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Murphy proposes $44.8B budget that includes first full pension payment since 1996

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02/23/2021 02:53 PM EST

New Jersey Gov. Phil Murphy on Tuesday unveiled a $44.8 billion spending plan for fiscal year 2022 that imposes no new taxes or fees and makes the state’s first full payment to its notoriously underfunded public pension system in a quarter century.

The proposed budget increases spending by several billion dollars, the result of better-than-expected revenue projections and the Democrat-controlled Legislature‘s approval last year of $4 billion in borrowing. The spending plan also includes an ending surplus of $2.19 billion as well as tax rebates of up to $500 for hundreds of thousands of low- and middle-income families.

“This is the time for us to lean into the policies that can fix our decades-old — or in some cases centuries-old — inequities. It is the time for us to also lean into the economic policies that will not just get us through the remaining months of the pandemic, but which will supercharge our reemergence from it and the recovery that awaits on the other side," Murphy said in a pre-recorded budget address at the Trenton War Memorial. "Most of all, this is the time to move New Jersey forward. And that is what this budget does."

Budgeting during the pandemic has been fraught with unpredictability. Administration officials repeatedly said revenue forecasting would be difficult given the economic uncertainty, and maintained the borrowing was necessary to plug anticipated gaps in revenue.

Republicans, however, warned the borrowing would saddle the state with debt for decades to come and accused the first-term governor of over-estimating losses incurred by the pandemic.

The better than expected revenue estimates are enabling Murphy, a progressive Democrat who’s seeking reelection this year, to make the state's first full pension payment since 1996. New Jersey’s pension system is one of the worst funded in the country and previous administrations — both Democrat and Republican — have shorted payments, forcing subsequent increases in contributions to keep the system solvent.

Both Fitch Ratings and S&P Global Ratings downgraded New Jersey’s credit rating in 2020, in part because of the state’s outsized pension obligations.

“Making the payment is keeping our word to hundreds of thousands of retirees who depend on their pensions. It means keeping our word to families all over our state who were made promises by governors who then turned their back on them,” Murphy said. “We did it without attacking the middle class and slashing services, the way we always knew was possible, but were always told was impossible.”

The pension payment will cost the state $6.38 billion. Treasurer Elizabeth Maher Muoio told reporters before Murphy’s budget address that had the state made full payments on time, New Jersey would have had to pay just $750 million into the system last fiscal year.

In other areas, Murphy is calling for a $578 million increase in school aid, bringing total funding to nearly $9.3 billion. According to the administration, this is the most the state has ever invested in K-12 aid. The governor is also resurrecting a program that would allow low-income students to attend their first two years at four-year public colleges and universities tuition free.

In addition, the budget includes a one-time, $10 million increase to hospital charity care, which covers costs related to the uninsured, while also earmarking $9 million for the state’s Level 1 trauma centers — University Hospital, Robert Wood Johnson University Hospital and Cooper University Health Care — which coordinated Covid-19 response efforts for the last year. There are also increases for the state’s Medicaid budget and reproductive health initiatives, a major priority for First Lady Tammy Murphy.

At the same time, Murphy is proposing a $100 million cut in state aid to NJ Transit, instead relying on the funding the agency received as part of the federal coronavirus aid package. The budget plans for a nearly $100 million decrease in the agency’s capital-to-operating transfers, which advocates and the agency’s board members have roundly criticized for years.

Muoio told reporters the initial economic impact from the pandemic was far worse than what the state experienced during the Great Recession.

The revenue picture brightened considerably, she said, due to unprecedented federal stimulus, fewer than expected pandemic-related restrictions and the fact that middle- and high-income households are recovering fairly quickly.

That there are no new taxes or fees in the budget isn’t a surprise as the governor — along with the entire 120-member Legislature — enters a reelection year. Still, Republicans likely will continue to paint Murphy as a tax and spend liberal as they try to win back the governor’s office in November.

"Let's be perfectly clear. Governor Murphy's election-year budget is about protecting one job, his own,” Sen. Steve Oroho (R-Sussex) said in a statement. "Senate Republicans have been warning since last June and July that the Murphy Administration was peddling a false doom-and-gloom financial picture despite clear evidence that New Jersey's finances had rebounded quickly as lockdowns eased.”

Last year’s budget negotiations were dramatic and arduous, and the state ended up extending the budget deadline to September, and enacting a “mini-budget” in its place.

Murphy got his long sought after millionaire’s tax last year after brokering a deal with Assembly Speaker Craig Coughlin that will provide rebates for hundreds of thousands of New Jersey families whose single-parent incomes are less than $75,000, or $150,000 for two-parent households. The maximum benefit for the program is $500; joint filers are expected to receive $425 on average. The checks will be delivered as part of the FY 2022 budget.

The governor is also proposing an expansion of the earned income tax credit eligibility for senior citizens without dependents, as well as an expansion of a new property tax deduction for veterans who served during peacetime.

Murphy and the Legislature must reach an agreement on the budget by June 30.

Murphy said this is a budget “many thought could never be written.”

“For the past three years — since the moment I swore my oath as governor — we have worked to secure the full promise of our state for every resident and every family,” he said. “New Jersey today is a vastly better place for countless middle-class and working families. We’ve slowed the growth of property taxes more than ever, health care is more accessible and transparent, our schools are better funded, child care is more affordable and our economy is gaining strength as it continues to be more equitable.”

— Carly Sitrin, Samantha Maldonado and Sam Sutton contributed to this report.

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