Democratic lawmakers advanced their own appropriations bill, setting stage for a difficult budget negotiation with Gov. Phil Murphy, a fellow Democrat

Lawmakers took the first official step toward enacting a new state budget yesterday by advancing a $38.7 billion appropriations bill that calls for new spending on legislative priorities like special education and mass transit but leaves out several tax increases sought by Gov. Phil Murphy, including his coveted millionaires tax.

It sets the stage for what is likely to be a difficult budget negotiation that may drag out until the very last minute.

To make the numbers line up on paper, the Legislature’s spending bill counts on some more optimistic revenue projections than the governor’s, takes money from the state’s rainy-day fund and also reduces the allocations for some noteworthy Murphy budget requests, including for an expansion of tuition-free community-college grants.

Democrats who control both houses praised the introduction of their spending bill yesterday, saying it makes new investments in education, property-tax relief and NJ Transit while not relying on revenue from any broad-based tax increases. They also highlighted a record-high state pension contribution of $3.8 billion and a surplus of $1.4 billion that would be funded by their budget.

“I think that this is a good budget and I’m proud to vote ‘yes,’” said Assembly Budget Committee Chair Eliana Pintor Marin (D-Essex).

The governor’s options

The fiscal year 2020 spending bill is now set for final approval in both the Assembly and Senate on Thursday. From there, it will be up to Murphy, a Democrat, to act before the new fiscal year begins on July 1.

Among the governor’s options will be adopting the legislative budget unchanged, which is unlikely, working out a compromise with lawmakers or using the line-item veto to enact the spending plan with some edits. Murphy is scheduled to hold a news conference on the budget today; he said in a statement yesterday that “every option is in on the table.”

Perhaps the biggest difference between the $38.9 billion budget that Murphy proposed earlier this year and the Legislature’s own spending bill is the omission from the latter of an estimated $536 million in revenue that was to be generated by the millionaires tax sought by the governor. Murphy had also connected a proposed $250 millionincrease in property-tax relief to the millionaires tax, which called for the current top-end income-tax rate of 10.75 percent levied on earnings over $5 million to be levied on earnings over $1 million.

Instead, the legislative spending bill casts aside both that tax increase and the property-tax relief that it would have helped to fund. Meanwhile, lawmakers also left out several other tax hikes that were requested by Murphy, such as new taxes on opioid manufacturers and on companies with more than 50 employees that don’t provide their employees with healthcare coverage.

To replace that revenue, lawmakers are counting on the state collecting more from the corporate-business tax than Murphy has projected, including by predicting $100 million in “repatriated” funds coming in from overseas. The legislative budget also estimates roughly $130 million less will be going to companies redeeming corporate-tax incentives in FY2020.

Rainy-day fund: zilch

In addition, lawmakers proposed new budget language that would redirect $317 million that was supposed to go to the state’s rainy-day fund instead into the General Fund.

On the spending side, the budget bills adds $50 million to the operating subsidy for NJ Transit, pushing the net increase up to $75 million. It also tacks on another $50 million for extraordinary special education.

There’s $18 million in new funding for the Senior Freeze property-tax relief, which would end a longtime hold on the program’s income ceiling. The bill also sets aside another $23 million to expand a veterans’ income-tax deduction.

A long list of legislative priorities are also funded in the budget bill totaling $100 million. Some examples include $1 million for stream restoration in Franklin Township, $4 million for road improvements in Ewing and $1 million for restoring East Orange train stations.

Meanwhile, among the spending cuts are a nearly $30-million reduction of the $58.5 million that Murphy requested for Community College Opportunity Grants, which would scale back the proposed expansion of a program the governor launched last year that provides income-qualified students with free tuition. Savings from audits and procurement changes totaling $15 million are also assumed in the legislative spending bill.

Governor: ‘Every option is on the table’

Murphy faulted lawmakers in the statement he issued yesterday for making “unnecessary cuts to valuable programs while increasing spending on non-vital ones.” He didn’t directly respond to the Legislature’s official rejection of his proposal on the millionaires-tax — which top lawmakers had long signaled — but he said the spending bill would leave the state “without the stable and sustainable revenues to secure the investments we seek to make in our people and our state.”

“So, at this point, as I have stated again and again, every option is on the table,” Murphy said.

Among those options is using the line-item veto to remove spending or even language from the budget bill that Murphy objects to. The governor also has the constitutional authority to establish the official revenue projection for the budget, which allows him to reduce the funds available to be appropriated by lawmakers if he sees fit. But the governor cannot add anything to the bill itself.

But Senate Budget and Appropriations Committee Chair Paul Sarlo (D-Bergen) said yesterday that the budget bill gives Murphy “something to work with” as negotiations with legislative leaders will soon begin in earnest. If an appropriations bill is not enacted by July 1, the state constitution calls for a government shutdown. Last year, Murphy and lawmakers reached an 11th-hour compromise to avoid a shutdown.

“Where he feels there’s some legislative spending that he feels is in excess of what he can certify as revenues, that’s an option that he has,” Sarlo said yesterday of the line-item veto. “But let’s not shut (down) government. Let’s sign the budget and move on.”

“I’m an optimist,” Pintor Marin said. “I think it just sends a really bad message to anyone to have a government shutdown.”

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