THE LATEST: Big public worker pension boost and $3.7B to tackle state debt added to N.J. budget
After more than a week of state budget negotiations, Gov. Phil Murphy and Democratic legislative leaders on Monday announced a deal to increase a popular property tax relief program and expand earned income, child and dependent care tax breaks in New Jersey.
The agreement also follows through on their promise to send income tax rebates of up to $500 to many low- and middle-income taxpayers who have dependents in exchange for a tax increase on high-income earners.
“This is direct tax relief to middle income families and senior citizens who need it most,” state Senate President Stephen Sweeney, D-Gloucester, said in a statement. “The income tax rebate will put money into the pockets of working families so they can support themselves and their children. The increased Homestead rebates will help ease the heavy property tax burden on middle-income homeowners.”
The officials announced the tax changes as part of a multi-pronged middle-class tax cut plan, made possible in part by a massive revenue windfall. The Senate budget chairman indicated last week the state Legislature hopes to introduce a budget bill Monday, signaling they’ve reached or are on the verge of an agreement on the broader budget with less than two weeks to go before the deadline.
The pandemic was expected to have devastating financial consequences for New Jersey, but like many states it benefited from aggressive federal intervention that pumped tens of billions of dollars through the state economy. While Murphy’s administration projected a $4.3 billion shortfall last fall, which it plugged with borrowing, tax collections since made up that ground — and then some.
The state Treasury Department last week raised its revenue forecast for this fiscal year by $4.1 billion and next year’s by $1.1 billion. That follows a $3.2 billion increase in projected tax collections in February, positioning the state to end the fiscal year on June 30 with a $10.1 billion surplus.
In addition to the unanticipated tax revenues, the state is sitting on an unspent $6.2 billion in federal American Rescue Plan aid.
Murphy and legislative leaders have not said how much they plan to tap from the federal money or surplus funds for the upcoming fiscal year, though there seemed to be widespread support for contributing hundreds of millions of dollars more to the pension fund for public workers and securing tax relief.
Following Treasury’s announcement two weeks ago, Republicans quickly said the state should find a way to return some money to taxpayers. An election just five months away raised expectations legislative leaders would find a way to do just that. Lawmakers, however, have remained wary of enacting major tax cuts or new programs with what’s largely been characterized as one-time revenue, and given the risk of a looming fiscal cliff.
“With each budget I have introduced, we have provided greater relief to those who need it most — through our continued expansion of the Earned Income Tax Credit, the establishment and expansion of a Child and Dependent Tax Care Credit, increased tax relief for veterans, middle-class tax rebates, and now the long-overdue expansion of the Homestead Benefit to make sure relief reflects reality,” Murphy said in a statement.
The administration described the updates to the Earned Income Tax Credit, Child and Dependent Care Credit, Veterans Property Tax Deduction, Homestead program and the new tax rebates as some but not all tax relief initiatives in the budget.
The tax breaks in Monday’s announcement are expected to cost $444 million next year, according to a news release.
State Sen. Steven Oroho, R-Sussex, criticized the agreement, saying it didn’t go far enough.
“Despite the State receiving a $5 billion tax windfall in recent weeks, Democrats are proposing no significant new tax relief for New Jerseyans,” Oroho, the Senate Republican budget officer, said.
In total, the new “tax relief” items listed by the governor and legislative leaders in the news release total just $125 million.
“Despite the State receiving a $5 billion tax windfall in recent weeks, Democrats are proposing no significant new tax relief for New Jerseyans. That stands in stark contrast to our Republican plan to significantly boost tax relief and fix long-standing structural budget issues. It’s likely we’ll see a spending spree of epic proportions for legislative add-ons when the final details of the budget are released.”
In total, the new “tax relief” items listed by the governor and legislative leaders in the news release total just $125 million.
This new agreement would update the Homestead Benefit Program, increasing the average benefit to seniors and disabled homeowners by more than $130 and the average benefit to low-income homeowners by $145, Murphy’s administration said.
A modernization of the Homestead Benefit Program likely will be welcomed by New Jerseyans, as the value of the tax credit hasn’t kept up with homeowners’ rising property tax bills. Homestead credits remain based on their 2006 property tax bills, which allows the state to hold down program costs. The average property tax bill was $6,446 in 2006, compared with $9,112 in 2020.
The next round of credits would instead be tied to property owners’ 2017 property tax bills, according to the news release.
Under the income tax rebate, which was first announced last fall, married couples in New Jersey with income below $150,000 and at least one dependent child, and single parents with less than $75,000 in income and at least one dependent child, were expected to qualify for a maximum rebate of $500.
The more than 716,000 eligible couples filing jointly would receive an average of $425, while the nearly 48,000 single filers would receive an average of $297, according to the Department of Treasury.
Murphy’s administration has said it could begin to issue rebates in July.
At $319 million, these tax rebates are the biggest tax relief proposal announced Monday.
Additional proposals included in Murphy’s budget that now enjoy support from Sweeney and Assembly Speaker Craig Coughlin, D-Middlesex, would expand the Child and Dependent Care Credit and the Earned Income Tax Credit.
The changes to the child care credit, which raise the household income limit to $150,000 and make the credit refundable, would make eligible more than 80,000 new families and increase the average credit for households with less than $20,000 in income by $110.
The expanded earned income tax credit will allow some 20,000 workers between the ages of 18 and 21 and 70,000 workers who are 65 an older and without dependents to claim the credit.
More than 53,000 peacetime veterans will become newly eligible for a $250 property tax deduction, in keeping with a 2020 voter referendum. Only honorably discharged wartime veterans have been eligible for the tax deduction.
Sen. Paul Sarlo, chairman of the Senate Budget and Appropriations Committee, said last week lawmakers hope to introduce an appropriations bill Monday and could take it up in committee within a day or two. Details of that agreement have been scarce.
Murphy, an avowed progressive, was often at odds with the more moderate leaders of the Democratic-controlled state Legislature during his first two years in office. Top lawmakers twice blocked his plans for a millionaires tax, pushing the state to the brink of a shutdown in each of his first two budget seasons.
But the governor and legislative leaders came to an agreement in the fall to raise taxes on high-income taxpayers in exchange for income tax rebates to help low- and middle-class households cope with the pandemic’s economic fallout.
Now, the two sides are once again working to avoid conflict in an election year. Both Murphy and all 120 seats in the Legislature are on the ballot.
Murphy’s February budget proposal would have the state spend down billions of dollars in reserves to finance a record pension payment, a $578 million increase in school funding and two years of tuition-free college for students from low-income families. Murphy, Sweeney and Coughlin are said to be working off of that blueprint.
Thank you for relying on us to provide the journalism you can trust. Please consider supporting NJ.com with a subscription.
Samantha Marcus may be reached at smarcus@njadvancemedia.com.
Brent Johnson may be reached at bjohnson@njadvancemedia.com.