Governor Murphy delivered his third budget proposal to the Legislature for fiscal year 2021 (FY21) on the afternoon of Tuesday, February 25, 2020. He is planning to spend $40.9 billion – an increase of $2.2 billion or 5.7% from last year’s signed FY20 budget. Cumulatively for the three budgets of the Murphy Administration, this represents an increase of $6.2 billion or 17.9% since the last signed budget of the Christie Administration. (The total Murphy budget increase can be softened if the shift in energy tax receipts from off-budget to on-budget several years ago is considered, lowering that cumulative increase to only 15.6%.)
Below is a summary of Governor Murphy’s FY21 budget proposal, but please also feel free to explore Governor Murphy’s budget documents related to his proposal linked below:
Key Budget Figures for FY20 & FY21:
What Should Business Like:
- The proposed FY21 budget includes the largest pension payment in state history at $4.6 billion, and Governor Murphy is proposing to use excess revenues in the current FY20 budget to increase the currently budgeted pension payment by $279 million. FY21’s $4.6 billion represents 80% of the Actuarial Determined Contribution for this year, continuing NJ on the tenths track that Governor Christie started as a responsible way to ramp up pension payments. A full payment is expected by FY23.
- Building on the successes of last year’s efforts, the FY21 budget includes $174 million in proposed health benefit savings for a second year of decreasing state health care costs. This does not include the more substantial Path to Progress health savings that NJBIA supports and believes we need, but it is at least going in the right direction. The budget includes $2.8 billion in funding for active employee and post-retirement health benefits.
- Governor Murphy continues to reduce NJ’s reliance on one-shot gimmicks/non-recurring revenue to balance the budget to a lowest on record 0.8%.
- The budget once again increases surplus to a recent high of 4% of appropriations and puts a payment into the rainy-day fund for the second budget in a row.
- The Murphy Administration is launching a Grants Management Office in Trenton and Washington DC designed to improve NJ’s current status as the state getting the least back from the federal government.
- Many of the local legislative add-ons from last year’s budget were eliminated.
- There will be a $2 million funding increase tripling the money for the newly restored NJ Commission on Science, Innovation & Technology.
- $2.5 million in funding will go to streamline permitting and modernize government services.
- $20 million is proposed to maintain the Local Efficiency Achievement Program to support local shared services and efficiencies.
- $20 million will be allocated for Governor Murphy’s recently announced JobsNJ program including support for apprenticeship programs.
- There will be a $2 million increase for a Business Marketing Initiative.
- To begin addressing our water infrastructure needs, $80 million is budgeted for a drinking water program including $6 million to seed redevelopment projects.
- There is approximately a $65 million increase budgeted for supporting the state and social service provider businesses coping with the minimum wage increase.
- The FY21 budget includes $132 million more for NJ Transit for a record $590 million subsidy from the state budget’s general fund.
- There is another year of the $2 billion State Transportation Capital Program under the last authorization of the TTF, including $620 million of pay-as-you-go funding
Proposed Tax Cuts
- Governor Murphy proposes a $1 million tax cut for the military by excluding combat pay from the income tax as NJ is currently the only state in the nation that taxes this income.
- The budget continues to increase the Earned Income Tax Credit (EITC) and expand it to more young adults – an $8 million tax cut.
- Governor Murphy did continue to call for movement on his tax incentive proposal, and NJBIA supports the Governor and Legislature coming to an agreement on the common pro-business elements of the proposed plans without any overall cap.
What Should Business Worry About:
Over a Billion Dollars in Tax Increases Announced
- Governor Murphy is proposing a $494 million increase in personal income taxes raising the top rate to 10.75% on incomes between $1 million, instead of the current threshold of ad $5 million like it already is on incomes over $5 million. This was proposed and fortunately rejected in last year’s budget.
- There is a $180.5 million Corporate Responsibility Fee proposed for private employers with more than 50 employees getting state Medicaid benefits. This was proposed and fortunately rejected in last year’s budget, but interestingly it was projected to generate a significantly smaller amount of revenue for the State in the FY20 proposal than FY21.
- Governor Murphy proposes raising taxes and fees on guns and ammunition. This was proposed and rejected in last year’s budget.
- There is a cigarette tax increase proposed that would increase the tax to $4.35 per pack. That would be equivalent to New York and Connecticut and is expected to generate $215.8 million. This will support a small increase in spending on anti-smoking programs.
- The FY21 budget proposes a state-level version of the recently repealed federal health insurance tax to provide about $200 million in annual subsidies to New Jerseyans purchasing health insurance.
- A $20 million opioid tax is proposed for opioid manufacturers and wholesalers.
- On the same day as Governor Murphy’s budget speech, the NJ Turnpike Authority announced that they were considering toll increases and would soon have public hearings on the topic. While not necessarily part of the State Budget, this increase could factor into other fund shifting that takes place within the budget every year.
- Fortunately, Governor Murphy did not include an increase in the corporate business tax (CBT) as Senate President Sweeney proposed, nor the sales tax and estate tax as some progressive groups requested but the business community needs to be vigilant in fighting these potential taxes as well as what was proposed in Governor Murphy’s budget address.
Other Initiatives to Keep an Eye on
- The Division of Taxation is implementing new tax auditing and enforcement measures estimated to generate $40 million, and legislation similar to other states is recommended to make possession and use of certain sales suppression software a crime.
Other Spending Highlights:
- There is a proposed $336.5 million increase in K-12 formula school aid plus an additional $83 million for continued expansion of preschool and $50 million to help stabilize school districts dealing with school aid cuts in recent years due to the changes of S-2.
- The new Garden State Guarantee program is created to use $50 million of higher education aid to establish free college for households under $65,000 of income.
- There will be continued funding increases for nonprofit and nonpublic school security.
- $60 million will be used from the Affordable Housing Trust Fund for affordable housing.
- To lower the cost of health care, the budget provies$1.5 million to create the Office of Health Care Affordability. The FY21 budget also expands PAAD and Senior Gold to support the healthcare of 21,000 more seniors.
- More money will be made available from the Clean Energy Fund including the launch of a Green Bank and clean tech incubators. The budget will also support offshore wind permitting.
- In higher education, funding is slightly down overall due to trends, but $5 million will be allocated for a new Opportunity Meets Innovation Challenge college grant program; $1 million is included for college research on the challenges facing our State; and the successful Educational Opportunity Fund is growing by $1.5 million.
- Municipal aid is basically flat at about $1.6 billion.
- Funding for direct property tax relief is slightly higher at about $1.3 billion due to last year’s increase in the Property Tax Deduction Act.
- For public health, the budget spends more on family planning, the Children’s System of Care to serve children with mental health needs, lead remediation and harmful algae blooms.
- Hospital funding in FY21 will include $269 million for Charity Care, $211 million for the Quality Improvement Program, $218 million for Graduate Medical Education and $24 million for Supplemental Graduate Medical Education.
- $4.7 billion in state funding goes to NJ FamilyCare/Medicaid.
- $2.9 billion or 7% of the budget is Debt Service.