What did Murphy do on taxes and the budget?

Credit: (Edwin J. Torres / NJ Governor’s Office; CC BY-NC 2.0)

The size of New Jersey’s annual budget has grown by more than 30% since Gov. Phil Murphy took office in early 2018, far exceeding the rate of inflation.

To help support the surge in spending, Murphy worked with state lawmakers to increase several taxes, including those levied on wealthy individuals and top-paying businesses.

But the state has also seen tax revenues rise in areas where rates remained unchanged during Murphy’s tenure. And much of the sharp increase in spending helps fund increased aid to K-12 schools and record public pension contributions after years of governors and lawmakers slashing those payments.

NJ Spotlight News takes a closer look at some of the ways Murphy, a first-term Democrat seeking re-election, has sought to tackle New Jersey’s many challenges. Today’s episode examines his work on the state budget, taxes, and related issues. Other issues include public education, social justice, the environment as well as healthcare and COVID-19.

Taxes: Murphy has had a turbulent four years in power when it comes to state taxes, and for some his efforts have resulted in lower net taxes. These include thousands of low-wage workers who qualify for the state’s expanded earned income tax credit. Recent changes to the Homestead Property Tax Relief, which is offered to thousands of seniors, people with disabilities, and low- and moderate-income homeowners, have also made these benefits more generous. The state income tax deduction for local property tax bills was also expanded during Murphy’s tenure. And earlier this year, among other tax breaks for the election year, the state budget funded a new parental income tax refund of up to $ 500.

But it’s a whole different story for top state incomes, who are still relied on to fund a disproportionate share of income tax, the biggest source of income for the annual budget. Murphy raised New Jersey’s top tax rate in two steps, dropping the rate from 8.97% to 10.75% for all income over $ 1 million. A surtax on taxes paid by the state’s highest-paying businesses was also established – and then made permanent – during Murphy’s tenure. And despite its efforts to better fund K-12 schools and promote shared services at the local level, average property tax bills continue to rise in New Jersey, hitting a low. record $ 9,112 in 2020.

Credit rating: Having a bad credit rating can damage a state’s overall reputation, but it can also lead to increased borrowing costs which are ultimately passed on to taxpayers. By the time Murphy took office in early 2018, New Jersey had experienced a series of downgrades from several major Wall Street rating agencies during the state’s slow recovery from the Great Recession of 2007- 2009. The downgrades collectively left New Jersey with one of the lowest debt ratings of any state in the United States.

Last year, the state’s credit rating suffered a few more hits during the downturn triggered by the coronavirus pandemic, as two of the rating agencies decided to downgrade the state’s debt rating by one. notch each. And despite some outlook revisions signaling more recent progress on budget matters during Murphy’s tenure, New Jersey’s credit rating itself has not been raised, and it remains inferior in the eyes of two major rating agencies today until before Murphy took office.

Structural budget gaps: Rating agencies have long been concerned about New Jersey’s penchant for using one-time sources of funding to cover annual obligations, a practice that creates an immediate structural budget gap before the next fiscal year. During his early years in office, Murphy began to make strides in this area, as several taxes were raised to help bring annual income closer to annual expenses.

However, Murphy’s budget for the current fiscal year plans to reduce a portion of the state’s budget reserves to cover a large increase in annual appropriations year-over-year, instead of using only sources of funds. recurring income to support these expenses. Recent pledges to increase allocations for things like K-12 schools and civil service pensions have also rekindled concerns about the capacity of the state to close its structural budget deficits in the future. Even revising New Jersey’s credit outlook to “positive” in August, analysts at S&P Global Ratings warned of a “large structural operating deficit,” which they said was nearly 10% of the total appropriations for the financial year 2022.

Budget transparency: Throughout his tenure, Murphy applied a series of budget practices that won decent ratings from groups like the non-partisan Volcker Alliance, which regularly ranks states based on their openness and transparency. These practices include posting important government budget documents online and writing and publishing an annual report on tax expenditures.

However, during Murphy’s tenure, concerns about the budget approval process were voiced by many Republicans and supporters of progressive policies. They fear that the public’s role in the process may be methodically diminished, including earlier this year, when lawmakers drafted and sent Murphy a final appropriations bill – with hundreds of millions in additional spending – all of it. in a few days. Murphy and his team engaged in last-minute budget negotiations with legislative leaders, behind closed doors, and he ultimately signed the expense bill rushed forward unchanged.