Gov. Phil Murphy’s proposed FY22 budget boasts no new tax increases and a historic pension payment, but also a continuation of spending that many think is unsustainable and very well could lead to future tax increases.
The $44.8 billion budget proposed by Murphy on Tuesday is up 10.9% from FY21 and is a 29% increase from the last signed budget by Gov. Chris Christie four years ago.
“That’s the big concern right now,” said NJBIA Vice President of Government Affairs Christopher Emigholz.
“While it was great to see no new tax hikes and some good investments in business and education, it’s now very clear that New Jersey did not have to tax and borrow to the extent that it did last year. Now we could be looking at added spending that isn’t sustainable without future tax increases.”
Fiscal Positives
In addition to being Murphy’s first budget proposal without increased taxes, fees or fare hikes, the proposed FY22 budget includes the first 100% pension payment since 1996. The $6.4 billion pension payment is the largest in the state’s history.
“The governor is correct in that our pension problems go back to previous administrations,” Emigholz said. “Gov. Christie began in earnest to ramp up pension payments and Gov. Murphy has exceeded his ‘tenths track’ with this payment.
“While one may contend that Gov. Murphy could have simply met the scheduled 9/10th pension payment this year and put more toward business to ignite the economy, ramping it up to a full payment is still a responsible use of the state’s excess revenue.”
Additionally, the proposal puts a $1.4 billion payment back into the rainy day fund after it was depleted to make up for the FY20 shortfall, caused by the pandemic.
Looking Back Before Looking Ahead
While the full pension payment was a welcome addition to the budget, it was indirectly financed by the $4.3 billion in so-called emergency borrowing from the FY21 budget.
Emigholz had contended then that amount of borrowing in FY21 was excessive and unnecessary. And New Jersey’s current revenue numbers have proven that to be true.
“The underreporting of stronger-than-expected revenue performance during the pandemic has been a disappointment,” Emigholz said. “In this current budget proposal, the expected surplus went from $2.5 billion in September to a revised $4.9 billion – in addition to a $1.4 billion deposit in the state’s rainy day fund.
“That’s basically a long way of saying that revenues outperformed projections by $3.8 billion – which is close to the borrowing amount in the last budget. So you can make a strong case that the tax increases and borrowing last year were unnecessary.”
Sustainable Jersey?
Many of the spending increases in the FY22 budget are likely to be recurring. With a surplus reduction of $2.7 billion and appropriations exceeding revenues by $3.9 billion, Emigholz said this could potentially result in massive tax increases in FY23 and beyond.
“We shouldn’t forget that the federal government will likely come through with billions in aid for New Jersey and the $600 million the state gains from the restructuring of Horizon Blue Cross Blue Shield of New Jersey in December,” Emigholz said. “These are not currently in the budget.
“But all of the programs can’t just go away in FY23 and you’re going to need a way to pay for them. So it’s hard not to imagine tax increases next year.”
In her statement following Gov. Murphy’s budget proposal, NJBIA President and CEO Michele Siekerka said “a reprieve from new taxes cannot be an election year special” and continued to encourage cost savings and structural reforms, as found in the “Path to Progress” report.
Murphy’s budget, however, did not include substantial structural reforms.
“Looking ahead, it’s probably going to come down to needed reforms or more taxation of New Jersey residents and businesses,” Emigholz said. “While it was great to not have tax increases this year, we can’t forget that New Jersey already has the highest corporate business tax rate in the nation, the highest property taxes in the nation and the second highest top income tax rate in the country. We need to reverse our standings.
“Our pension and benefits systems are still unsustainable and until they’re reformed, New Jersey’s long-term affordability issues will remain.”
