Budget Breakdown: Everything You Need to Know About the FY 2021 State Budget

In the midst of a public health crisis, New Jersey is setting an example for the nation to follow.

Published on Oct 8, 2020 in Tax and Budget

New Jersey’s recently enacted $32.7 billion budget is an anomaly in many ways given the extraordinary circumstances under which it was crafted. Covering a 9-month period, it relies on borrowing billions of dollars through a federal loan program to avoid deep cuts and stay on track with pension payments. It raises taxes on those who actually prospered during the pandemic 一 the state’s wealthiest individuals and most profitable corporations. It advances equity by repealing a racist policy in the state’s cash assistance program and by expanding a tax credit for low-income workers and their families. And it puts aside a healthy surplus in case the state gets slammed by a second wave of COVID-19.

Some of NJPP’s most important policy recommendations made it into this year’s budget as a progressive response to tough times: raising revenue, providing support to those who need it the most, and expanding investments in health care and education. In the midst of a public health crisis, New Jersey is setting an example for the nation by heeding lessons learned from the Great Recession.

A Fairer Tax Code

Millionaires Tax  — With a Caveat
New Jersey’s tax code just got more progressive with the creation of a new tax bracket for the state’s wealthiest earners. Income over $1 million per year is now taxed at 10.75 percent; this is estimated to generate over $400 million annually. However, a rebate program for 800,000 families earning less than $150,000 in annual income will largely eat up the new revenue gained starting next fiscal year.

Corporate Business Tax Surcharge
After receiving a windfall from the 2017 federal tax cuts, successful corporations will continue to pay a 2.5 percent surcharge on the corporate business tax to help fund critical programs that all New Jerseyans rely upon. This surcharge will generate over $200 million in new revenue per year through Fiscal Year 2023.

Health Maintenance Organization (HMO) Tax
The HMO tax will increase a state assessment on certain health insurance premiums from 3 to 5 percent, which will generate $107 million to supplement funding for charity care. Most of these premiums are tied to Medicaid plans that will draw down this increase with federal matching dollars.

Health Insurance Assessment
While technically passed before the budget deadline, this revenue raiser replaces the recently repealed federal fee on health insurance companies that was meant to help fund the Affordable Care Act (ACA). The state will collect 2.5 percent on net premiums of individual and large group plans, raising roughly $200 million in new revenue. Funds will support health insurance affordability measures, including the reinsurance program and additional state subsidies on the new state exchange for those with incomes below 400 percent of the federal poverty level.

Important Investments

Maintaining Pension Payments for Retired Public Workers
The retirement fund continues on its pathway toward stability with a $4.7 billion state pension contribution. Despite the fiscal challenges, New Jersey chose to make this contribution 一 the largest in the state’s history 一 because postponing or reducing it meant risking a total collapse of the retirement system.

Property Tax Relief
The final budget restores $500 million in funding for two property tax relief programs geared toward vulnerable homeowners.The Homestead benefit program provides 580,000 seniors, disabled, or low-income homeowners with a credit on their property tax bill. The Senior Freeze program reimburses eligible seniors and people who are disabled for property tax increases and mobile home park site fees.

Tax Credits for Working Families
The Earned Income Tax Credit (EITC), one of the state’s most effective anti-poverty measures, increases from 39 to 40 percent of the federal EITC level, marking the final stage of a three-year phase in. Further, the minimum age requirement for workers who are not raising children at home drops from 25 to 21 years old, increasing the after-tax earnings of up to 58,000 low-paid young workers. This eligibility expansion is estimated to add up to $12.1 million to the state and local economies.

Helping Students Cope and Excel
From K-12 to college, public schools across the state will receive their rightful state aid as required by the school funding formula. This budget also restores $15 million in funding for the School Linked Services Program, which provides mental health treatment services to students; this investment is critical as students continue to struggle with mental health issues caused and/or compounded by the ongoing pandemic. Community college funding was also restored in the budget deal, guaranteeing $25 million in tuition aid.

Keeping Families Together
This year’s budget expands funding for free legal counsel for New Jersey immigrants in detention. While this funding will only meet a fraction of the need, this increase, from $3.1 million last year to $6.2 million this year, substantially expands access to representation and due process.

Maintaining Health Care Access
New Jersey will maintain state support for medical care through Medicaid, a sorely needed move as enrollment numbers have skyrocketed due to the loss of employment insurance during the pandemic. The Charity Care program, which supports hospitals treating uninsured and underinsured residents, and the Graduate Medical Education program, which supports teaching hospitals, also maintained funding in the budget deal. It’s good to see New Jersey prioritize access to health care and improved outcomes as we recover from the pandemic.

Addressing Child Poverty
New Jersey’s budget takes a major step forward in dismantling a harmful, racist policy with the permanent repeal of the “family cap” in the state’s Temporary Assistance for Needy Families (TANF) program. The family cap, which originated in the Garden State in 1992, prohibits recipients of Work First New Jersey cash assistance from receiving additional per-child assistance if they choose to have another child. This coercive law — meant to reduce pregnancies in low-income families through punishment, rather than increased resources — only pushed families deeper into poverty. Still in place in 13 states, the policy was effectively dropped from Governor Murphy’s 2019 and 2020 budgets. The signed law makes the change statutorily permanent.

Expanding Environmental Justice
The final budget avoids a $5 million cut, as proposed in the Governor’s original budget proposal, to the Lead Hazard Remediation Fund. This fund supports the removal of lead-based hazards in homes and schools, which harm children’s lifelong health, education, and developmental, especially for those exposed at a very young age. These hazards are generally higher amongst children of color living and learning in older buildings. The budget also dedicates $60 million for the replacement of lead service pipe lines, a small portion of the projected price tag of $2 billion, according to the Department of Environmental Protection.

Supporting Energy Efficiency
Consumers who purchase mid-range electric cars and trucks will receive rebates from the state through the Clean Energy program, which received $23 million in funding in this year’s budget.  However, the budget also diverts $100 million from the Clean Energy Fund ($60 million to NJ Transit and another $40 million to the General Fund), which reduces energy efficiency programs for homeowners and low-income households.

Improving Transportation
Significant federal help — $1.4 billion — was provided to NJ Transit through the CARES Act. This aid helps to offset losses due to lower ridership during the height of the COVID-19 outbreak. The state-owned system is also expected to receive a subsidy of $386 million using borrowed funds.

Budgeting Best Practices

New Borrowing Instead of Harmful Cuts
New Jersey lawmakers have tapped into the new federal borrowing program to help address revenue shortfalls brought on by COVID-19 without resorting to austerity measures. This borrowing also allows the state to fund long-term obligations like the state’s underfunded pension system. With extremely low interest rates, any borrowing approved by the legislative committee will allow New Jersey to manage immediate cash flow problems until the economy begins to improve. Should more federal aid be available to states in the near future, New Jersey could fast-track the repayment schedule to lessen the state’s debt load and alleviate concerns about its widening structural budget deficit.

Big Surplus
The budget’s surplus of $2.5 billion, the largest in over a decade, has been set aside as an insurance policy against any economic damage from a potential second wave of COVID-19. Should any surplus funds remain at the end of the fiscal year, half could then be deposited into the state’s empty rainy day fund for future emergencies.

What’s missing

Repeal of Christie-era Tax Cuts
With economic projections showing a sluggish rebound, New Jersey can’t depend on economic growth alone to make up the difference once borrowed dollars are gone and debt service payments come due. Recapturing over $1 billion in lost revenue by repealing two key tax cuts must remain on the table. New Jersey must fix how inherited wealth is taxed by either bringing back the estate tax or reforming the state’s inheritance tax. The repeal of the 2016 sales tax cut, which left a $600 million hole in the state budget every year, must also be prioritized.

Full Expansion of Tax Credits for Workers
The Earned Income Tax Credit (EITC) still excludes far too many low-paid workers in New Jersey. State lawmakers should further improve access to the credit by expanding it to workers who file taxes using an Individual Taxpayer Identification Number (ITIN) and eliminating the minimum and maximum age thresholds altogether. In the absence of a federal EITC for ITIN filers and childless workers under 25 and over 64 years old, the state should also increase the credit amount for these groups from 40 percent to 100 percent of the federal credit.

Economic Relief for Immigrant Families
More than six months after the onset of COVID-19, over half a million New Jersey residents are still without economic relief. Unlike those who qualify for publicly funded programs like unemployment insurance and federal stimulus payments, many immigrants have been left behind. Despite months of advocacy by affected workers, the final budget neglects to include any relief for these New Jersey workers and their families.

Addressing Deep Poverty in a Pandemic
Enrollment in cash assistance programs have increased due to the pandemic-induced economic crisis, yet the final budget fails to reflect that. The benefit level for families receiving assistance is flat funded, while overall state funding for Work First New Jersey benefits was cut. State lawmakers have defended the funding cut with the argument that federal funds can fill that gap. However, it is unclear whether federal dollars will be sufficient to cover the increased number of residents enrolling in poverty alleviation programs.