It’s amazing what a few trillion dollars in federal stimulus can do.
The U.S. government pumped more than $40 billion into New Jersey’s economy through a $2 trillion stimulus package under former President Donald Trump and a $1.9 trillion relief measure under President Joe Biden.
The unprecedented federal aid ignited a rapid economic recovery that kept residents spending during shutdowns and helped New Jersey to recover nearly all the jobs lost during the coronavirus pandemic.
The Garden State is now experiencing a surge in state tax revenues unlike any in modern history.
New Jersey Treasurer Elizabeth Muoio told lawmakers last week that her department expects the state to collect $51.4 billion before the fiscal year ends June 30. That is more than $9 billion higher than initial estimates last summer and about $13 billion above the pre-pandemic peak in 2019.
For Gov. Phil Murphy, it provides the perfect opportunity to tout his stewardship of the state economy and bolster his administration’s record on fiscal issues.
For the millions of essential workers, laborers and working-class families who keep the state humming, New Jersey’s surge in tax revenue, some spurred by inflation, is another reminder of why it’s so difficult to make ends meet and get ahead in one of the most expensive states in the nation.
And there are the most vulnerable residents, the ones who are too focused on surviving tomorrow to even notice the state’s newfound riches.
Over the next six weeks, New Jersey lawmakers and the Murphy administration must decide what to do with all those extra billions and agree on a state budget before the new fiscal year begins July 1.
There are plenty of suggestions for how to use the windfall and a good measure of partisan bickering in the state Legislature.
Here are the proposals getting the most attention as budget negotiations begin.
Tax Relief
Within minutes of the Treasury’s historic revenue update last Monday, state Assembly Speaker Craig Coughlin, D-Middlesex, issued a statement calling for “the largest tax relief program in state history.”
Coughlin didn’t provide any details on what that might look like, and he is playing catch up with Republican state lawmakers, who have for months been calling for substantial tax relief amid surging revenues.
Republicans, through their “Give it Back” initiative proposed in early March, want to return $4.5 billion to New Jersey taxpayers through $1,000 and $500 direct rebates.
Under the main bill in their initiative, taxpayers with gross income of $500,000 or less would receive a $1,000 credit if married filing jointly, and individuals would receive a $500 credit. A second bill, the “Gas Price and Inflation Tax Credit Act,” would provide an additional $500 refundable income tax credit to families with income less than $250,000.
Save for a Rainy Day and Pay Down Debt
Even before last week’s revenue updates, state Sen. Paul Sarlo, D-Bergen, chairman of the Senate Budget Committee, proposed using a significant portion of excess tax revenues to boost New Jersey’s surplus to a record $6 billion or more.
He said increasing the surplus was necessary to protect the state from a recession next year, something economists have been warning about for weeks.
“I agree with economists. We need to be careful,” Sarlo told NJ Advance Media. “We need to ensure that we don’t create or spend on programs that we cannot sustain for the long-term.”
Treasurer Muoio last week joined a growing list of experts warning state lawmakers to avoid the temptation of overflowing coffers and to use caution as they negotiate state budgets in the coming weeks.
“We are in a very good place today, better than anyone could have hoped for 24 months ago,” Muoio told lawmakers. “This is a good problem to have, but it will clearly serve as a temptation. We have to be cognizant of the economic news coming in on a daily basis.”
Muoio said the Murphy administration would like to boost the state surplus beyond the $6 billion cushion suggested by Sarlo but didn’t provide a specific amount. She said the administration would also like to use additional revenues to further reduce the state’s debt load, which is significant.
The fifth-largest spending increase among individual line items in Murphy’s $48.9 billion budget proposal is a $225 million increase to cover the debt cost of New Jersey’s general obligation bonds, according to a report from the Office of Legislative Services.
Invest in Business and Growing the State Economy
In a statement released last Tuesday, New Jersey Chamber of Commerce President and CEO Tom Bracken called on Murphy and lawmakers to use a portion of the revenue windfall to provide financial support to the state’s business community.
He said state leaders could do two things immediately: make more grants available to small businesses that are still struggling to recover from the pandemic, and allocate a portion of the surplus to the unemployment insurance fund to ease the tax burden on small businesses.
“Trenton needs to realize that the only chance to maintain this level of revenue is to create a vibrant state economy, and the only way to do that is to invest in the growth of the business community that Trenton ultimately turns to for the tax revenue it needs,” Bracken said.
Michele Siekerka, president and CEO of the New Jersey Business and Industry Association, issued a statement Thursday urging state leaders to use surplus revenues to pay down billions of dollars in state debt and provide tax relief for New Jersey businesses.
In addition to the proposals from Bracken, Siekerka called on the state to extend property tax relief to businesses, expand the $50 million Main Street Recovery program, create new childcare tax credits for employers and enhance the Earned Income Tax Credit to give people the incentive to work and help ease the labor shortage.
“It is incumbent upon the Legislature and the Governor to take this perhaps once-in-a-lifetime opportunity to right New Jersey’s fiscal ship and provide much-needed relief for taxpayers, inclusive of our business community,” Siekerka said.
Boost State Aid to New Jersey’s Most Vulnerable
In a statement released last Monday, Sheila Reynertson, senior policy analyst for New Jersey Policy Perspective, said state leaders have an obligation to use the multibillion dollar surplus “to help those who are struggling the most.”
Reynertson said the state should use excess revenue to build upon existing programs by expanding cash assistance, increasing the Earned Income Tax Credit and establishing a state-level Child Tax Credit. She said lawmakers should also prepare for the next economic downturn by making a substantial deposit to the rainy day fund.
“The good news is that, with a surplus of this size, we can do this and still provide relief to families in need,” Reynertson said. “Using these funds to shore up the state’s finances is the most responsible course of action because it protects essential public services and safety net programs when they are needed most.”
Advocates and policy experts statewide have for months been calling on Murphy and lawmakers to do more to make New Jersey more affordable and help the state’s most vulnerable residents.
For The Many NJ, a statewide coalition of more than 30 advocacy and policy groups, organized a virtual public hearing in April. Many of those who testified urged state leaders to provide more direct relief and support to essential workers and families struggling to pay for basic necessities amid soaring consumer prices.
Ed Lazere, senior fellow at the Center on Budget and Policy Priorities, said the state should not squander this opportunity.
“The economic recovery remains uneven and incomplete, with many still struggling with incomes that are not enough to pay rent or afford food,” Lazere said during the virtual public hearing.
Reynertson said fiscal responsibility and support for working families “can and should go hand and hand, because what’s best for workers is what’s best for the economy.”
“As state leaders decide how to allocate these surplus funds, it’s critical that they go to working- and middle-class families rather than profitable corporations and wealthy households who don’t need it,” Reynertson said.
What does Murphy want? Could be more property tax breaks.
After an event in Hackensack last week, Murphy told reporters his administration is “gonna be laser-focused” on three things: a bigger surplus, debt reduction and more property tax relief.
A lynchpin of Murphy’s spending proposal is his new property tax relief program that is meant to restructure the Homestead Rebate. It would provide property tax relief to renters and extend rebates to homeowners making up to $250,000.
Murphy said his administration plans to ramp up the program over a three-year period, and the state investment would swell to $1.5 billion annually, bringing the average rebate per eligible household to $1,150 by 2025.
State Treasury officials told lawmakers last week that the administration is open to expanding the program and fully funding it sooner amid strong revenues.
Republican state lawmakers have criticized the plan, saying it “would actually reduce rebates for hundreds of thousands of renters and homeowners already receiving rebates from existing programs the Governor has proposed to eliminate.”
During a separate event in Somerville this month to tout his property tax relief initiative, Murphy told NJ Advance Media he thinks it’s possible for the state to provide tax relief and prepare for an economic slowdown.
“I think as you can see today, we can do both,” Murphy said. “And there are other programs we’re looking at. I also think we have to prepare for what will be challenging times ahead.”
NJ Advance Media staff writer Brent Johnson contributed to this report.
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Derek Hall may be reached at dhall@njadvancemedia.com. Follow him on Twitter @dereknhall.
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