As anticipated, the governor yesterday vetoed two temporary tax increases, eliminated other revenue changes proposed by the legislature, reduced the coming year’s pension contribution by 70 percent to $681 million and enacted a $32.5 billion budget with a $388 million surplus for the budget year that begins today.
The governor’s vetoes put to rest the question of how New Jersey would close an unexpected $2.8 billion two-year budget gap – at least for now (more on that in a minute).
The administration proposed cutting pension payments in the 2014 and 2015 budget, while the Democratic legislative majority suggested that the pension commitment made in 2011 should be kept for the stability of the pension system and the long term financial stability of the state.
To fund the full pension payment, the legislature’s budget included $723.5 million in new revenue from a three-year income tax increase for the 0.26 percent of taxpayers with income over $1 million and $389 million in new revenue from a one-year 15 percent surcharge on the corporate business tax. It also increased the income tax revenue estimate by $176 million to reflect the higher estimate of the Office of Legislative Services (while ignoring more than $200 million in lower OLS estimates for other taxes), added $75 million in revenue from “legal settlements” and added $175 million by suspended all payments from one of the state’s business tax subsidy programs (BEIP) for one year (for what it’s worth, these payments have not been cancelled – the state will still have to pay, just not this budget year).
Since the governor has the final say in the budget process (unless the legislature can override his actions with super-majorities) he used his authority to absolutely veto the increase in the income tax and the new CBT surcharge; and used his revenue certification authority to reduce the income tax estimate to reflect the administration’s lower estimate and to eliminate the $75 million in additional “legal settlement” revenue. But while the governor has the authority to reduce revenue in a legislature’s budget, he cannot add revenue, so the suspension of BEIP payments will stand.
But the 2015 budget isn’t fully resolved quite yet. Ultimately, the courts will decide whether or not the governor has the legal authority to cut the pension payments in the 2015 budget (the courts already gave the green-light to the 2014 cut). Once the ruling comes down – particularly if the decision invalidates the cuts – a significant level of additional budget adjustments will likely have to be made.
Still, even with the court case in limbo, New Jersey has a balanced 2015 budget on the books. Of course, this does not mean the state’s budget crisis is over. In fact, most of New Jersey’s structural budget issues continue to be largely ignored and will simply be kicked down the road to 2016, where they will become even more pressing.
Beyond the vetoes of the tax increases, the governor shot down a number of important priorities for New Jersey’s working- and middle-class families.
• The reversal of the 2010 benefit cut to the Earned Income Tax Credit for working poor families was vetoed. By restoring the credit to 25 percent of the federal benefit, about $56 million in vital benefits would have been provided this coming year to half a million New Jersey households. By failing to restore the credit, these households will enter their fifth year of a de facto tax increase and will have missed out on between $250 and $300 million of tax credits.
• The increase of heating-assistance payments to low-income households in order to avoid a $170 million annual federal cut in nutrition benefits was vetoed. This affects approximately 160,000 low-income households. However, the summary text with the veto suggests this change may be implemented through separate legislation or administrative action.
• The expansion of eligibility for Tuition Aid Grants to students eligible for in-state tuition rates under the New Jersey DREAM Act was vetoed.
• The requirement that about $400 million in Homestead Benefit property tax relief payments be made in August 2014 instead of May 2015 was vetoed. With the veto, nearly 1 million eligible homeowners will now have to go a total of 21 months without receiving any benefits (assuming that the payments are actually made when promised).
• In addition, $3.5 million in state funding for Medicaid/NJ FamilyCare outreach and enrollment (which would have generated $3.5 million in federal matching funds), $7.5 million for family planning services and a $5 million increase for Legal Services of New Jersey were all vetoed.
The budget did, however, maintain these spending increases added by the legislature:
• $13.2 million for social service community providers to help maintain staff and increase wages
• $21 million for cancer programs
• $11 million for payments to nursing homes
• $5 million for vocational rehabilitation services, including extended employment (center based jobs), extended transportation services and long-term follow along services
• $3 million for a new “county vocational school district partnership grant program”
• $1.565 million for the state’s Educational Opportunity Fund
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