Murphy characterized his $37.4 billion budget as balanced fiscally and morally and one that invests (a word he used numerous times throughout the speech) in New Jersey’s many competitive advantages for business, residents and the economy.

Murphy began his remarks by mentioning the two nor’easters that recently slammed New Jersey and left hundreds of thousands of residents without power. Murphy has directed the New Jersey Board of Public Utilities to investigate storm response by the State’s public utilities. In his remarks, he thanked the thousands of workers from those companies and pledged to get to the root of the problem.

One of the signature components of Murphy’s budget is a $242 million funding increase for NJ TRANSIT. The beleaguered transit operator – the third-largest in the nation – had its operating funds slashed 90% by the previous administration and has been forced to siphon critically needed capital improvement dollars simply to fund daily rail and bus operations. Murphy acknowledged that a fix would not happen overnight but expressed his hope that the funding increase would send a strong message of support to commuters. The funding infusion is also intended to end the capital to operating transfer and make sure that capital dollars are used for system upgrades and state-of-good-repair investments.

Presenting the issue in moral and economic terms, Governor Murphy made an emphatic case for the legalization of marijuana for recreational purposes. Murphy decried the current system of jailing people – primarily those of color – for non-violent drug offenses, and questioned the wisdom of spending $140 million each year adjudicating low level marijuana offenses. He also rejected decriminalization, which has been offered as an alternative by some in the Legislature, saying that decriminalization alone “will not put the corner dealer out of business, it will not help us protect our kids, and it will not end the racial disparities that we see.”

Calling responsible and careful legalization the “only sensible option,” Murphy suggested that sales revenue would allow for reinvestment in urban communities. His budget counts on $80 million in sales tax revenue from marijuana in FY2019, including $20 million from expanding the existing medical marijuana program and $60 million from legalizing recreational marijuana. $60 million assumes a 25% excise tax on sales of recreational marijuana on top of the 7% state sales tax.

Murphy proposed restoring the state sales tax to 7% and expanding it to include items like ridesharing services, measures that are estimate to generate over $581 million. Murphy’s move would restore the sales tax cut implemented by Governor Christie as part of the legislative package to renew and replenish New Jersey’s Transportation Trust Fund (TTF). Under that TTF agreement which resulted in a 23-cent increase in New Jersey’s gas tax, the sales tax was reduced from 7% to 6.875% last year and 6.625% this year.

Murphy doubled down on one of his key campaign pledges, to increase the marginal tax rate on income over $1 million to from 8.97% to 10.75%. If approved by the Legislature, this change is estimated to generate $756 million in gross income tax revenues for FY2019. Murphy called it the right thing to do and the stated now is the right time to do it. The proposal faces an uphill climb with Senate President Steve Sweeney currently opposed.

Education:  $300 million investment in public schools as part of a four year plan to fully fund public schools including Pre-K; $50 million investment in community colleges, the first step in free community college; loan forgiveness program for STEM students.  The ultimate goal is free access to education from Pre-K through Associates degree, which would give New Jersey the distinction as the only State in the Union to accomplish this.

Wages & Benefits:  Murphy proposed to raise the minimum wage and put New Jersey on the path to $15/hour.  In so doing, incomes of 1.2 million New Jerseyans would rise.  Murphy’s FY2019 budget would establish an $11/hour minimum wage for state workers.  Murphy also committed to signing paid sick leave legislation and boosting aid to the working poor by raising the Earned Income Tax Credit to 40 percent of the federal limit.  In response to provisions in the Trump tax plan, Murphy committed to supporting bi-partisan legislation to increase the property tax deduction from $10,000 to $15,000 as well as legislation allowing municipalities to create charitable funds to receive payment of local property taxes.  The budget proposes closing the carried interest loophole which allows money managers to characterize some of their earnings as capital gains instead of income.

Pensions:  Murphy’s budget would make a $3.2 billion payment to the State’s underfunded pension system.  Murphy characterized the payment as an “all-time high”.

Republican rejection of Murphy’s budget was anticipated and leadership did not disappoint. Senate Minority Leader Tom Kean characterized the budget as a “massive tax increase after eight years of fiscal discipline.” Assembly Minority Leader Jon Bramnick interpreted Murphy’s repeated use of the term “investment” as “taxes, taxes, taxes” and painted Murphy as an old-fashioned tax & spend liberal. Both characterized the $2.7 billion in additional spending over the previous budget – and the revenue raising measures that pay for them – as dangerous for New Jersey’s economy.