Governor Murphy wants to polish legacy with a budget of $54.3 billion

Philip D. Murphy, a wealthy former Goldman Sachs executive who had never held elected office, took over as governor of New Jersey in 2018 as an unashamed liberal Democrat and in his first term introduced a millionaire tax, a minimum wage of $15 and mandatory paid time in out.

After nearly losing his reelection in 2021 amid a strong Republican turnout, he shifted his focus to touting fiscal responsibility and affordability in a state whose residents pay the highest average property taxes in the country. Mr. Murphy, who has national ambitions, has courted the bond rating companies and devised money-saving tax breaks for homeowners and large corporations.

On Friday night, he signed into law the $54.3 billion state budget, a spending plan that is 7 percent higher than last year and passed hours before a constitutional deadline. In the coming weeks, Mr. Murphy will meet with companies assessing the state’s creditworthiness, hoping, among other things, to use the new budget to polish his legacy as a prudent money manager who paid the state’s costly debts without neglecting social justice. to lose sight. initiatives.

“Everything in this budget is about growing and strengthening the middle class and providing more opportunity and affordability to hard-working families,” Murphy said before signing the budget, flanked by Democratic allies.

“None of us here have any desire to go back to the bad old days, before our time here, where the state could not meet its financial obligations,” he added.

Like consumers with debit cards and mortgages, states are subject to credit ratings that affect the cost of financing for transportation projects, building schools, and other major improvements. Mr. Murphy’s predecessor, Chris Christie, a Republican now running for president, led the state to 11 downgrades after failing to fully fund the state’s minimum pension obligations and meet revenue targets.

Murphy scored two more downgrades amid early pandemic shutdowns, but in April earned upgrades from S&P Global Ratings, Fitch Ratings and Moody’s Investors Service — votes of confidence that save millions of dollars in the cost of future borrowing.

“That creates room to address other state needs — the usual things government does, like education and Medicaid,” said Douglas Offerman, a senior director of Fitch Ratings and a rating analyst.

But economic headwinds and the fine print of the new state spending plan could make it harder to get additional upgrades.

Senator Declan J. O’Scanlon Jr., a Republican on the budget committee, said the budget, which is $1.2 billion higher than the draft proposed by Mr. Murphy in March, was a missed opportunity filled with a “nutrition frenzy of inexplicable pork”. .”

He called it a “failure to seize what could have been a unique opportunity to put New Jersey on the path to long-term, sustainable fiscal stability.”

The approved budget, which comes four months before parliamentary elections in November, is 45 percent higher than the first budget Mr Murphy signed in 2018, which was $37.4 billion. By comparison, during Mr. Christie’s eight years in office, New Jersey’s budget grew 18 percent.

The budget includes more money for public schools, doubles the tax credit for children and expands the popular ANCHOR property tax and rent reduction program.

It also contains provisions that are markedly different from Mr. Murphy’s previous spending plans. The fiscal year 2024 budget, which begins Saturday, cuts the corporate tax rate to 9 percent, from a national high of 11.5 percent. And it’s starting to set aside money to cut property taxes in half for most older residents starting in 2026, including those with incomes as high as $500,000, as part of a program called StayNJ.

“It’s time to help seniors stay in our state, in their homes,” said Craig J. Coughlin, the Democratic Assembly speaker who first proposed the tax cut, which the legislature passed with near-unanimous support Friday.

Brandon McKoy, who studies state tax policy for the Center on Budget and Policy Priorities, a Washington-based nonpartisan research group, criticized StayNJ and the reduced corporate tax rate, calling both “unsustainable tax cuts for the 1 percent.”

“I feel like I’m stuck in some ‘Twilight Zone’ episode where it’s 1989 Reaganonomics all over again,” said Mr. McKoy.

States across the country are already grappling with tax collections that are less robust than in the boom years of the past decade, when interest rates were low and Wall Street delivered generous returns on investments.

In May, New Jersey’s impartial Office of Legislative Services cut its revenue estimate by $1.27 billion for the fiscal year that just ended. California’s estimated budget deficit in May grew to $32 billion, nearly a third higher than the January estimate, due in part to inflation and delayed tax returns.

“We are no longer forecasting a recession, but we are definitely seeing a slowdown in the broader economy,” said Oscar Padilla, an S&P executive who studies government debt. “You still have high inflation, a tight labor market.”

But in part because of federal pandemic stimulus funds, New Jersey’s budget signed Friday contains a surplus of about $8 billion, the state’s largest ever.

Of all the money earmarked since 1995 to cover the retirement costs of the state’s 800,000 current and future retirees, three-quarters of total contributions have been paid since Mr. Murphy took office in 2018, according to his office.

“If we paid the entire pension payment for the past 25 years, our retirement payment would have been $1 billion instead of more than $7 billion,” said Elizabeth Maher Muoio, the state treasurer. said Friday night. “Think about what we would have saved.”

A report last year from S&P Global Ratings showed that the pension system was $101.6 billion short of its obligations. “The New Jersey retirement situation, while still generally poor, is improving thanks to an increase in government funding,” the report found it.

In 2020, New Jersey became one of the first states to borrow money to plug a gaping hole in the budget during the early days of the pandemic. Republicans at the time warned of the long-term cost of borrowing $3.67 billion to cover operating expenses – money that was not needed anyway due to strong tax collections.

Since then, Mr. Murphy’s administration has been more cautious about borrowing, pointing to $8.8 billion in savings over two years as the state opted to pay down debt or pay cash rather than borrow. to borrow.

Tom Bracken, president of the New Jersey Chamber of Commerce, praised the reduced corporate tax rate but urged lawmakers to take a more holistic approach to the state’s tax policy.

“New Jersey needs real tax reform so that we can capitalize on all of our outstanding economic assets — and be the place of choice for executives, business owners and entrepreneurs looking to expand and create jobs,” Mr. Bracken said in a statement.