Topic Category: Tax and Budget

The State Budget Must Support Those Harmed Most by the Pandemic

Posted on by Sheila Reynertson

The following testimony on the FY 2022 state budget was delivered to the Assembly Budget Committee on March 10, 2021.

Good morning, Chairwoman Pintor Marin and members of the Budget Committee. My name is Sheila Reynertson and I am here today representing New Jersey Policy Perspective (NJPP) and the For The Many budget coalition.

The most important priority for the FY2022 budget must be supporting those who were disproportionately harmed by both the public health crisis itself and the economic fallout that continues to this day. Black women, Hispanic/Latinx women, essential workers, immigrant workers, low-income households — these are the residents who were immediately at higher risk of contracting the deadly virus, the most likely to lose their jobs, and typically the last to recover from an economic downturn.

It may have been convenient to avoid these glaring disparities before, but the ferocious nature of the pandemic exposed all of it. We cannot turn away from the challenge and opportunities to advance racial and gender equity through the tax code and through sustainable programs that are proven building blocks of a strong state economy.

The FY2022 budget as proposed by Governor Murphy goes a long way to address the uneven impact of this past year in several commendable ways that will make an immediate difference in the lives of children, students, struggling families and seniors. Again, we strongly agree with this approach. Invest in the people and the economy will recover. Invest in the most vulnerable people and the economy will grow stronger than ever.

We support the health care investments focused on low-income families like subsidies for health insurance, a full year of Medicaid coverage after childbirth, funding for reproductive health care services for those without a path toward health insurance, and securing health insurance for every last child in the state.

We support the EITC expansion proposal to include 70,000 low-income, senior workers without kids and making the Child and Dependent Child Care Tax Credit fully refundable so those who need it the most can access it. We also support the state’s role in keeping families together with the increase in funding for legal representation for immigrants facing detention or deportation.

However, it is unfathomable that financial assistance for immigrants has been excluded from pandemic relief. A solution must be found to protect these vulnerable households from becoming impoverished. New Jersey can’t simply turn a blind eye to one its greatest assets: our immigrant communities. The EITC should also be increased and expanded to include immigrants as ITIN filers, low-income workers without children, and to those between the ages of 18 and 21.

Of course, we support the full pension payment a year ahead of schedule, a bigger allocation into the school funding formula and the expansion of pre-K education to another 1,800 children in 25 districts. The $100 million in new funding for higher education is exactly the type of building blocks of a state economy that we have long advocated for.

But to ensure adequate funding for years to come we remind the Assembly budget members to keep an eye on the not-too-distant future. Once the borrowed dollars have been spent and the federal aid is gone, New Jersey can’t expect economic growth alone to make up the difference. And certainly not with corporations looking to cash in their tax subsidies.

The topic may be getting a pass this year, but new sustainable revenue must be on the table before so we can both fund these increased investments well into the future and pay off the billions of dollars that the state just borrowed. New Jersey has a decision to make and we can’t afford making the wrong one: We can either turn a blind eye to the looming shortfalls in future budgets that will put millions of residents at risk of falling further behind or we can recommit to creating a modernized and equitable tax code to ensure a strong state recovery for everyone, especially those hit hardest by the events of the past year. Thank you.

Gov. Murphy’s FY 2022 Budget Address: 5 Key Takeaways

Posted on by Louis DiPaolo

With the nation still reeling from the COVID-19 pandemic, Governor Phil Murphy unveiled a state budget proposal that once again rejects austerity and makes major investments in New Jersey’s economic recovery. The proposal, buoyed by borrowed funds and stronger than expected revenue collections, includes significant funding for public health, schools, transit, and economic support for workers and businesses alike — all key drivers of strong communities and a strong economy. With a full pension payment, which would be the first since 1996, the budget also protects the retirement security of nearly 800,000 public workers and looks to shore up one of the state’s biggest financial obligations.

Here are key takeaways from the governor’s address:

1. All Kids Health Coverage

Universal health coverage for all kids. If that sounds like a big deal, it’s because it is. As it stands, there are approximately 80,000 uninsured children in New Jersey, but that would change under Governor Murphy’s proposed budget. With Black and Latinx/Hispanic children representing three-quarters of those uninsured — during a health crisis that has catastrophically and disproportionately harmed Black and Latinx/Hispanic families — policies that promote health equity are necessary for a strong recovery.

Providing affordable coverage to all children works hand-in-hand with the reopening of schools, keeping workers and their families safe, and the promotion of the positive health and economic outcomes tied to childhood health conditions. By funding All Kids Health Coverage, the governor’s budget provides protections for children and families so that they may not only survive the current crisis, but also have the resources to thrive in the long-term.

Other big health care investments include $19 million for a new Reproductive Health Care Fund, an extension of Medicaid coverage for postpartum care to a full year, and an additional $25 million to state subsidies on the state-based exchange (GetCoveredNJ), which boosts enrollment and keeps costs low.

2. Tax Credits for Low-Paid Senior Workers

The governor’s budget proposal expands who can qualify for the Earned Income Tax Credit (EITC), a powerful tool for providing income support to low- and moderate-income families. Currently, workers who do not have dependent children at home are only eligible for the federal EITC if they are between the ages of 25 and 64. This year’s budget proposal removes the upper age limit for workers without dependent children, increasing the after-tax income of thousands of New Jersey’s low-wage seniors who earn less than $15,980 per year.

While removing the maximum age threshold is a welcome change, there is much more the state could do to improve access to the EITC. Lawmakers could remove the minimum age threshold, allowing more young workers to benefit from this important program. Similarly, lawmakers could provide a more meaningful boost for more families by raising the benefit level for childless workers. Further, lawmakers should extend the credit to include all tax filers, regardless of where they were born. Right now, the EITC explicitly excludes workers who do not have a social security number, even if they file taxes using an Individual Taxpayer Identification Number (ITIN). By removing these barriers, lawmakers can help more New Jersey residents cover the cost of basic needs and provide a much-needed boost for state and local economies.

3. Child Care Tax Credit Expansion

The Governor’s proposed budget expands eligibility of a vital tax credit for working parents — the Child and Dependent Care Tax Credit (CDCC) — and boosts benefits for the state’s lowest-income families. This credit is available for working parents with kids under age 13 and for workers supporting parents or other dependents. It helps offset child care expenses, providing critical relief, but it is available only to a narrow set of families. This leaves working families with the lowest earnings with no benefit at all. By making the credit fully refundable and expanding the eligibility income cap from $60,000 to $150,000, the proposed budget substantially expands the reach of the program.

4. Full Pension Payment (One Year Early!)

Stronger than expected revenue collections, paired with $4.5 billion in borrowing from last year, has allowed Governor Murphy to make a bold proposal: a full payment into the state’s pension system, one year ahead of schedule. This would be the first full payment made by the state since 1996 — a stark reminder of New Jersey’s long history of raids on the pension fund by past administrations of both parties. The proposed payment, at $6.4 billion, is approximately $600 million more than what the Murphy administration intended to make as part of a scheduled phase-in. Now, one of the country’s most underfunded pension systems is on the road to solvency without shortchanging approximately 800,000 public workers. Here’s hoping credit rating agencies will take notice and reward New Jersey’s financial improvements with credit upgrades.

 5. No Pandemic Relief for Immigrant Workers

While the proposed budget includes several critical investments that will support workers and families across New Jersey, many immigrants are once again pushed further behind. New Jersey’s immigrant communities have faced disproportionate harm from the current health and economic crises. Unlike most other New Jersey residents who have access to support, however, certain immigrants are excluded from programs like federal stimulus payments and unemployment insurance when they fall on hard times. Nearly one year since the onset of the COVID-19 pandemic in New Jersey, state lawmakers have yet to take action to address this gap. To ensure strong recovery from the current crisis, is it critical that all New Jersey residents have access to financial support needed to cover the cost of basics.

Gov. Murphy’s Budget Makes Big Investments to Fund the Pandemic Recovery

Posted on by Brandon McKoy

Earlier today, Governor Murphy unveiled his FY 2022 state budget. The proposal makes critical investments in public health, education, support for working families, and much more. In response to the budget address, New Jersey Policy Perspective (NJPP) releases the following statement.

Brandon McKoy, President, NJPP:

“In the face of an ongoing public health crisis, the governor’s budget meets the needs of the moment with big investments in public health, housing, schools, and much more. These are the building blocks of strong communities and a strong economy, both during normal times and especially now during a pandemic.

“State government has an important role to play in New Jersey’s economic recovery, and Governor Murphy’s budget recognizes that reality. Learning the lessons of the past — specifically that investments made today will make the difference between a sluggish recovery and a strong one — the budget proposal rejects austerity and spending cuts that only served to fuel racial and economic disparities. Yes, the budget is supported in part by borrowing, but those funds are buffered by strong revenue collections that are being invested in smart, fiscally responsible areas with long-term benefits. This is a marked difference from budgets of the past that borrowed funds to simply support regressive tax cuts for the wealthy and well-connected.

“While this budget has a lot in it to celebrate, it falls woefully short in one key area: it lacks pandemic relief for undocumented residents. This is a frustrating development that will harm our immigrant neighbors and loved ones who are suffering through the pandemic more than most. Immigrants are an integral part of New Jersey’s communities and economy, and while other states have prioritized critical pandemic relief, we continue to fail on this important front. We look forward to working with the Legislature to fix this in the final budget. It’s imperative that no one is left behind in New Jersey’s pandemic recovery.”

New Jersey Policy Perspective (NJPP) is a nonpartisan think tank that drives policy change to advance economic, social, and racial justice through evidence-based, independent research, analysis, and advocacy.

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For The Many NJ Calls on Gov. Murphy and Lawmakers to Fund the Recovery in the FY 2022 Budget

Posted on by NJPP Staff

February 22, 2020 – Earlier today, a diverse group of advocates and community leaders from across the state called on Governor Murphy and legislative leaders to pass a budget that fully funds New Jersey’s pandemic recovery. Members of the For The Many NJ coalition convened virtually on Zoom and Facebook Live to stress the need for bold public investments in public health, education, housing, and more in response to the economic downturn brought on by COVID-19.

“A strong recovery requires a steady drumbeat of investments to keep the economy going,” said Sheila Reynertson, Senior Policy Analyst at New Jersey Policy Perspective (NJPP). “In the face of an ongoing public health crisis, the state’s primary obligation must be to respond to the demands of the moment, not short-change them. Policy decisions made today will make the difference between a sluggish recovery and a strong one.”

Members of the coalition pointed to New Jersey’s sluggish recovery from the Great Recession and warned lawmakers against trickle-down tax and budgetary policies that stifle economic growth.

“Our spending requests run the gamut from housing to utility assistance, to an expansion of the Earned Income Tax Credit (EITC) and child tax credits, to health coverage for all children and direct cash assistance for working immigrants excluded from COVID relief,” said Dena Mottola Jaborska, Associate Director of New Jersey Citizen Action. “It’s a large investment package, but one necessary to ensure a recovery for all, the only kind of recovery that can be effective — a recovery that invests from the bottom up and not the other way around.”

After the last recession, New Jersey responded with tax cuts for corporations and big businesses, and spending cuts that damaged the state’s ability to respond to COVID-19.

“New Jersey already knows what austerity life feels like,” said Sue Altman, Executive Director of New Jersey Working Families. “It feels like cuts to beloved school programs. It feels like rickety, dangerous bridges and potholed highways. It feels like closed parks and dirty air. It feels like layoffs and cut wages for public workers. We are not going down that road again. New Jersey’s best days can be ahead of us if we reimagine and reinvest in an economy that works for us all. Not just the chosen few.”
Members of For The Many NJ stressed that the last decade of spending cuts necessitate new investments, especially in public health infrastructure.

“If the coronavirus pandemic taught us anything, it is that we can no longer turn a blind eye to infectious disease outbreaks,” said Debbie White, RN, President of Health Professionals and Allied Employees (HPAE). “We have come to understand that investment in New Jersey’s public health infrastructure and in the oversight of New Jersey’s health care systems must become our paramount priority.”

Advocates for strong public schools joined For The Many NJ to highlight the chronic underfunding of public education, including higher education. Schools need resources now more than ever to adapt to the pandemic and ensure places of learning are safe for students and staff alike.

“Members of the Our Children/Our Schools network are united in affirming the need to preserve and expand resources in every school district to allow all students and schools to re-emerge stronger from the current public health and economic emergency,” said Greg Stankiewicz, Statewide Coordinator of the NJ Community Schools Coalition, an OC/OS member organization.

Professor Todd Wolfson, President of Rutgers AAUP-AFT echoed those sentiments, saying, “On the heels of the pandemic it is time for New Jersey to make a deep investment in public higher education. We are calling for a New Deal for Rutgers and Higher Education that prioritizes debt-free education for New Jersey residents, Support for first-generation and students of color, and a diverse, world-class faculty for our colleges and universities.”

The coalition also called for the state to support New Jersey’s 500,000 undocumented immigrants families, who have been almost entirely excluded from state and federal pandemic relief. Providing relief to immigrant families is not only the right thing to do, but good economic policy.

“Immigrants makeup nearly 1 in 4 of New Jersey residents and have overwhelmingly served on the frontlines of the essential workforce, service industry, and care economy,” said Amy Torres, Executive Director at the New Jersey Alliance for Immigrant Justice. “Immigrant workers were excluded from federal relief, but New Jersey’s steep disparities in wealth inequality existed long before the COVID-19 pandemic. That’s why the Alliance is proud to stand alongside the For The Many coalition to demand an equitable budget where wealthy families and large corporations pay their fair share.”

Latino Action Network President Christian Estevez called for a recovery for all that leaves no one behind, saying, “State investment in the capacity of Hispanic Serving Community Based Organizations with proven records of conducting successful outreach is critical to an equitable response to the COVID-19 crisis that does not leave the Latino community behind. Latino families are over-represented in overall COVID-19 infections and deaths and woefully underrepresented in those that have access to vaccines.”

For The Many NJ was quick to point out that, even before the pandemic hit, far too many New Jersey families were falling behind and in need of support, as evidenced by the latest ALICE report by United Way of Northern New Jersey. In 2018, nearly four out of ten families in New Jersey were living in poverty or right above the party line but still unable to afford basic needs.

“The public health and economic crises of nearly a year have laid bare the injustices that fall disproportionately on low-income residents who are primarily Black and brown people and women,” said Anti-Poverty Network of NJ Executive Director, Renee Koubiadis. “New Jersey must continue to create tax fairness and justice that started with the passing of the millionaire’s tax last fall, by creating new sustainable revenue sources that can lay the foundation for comprehensive and just relief for those most impacted by the pandemic.”

Rev. Sara Lilja, Director of Lutherans Engaging in Advocacy Ministry, added, “Budgets are moral documents. How we, as a state choose to raise funds and spend dollars communicate our common priorities and shared values. In short, our actions and choices speak louder and clear. We must put families and those most vulnerable first in this budget!”

“Fair Share Housing Center of NJ stands in solidarity with our partners,” said James Williams, Director of Racial Justice Policy at the Fair Share Housing Center. “Our efforts for housing justice are tied directly to fiscal equality and transparency from our elected officials. More importantly, we look forward to Gov. Murphy’s continued support to fund the Affordable Housing trust fund.”

Advocates for the environment tied the state’s public and economic health to its environmental health.

“The budget is a statement of priorities, it sets the state’s moral compass. DEP’s 2020 Global Warming Response report recommends over 150 actions. They are critically needed to Fund The Recovery and address the overlapping health, economic, racial justice and climate crises we face,” said Amy Goldsmith, New Jersey State Director, Clean Water Action. “The resources are there — the Biden federal stimulus, new toll hike revenue, COVID-19 emergency bonding, millionaire’s tax, and corporate tax reform. Governor Murphy and the State Legislature must support working families and disadvantaged communities and ensure the wealthy and large corporations pay their fair share and create a just green recovery.”

Jeff Tittel, Director of the New Jersey Sierra Club, added “As New Jersey moves forward and comes out of the coronavirus pandemic, we need a budget that is fair. A budget that protects the environment and moves us forward. More importantly, we need a budget that is equitable, that closes tax loopholes, and stops subsidies and raids to critical funds. We cannot continue to raid critical funds for brownfields, clean energy, and more to balance the budget. We need to get money out there for clean energy. We also need a dedicated funding source for NJ Transit so that people can get to work. It is critical to fund and move New Jersey forward when it comes to green jobs, renewable energy, reducing greenhouse gases, protecting overburdened communities, and safeguarding the environment.”

“The time to end the raids on the Clean Energy Fund and move forward on dedicated funding for NJ Transit is in this budget cycle – the clean energy economy and mass transit needs this investment more than ever before,” said Doug O’Malley, director of Environment New Jersey. “Clean Energy Fund diversions hamper the transition to clean energy and these raids won’t solve NJ Transit’s capital budget deficit. We urge Gov. Murphy to use the FY 2022 budget to fulfill his pledge to end these raids and move towards dedicated funding for NJ Transit.”

To fund new investments, the coalition called on state lawmakers to close corporate tax loopholes, such as those in New Jersey’s combined reporting law, and the reverse ill-advised tax cuts of the past, like the recent micro-cent sales tax cut and the elimination of the estate tax. These changes alone would raise over $1 billion in recurring revenue.

Watch a recording of the press conference here.

For The Many is a statewide coalition of more than 30 organizations working collectively to expand funding for essential services and improve budget practices to adequately meet current and future needs, especially for communities that have been historically marginalized.

Tax Break on PPP Loan Expenses Will Cost New Jersey More Than $1 Billion

Posted on by Sheila Reynertson

In an unexpected windfall, New Jersey businesses that received federal grants through the Paycheck Protection Program (PPP) can now exempt the forgiven loan from state taxation and claim a deduction on expenses paid by the loan.

This unprecedented move would allow companies to receive a tax cut on both sides of the ledger – one for receiving the money, and another for spending it – costing New Jersey up to $688 million in lost personal income tax (PIT) revenue[1] and at least another $560 million in lost corporate business tax (CBT) revenue.[2] Of note and concern is the fact that this tax break is likely to disproportionately benefit white-owned businesses given the inequitable distribution of the original loans and difficulty that Black-owned businesses had in accessing the program.[3] Based on a sampling of PPP loans, more than 80 percent have been granted to white-owned businesses.[4] Black-owned businesses received less than 2 percent of the loans while 6.6 percent went to Hispanic-owned businesses, according to the Center on Public Integrity.

In light of the moral obligation to fund an equitable pandemic recovery, despite foreseeable revenue shortfalls in the not-so-distant future, lawmakers giving the green light to a $1.2 billion double tax cut on loan forgiveness raises serious concerns about the state’s ability to support other, potentially more urgent, needs.

Background

Last year, Congress created the Paycheck Protection Program, a large loan assistance program designed to help businesses and stabilize local communities during the COVID-19 crisis. So long as the loans were used for allowable business expenses like payroll and rent, the loan would be forgiven and converted to a grant.

Since expenses paid with PPP loans are exempt from taxation, the Internal Revenue Code (IRC) directed that they could not be deducted in calculating taxable income. In other words, PPP loan forgiveness was to be treated as tax neutral, which is standard practice.

Then, just days before the calendar year came to a close, federal legislation reversed that directive, granting businesses both tax exemption and deductibility of expenses covered by their PPP loans. This change turned PPP loan forgiveness into a net tax benefit. So, in addition to having wages reimbursed through forgiveness of the loan that paid for them, PPP recipients are now set to get a federal tax cut.

New Jersey plans to offer the same tax cut, even though it is under no obligation to do so. And the cost is staggering — more costly to New Jersey coffers than other tax breaks in the CARES Act and a larger amount than the projected revenue from the newly passed “millionaires tax” — because of how many PPP loans have been granted.

Conformity Matters

New Jersey businesses pay state taxes either through the corporate business tax code or the personal income tax code, depending on how they are incorporated. Each code regards the IRC differently.

The state’s personal income tax code does not use IRC as a starting point, and its treatment of loan forgiveness is already tax neutral. In other words, the forgiven loan is taxable, but the expenses associated with the loan can be deducted. A recent announcement by Governor Murphy changes this. Pass-through businesses with a forgiven PPP loan on the books can now avoid gross income taxation of the forgiven loan and be allowed to deduct associated payroll and other expenses as normal business expenses.

The state’s corporate business tax code already uses the IRC as a starting point, meaning the new federal treatment of PPP loan forgiveness will be automatically replicated at the state level. By choosing not to decouple from the IRC, New Jersey is on track to lose at least $560 million in revenue, based on the $6.9 billion in PPP loans granted to corporations in 2020.

The last-minute, bipartisan change at the federal level turned a tax-neutral program designed to protect jobs into a tax cut for businesses that received federal aid. But let’s be clear: that policy change does not mean that these businesses are entitled to receive an additional tax break here in New Jersey. The state has to affirmatively choose to do so, which it has, thus weakening its ability to fund other needs central to pandemic recovery. Worse yet, thanks to the racial inequities of PPP disbursement, it will inherently exacerbate disparities among businesses ravaged by the economic downturn.

End Notes

[1] Legislative Fiscal Estimate on S3234, December 28, 2020. https://www.njleg.state.nj.us/2020/Bills/S3500/3234_E2.PDF

[2] Based on $6.9 billion in PPP loans granted to NJ corporations in 2020.

[3] Boston Business Journal, PPP data shows Black-owned businesses received fewer loans, despite efforts, December 29, 2020. https://www.bizjournals.com/boston/news/2020/12/29/updated-ppp-data-shows-black-owned-businesses.html

[4] The Center on Public Integrity, Small Businesses Loan Data Includes Little About Race, July 2020. https://publicintegrity.org/health/coronavirus-and-inequality/small-business-loan-data-includes-little-on-owners-race-paycheck-protection-program/

For the People, By the People: New Jersey State Budget 101

Posted on by Marleina Ubel

Every year, New Jersey legislators make choices that shape our communities through the state budget. The budget reveals short-term and long-term priorities of the state and is, at its very core, a moral document. It is how we pool all of our resources together, mainly through taxes, to fund vital programs and essential services that benefit all of us, including public schools and colleges, highways, mass transit, public-health infrastructure, and the social safety net. Communities, programs, services, and lives depend on the state budget.

Yet, despite the importance of the budget, many New Jersey residents do not understand the budget document or process, as they are complicated and rarely transparent. There is also a significant lack of information about how changes in the budget help or harm specific programs and services that are important to the overall economic and social health of the state, or how those programs and services are funded ー or, in many cases, underfunded. This explainer demystifies the state budget, including where the money comes from and goes, how the budget is created, and how residents can be a part of the process.

The Budget: What is it?

The state budget is a formal declaration of where public funds will be allocated. It is also a piece of legislation known as the Appropriations Act, which is passed by the Legislature and signed into law by the Governor every year. As such, it determines whether taxes increase or decrease, which residents and businesses will shoulder those changes, and how the state will gain and distribute additional revenue. This is important because policies that govern our shared investments should ensure that all people, regardless of their race, gender, income, or address, get a fair shot at economic opportunity and financial stability.

The budget is drafted with input from the Governor, state departments and agencies, the Legislature, residents, and after reading this explainer, you!

Where Does the Money Go?

The New Jersey budget funds programs and services that directly benefit the lives of all 8.9 million residents across the state. Through the budget, the state provides aid to 1.37 million students in 584 operating school districts[i] and supports over 300,000 college students attending New Jersey’s 30 public universities and colleges.[ii] It funds salaries and pensions for almost 70,000 state employees[iii] who keep the state government running and provides aid to local municipalities (read: cities, boroughs, townships) so they can meet the unique needs of their communities. The budget also funds critical safety net programs for when families fall on tough times, and many other things we tend to take for granted, such as clean air and water, reliable transit infrastructure, enforcement of labor laws, and much more. It is difficult to find anything that is not touched by the state government.

The largest areas of the budget are education and health and human services, which includes needs-based programs for families with limited income like Social Security Insurance (SSI) and Temporary Assistance for Needy Families (TANF).[iv] The chart below outlines some of the major expenditures in the budget for Fiscal Year 2021.[v]

Given that Education and Health and Human Services have long been the state’s largest investments, it’s worth exploring some key program areas and how they are impacted by the budget.

Education

Education accounts for the largest percentage of state appropriations, or money dedicated for a certain purpose ー and for good reason. High-quality public schools are a building block of New Jersey communities, as education spending is fundamental to advancing equity, building a strong workforce, and promoting social mobility. There are almost 1.4 million children enrolled in New Jersey public schools, and the quality of their education determines the future prosperity of the state.[vi] State spending on education goes toward funding things like textbooks and other supplies for students, fee waivers for activities and testing for low-income students, special education accommodations, and salaries and pensions for teachers, counselors, nurses, and other staff. It also includes costs associated with keeping public schools safe places to learn that are free of asbestos, lead, and other contaminants.

While New Jersey is known for having some of the best schools in the country, the state has routinely underfunded its school aid formula — sometimes by as much as $1 billion each year.[vii] There have been some attempts to close this funding gap, but they have fallen short and the state is backsliding.[viii] Further, salaries for many teachers and support staff are still alarmingly low,[ix] many schools still do not have what they need to be safe and effective institutions of learning, and guidance counselors and social workers are either overworked or have been let go to cut costs.[x] Until the state fully funds public education, some school districts will remain under-resourced and ill-equipped to provide students with a quality education. This inequality often falls along lines of race and class, underscoring the need for continued investment in public schools so all our children receive the education they deserve.

Health and Human Services

The Department of Human Services (DHS) is home to several critical safety net programs that help to keep New Jersey residents healthy. They include NJ FamilyCare, the state’s public health insurance program, which provides coverage for children, low-income adults, and the elderly; WorkFirst NJ, the state’s welfare program, which provides cash assistance to families having trouble affording basic needs; and the Supplemental Nutrition Assistance Program (SNAP), the state’s food assistance program, which helps low-income people put food on the table. DHS also provides support for residents with substance abuse issues, families in need of affordable child care, and housing assistance for people with developmental disabilities. Moreover, DHS provides critical support for the elderly with subsidized drugs for seniors, funds for long-term care facilities, and on-site investigations in cases of abuse or neglect.

The Department of Health makes up the state’s public health infrastructure and is the first line of defense in responding to public health crises such as the COVID-19 pandemic. They respond directly by disseminating information and helping connect individuals with critical resources, and they respond indirectly by funding local health initiatives in communities. The Department of Health also keeps some of the most vulnerable people in our state healthy through prevention education and the establishment of Harm Reduction Centers.

With nearly four in ten New Jersey residents struggling to make ends meet,[xi] a growing number of people experiencing substance use and mental health disorders, and an aging population that requires care and support, continued investments in a health infrastructure and robust social safety net are needed to maintain a strong quality of life for millions of New Jersey residents.

Where Does the Money Come From?

New Jersey, like all states, funds the state government with revenue from taxes, fines and fees, and transfers from the federal government.

A majority of the state’s revenue comes from the income tax, sales tax, and the corporate business tax (CBT), which account for approximately 75 percent of the state budget. Other major taxes include cigarette, alcohol, and motor fuel taxes. The state also generates revenue through various departmental fees, including marriage licenses, hunting and fishing licenses, and parking tickets.

Tax contributions are placed into multiple funds that New Jersey draws on to finance the necessities outlined above. Of these, the General Fund and the Property Tax Relief Fund are the largest and most important.

The General Fund is where all state revenues not restricted by statute, or not dedicated to specific areas of the budget, are deposited and from which most appropriations are made. The revenues in the Property Tax Relief Fund, however, are dedicated to reducing or offsetting property taxes. The chart below illustrates the actual revenue that was generated and deposited into the General Fund in 2019.[xii]

The Property Tax Relief Fund is made up of revenue generated from the New Jersey Gross Income Tax and one half-cent of the Sales and Use Tax. This fund provides direct property tax relief through programs like the Senior Freeze and Homestead Rebate, as well as indirect relief by funding local school districts and essential services provided by local governments — investments that would otherwise be funded by property taxes.

Is There Enough Revenue to Meet New Jersey’s Needs?

Taken together, New Jersey generates approximately $40 billion in revenue every year. While that may be a large amount of money, the state budget has struggled to keep up with mere inflation over the last decade — due in part to some major tax cuts that benefitted wealthy individuals and big corporations. Because states are required to pass balanced budgets, meaning annual spending cannot exceed annual revenue collections, the state must bring in additional revenue to pay for its growing obligations, including programs that were chronically underfunded over the last thirty years.[xiii] Even without new programs, the state must ramp up spending over the next few years to fully fund public schools (in adherence to the School Funding Reform Act) and make full annual pension contributions, which were routinely skipped under previous administrations. The state must also raise enough revenue to build up a healthy surplus and Rainy Day Fund to protect against future economic downturns. New Jersey currently has one of the lowest Rainy Day Funds in the nation as the reserves were never replenished after the Great Recession.

New Jersey needs new, fairer ways to raise revenue to both meet its existing obligations and make new investments that benefit our communities. By making the tax code fairer, New Jersey can create a healthy and vibrant place to live for everyone that calls New Jersey home.

How Does the Budget Become Law?

In New Jersey, the fiscal year runs from July 1st to June 30th of every year, but the budget process extends across many months and includes lots of different stakeholders — from the Legislature, to the Governor, to the leaders of state departments and agencies, to members of the public like you! Given the size and significance of the budget, it should be no surprise that the process is long and sometimes complicated. Let’s break it down.

What is the Budget Timeline?

The budget process is a nearly year-round affair.

September – January: It starts with the Office of Management and Budget (OMB), which manages the state’s financial assets, assessing the economy and making predictions about how much revenue is likely to be generated in the following year. With input from state agencies, they also make predictions about how much revenue will be needed to fund existing programs and departments.

January – February: With the projections from the OMB and requests for funding made by various departments, the governor prepares and presents a budget proposal to the Legislature and the public through the annual budget address, which takes place on or before the fourth Tuesday in February.[xiv] The governor’s address is what’s colloquially known as the start of “budget season” in Trenton.

February – May: Like OMB, the Office of Legislative Services (OLS) produces its own revenue projections, which the Legislature uses to craft their own budget or, as is often the case, make adjustments to the governor’s budget proposal. All the while, they hold extensive committee hearings for state agencies and the general public about their budget priorities. This part of the process begins after the governor’s budget address and generally runs through May.

June: The Legislature drafts and releases its own budget proposal, known as the Appropriations Act, which must be approved with a majority vote by both the Assembly and the Senate.[xv] Finally, the bill goes before the governor to be signed before the June 30th deadline.[xvi]

What is the Role of the Governor?

The governor of New Jersey enjoys an incredible amount of power and leverage in the budget process. Through the budget address, the governor sets the tone and priorities for the budget process. The governor’s initial budget proposal is also often used as the foundation for the Legislature’s budget bill. The governor also determines how much revenue is ultimately needed to balance the budget — which has big implications on tax policy — as the executive branch has the sole power to certify revenue estimates. And because the governor appoints the state Treasurer (as well as every other department head) the governor can influence both revenue projections and how much departments and agencies request in funding.

Once the Legislature passes their own budget proposal, the governor has four options:

  1. Sign the proposal, as is, into law.
  2. Reject the entire budget proposal outright and send it back to the Legislature.[xvii]
  3. “Line-item veto” certain spending priorities before signing the budget into law.
  4. If revenue projections from the OMB and the OLS are far enough apart, the governor may accept the budget as is and put some funding into a lockbox to be released later in the year if enough revenue is collected to cover those investments.

After the budget is signed into law, the governor also has the power to change the budget through Executive Orders. Nothing can be added to the budget, however, without approval from the Legislature.

What is the Role of the Legislature?

Once the governor releases a full budget proposal, the Legislature gets to work crafting their own bill with their own spending and revenue priorities. While the Legislature can choose to accept the governor’s budget in its entirety, this is unlikely. What often happens is that the Legislature writes their own budget and then negotiates a final deal with the governor.

Each house, the Senate and General Assembly, has their own budget committee that holds budget hearings throughout the Spring. Each committee has their own chairperson who wields power over their respective house’s budget process, but the Senate President and the Speaker of the Assembly ultimately act as the final gatekeepers for what is included in or excluded from the budget. The committees are responsible for hearing testimony from the public and all the state department heads. All of these hearings are also open to the public to attend.

After the budget becomes law, the Legislature has the power to change it by drafting and approving new bills to allocate funding for a particular program or service. This bill would have to follow the same process as the Appropriations Act and be signed into law by the governor.

If the governor vetoes a bill or performs a line-item veto, the Legislature has the power to override the veto with a two-thirds majority of all members of both the General Assembly and Senate.[xviii]

How Can Members of the Public Participate in the Budget Process?

Active participation in the budget process can really make a difference. Advocates and members of the public alike can and should share their priorities with the governor’s office and members of the Legislature both before and during the formal budget process.

While the governor is preparing the budget proposal, residents can contact the governor’s office to voice support for specific programs or initiatives that rely on state funding. You can also contact the governor’s office later in the budget process to voice your opinion in support of or opposition to potential programs at risk of being cut or line-item vetoed.

During the Legislature’s budget hearings, one of the best ways for residents to ensure their voices are heard is to testify at one of three public hearings offered by the Senate and Assembly budget committees. These hearings are often held across the state, with one meeting in each region of New Jersey: North, Central, and South. Anyone who signs up to testify can give comments. Legislators are meant to represent the people and be responsive to community needs. Believe it or not, most legislators like to hear from their constituents. Giving the issues you care about a face by providing a personal account can make an impact.

Writing, calling, and emailing legislators, including your own representative as well as those serving on the budget committees, with concerns or questions regarding a particular program or initiative is another way to ensure your voice is heard.

During the month of June, legislators negotiate the final budget within their caucuses and with the governor’s office. This is the time when advocates are the most active, lobbying and otherwise engaging legislators and the general public. This is a great opportunity to tap into your local advocacy organizations and meet with legislators about items in the budget that are of concern to you!

Glossary of Terms

Term

Definition
Appropriation A sum of money that is authorized by the Legislature for a specific expenditure for a single fiscal year.
Appropriations Act The bill passed by the New Jersey Legislature that ultimately becomes the state’s annual budget. The budget becomes law when the Appropriations Act is signed by the Governor.
Corporate Business Tax (CBT) A tax on the net income or capital of a corporation. There are different rates for C and S Corporations.
Earmark Designated funds or resources for a particular purpose.
Expenditure Money owed, whether paid or unpaid.
Fiscal Year The twelve-month period to which the annual budget applies. New Jersey has a July 1 to June 30 fiscal year.
General Assembly One of the two Houses that comprises the state Legislature. The General Assembly has 80 members, two elected from each legislative district, and is presided over by the Assembly Speaker.
Line Item Any single item for which an appropriation is provided in the Appropriations Act.
Line-Item Veto Applying only to bills containing an appropriation, this veto action allows the Governor to approve the bill but reduce or eliminate funding for specific items.
Office of Legislative Services (OLS) A non-partisan agency of the Legislature that provides professional support services, including analysis, research, bill drafting, and legal services. In addition, the office provides information about the Legislature to the public.
Office of Management and Budget (OMB) An agency of the Governor’s Office that manages New Jersey’s financial assets. With direction from the Governor, the annual budget is the responsibility of the Office of Management and Budget (OMB).
Senate One of the two Houses that comprises the state Legislature. The Senate has 40 members, one elected from each legislative district, and is presided over by the Senate President.
Senate President The chief presiding officer of the Senate during legislative sessions. The Senate President appoints committee chairs and members of committees and commissions, refers bills and resolutions to reference committees, sets the agenda for session days, and supervises the administration of the day-to-day business of the Senate.
Speaker of the General Assembly The chief presiding officer of the General Assembly during legislative sessions. The Assembly Speaker appoints committee chairs and members of committees and commissions, refers bills and resolutions to reference committees, sets the agenda for session days, and supervises the administration of the day-to-day business of the General Assembly.
Veto An official action taken by the Governor to nullify or deny a legislative action.

 

End Notes

[i] State of New Jersey Department of Education. (2019). https://www.state.nj.us/education/data/fact.htm

[ii] Nelson, B. (2019, July 25). What N.J. colleges are growing (and shrinking) the most? NJ.com. Retrieved 2020, from https://www.nj.com/data/2019/07/what-nj-colleges-are-growing-and-shrinking-the-most.html

[iii] https://www.state.nj.us/csc/about/publications/workforce/pdf/2018%20Workforce%20Profile%20final%20copy.pdf

[iv] In NJ, TANF is also called “Work First New Jersey.”

[v] Some of the agencies that are separate have been combined in this chart in order to make it easier to digest.

[vi] Nj.gov: https://www.nj.gov/treasury/omb/publications/19citizensguide/citguide.pdf

[vii] Clark, Kakkar, & Marcus (2020, September). Here’s how much money every N.J. school district gets in state funding shakeup.https://www.nj.com/education/2020/02/heres-how-much-money-every-nj-school-district-gets-in-state-funding-shakeup.html

[viii] Sitrin (2020, September) Why New Jersey’s progressive school funding formula still isn’t working for some children. https://www.politico.com/states/new-jersey/story/2020/09/30/why-new-jerseys-progressive-school-funding-formula-still-isnt-working-for-some-children-1318599

[ix] Weber, M. (2019, September). New Jersey’s Teacher Workforce, 2019: Diversity Lags, Wage Gap Persists. https://www.njpp.org/wp-content/uploads/2019/09/NJ-Teacher-Workforce-2019-Full-Report.pdf

[x]This report highlights how schools suffer (and which schools) due to lack of investment:  https://www.njpp.org/publications/blog-category/new-jerseys-school-re-openings-are-racially-unequal/

[xi] ALICE (Asset Limited, Income Constrained, Employed) Project, New Jersey (2020). https://www.unitedforalice.org/Attachments/AllReports/2020ALICEReport_NJ_FINAL.pdf

[xii] FY2019 is the most recent year for which there is actual revenue data. The data for more recent years are currently “estimated” revenues. Source: Office of Management and Budget: Summaries of Revenues, Expenditures, and Fund Balances.

[xiii] The archives containing all budget documents can be found on the OMB’s website. This is a summary of the funds from FY2010, indicating that the balance of the state funds is just under 30 billion.

[xiv] Some exceptions are made to this deadline: it can be superseded by legislation, and if it is a governor’s first term, there is an extended deadline of March 13th.

[xv] At least 21 votes in the Senate and 41 in the General Assembly

[xvi] More detailed and technical information about the state’s budget process: NJ OMB

[xvii] If a Governor vetoes a bill, the Legislature can override it by a vote of at least two-thirds of the members of each house.

[xviii] Here is a FAQ from the OMB that contains more technical information and links to all the budget publications released by the state.

New Jersey Deserves Better Than $14 Billion Corporate Tax Break Law

Posted on by Brandon McKoy

Earlier today, Governor Murphy signed the Economic Recovery Act into law. The bill doubles down on corporate business tax incentives, a failed economic development strategy, with a price tag of $14 billion over seven years. In response to the bill signing, New Jersey Policy Perspective releases the following statement.

Brandon McKoy, President, NJPP:

“With a stroke of a pen, New Jersey has chosen to repeat the mistakes of the past by giving away billions of dollars in corporate tax breaks. This is a bloated economic development strategy that has failed to work, not only in New Jersey but in every other state that participates in this costly race to the bottom.

“The reality is, based on a growing body of research, corporate tax breaks of this scale are rarely a good deal for states. They are much more likely to shortchange the Treasury for decades to come. These super-charged programs will leave the state with far fewer resources for a robust recovery. It will also crowd out revenue in future budgets to invest in proven building blocks of a state economy, like education, health care, child care support, mass transit, and job training.

“With this new law, New Jersey continues to be out of step with the rest of the country by digging its heels into a failed economic development strategy. While a number of laudable reforms and innovative incentives are included in the Economic Recovery Act, its size and scope actually surpass that of the expired programs. Simply put, size matters. A $14 billion program is hardly a disciplined and targeted approach to economic development.

“Despite its name, there is little to nothing targeting small businesses and the state’s economic recovery from the ongoing COVID pandemic.

“Instead the ERA mirrors some of the most egregious elements of the previous generation of economic incentives: overly generous tax subsidies for corporations that typically sell them for cash, a program design that favors businesses with the resources to navigate the application process, a deliberate disconnect between the EDA and the annual state budget, and a refusal to entertain the idea of a ceasefire agreement with neighboring states. New Jersey deserves better.”

New Jersey Policy Perspective (NJPP) is a nonpartisan think tank that drives policy change to advance economic, social, and racial justice through evidence-based, independent research, analysis, and advocacy.

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Rush to Approve $14 Billion in Corporate Tax Breaks is a Stunning Disappointment

Posted on by Brandon McKoy
Earlier today, the New Jersey Senate and Assembly voted to approve more than $14 billion in corporate tax breaks. This vote follows two years of task force hearings and investigative reporting that showed how costly and ineffective the state’s previous corporate tax incentive programs were. The 300-plus page bill, A4/S3295, was made public less than a week ago and was fast-tracked through the Legislature. In response to today’s vote, New Jersey Policy Perspective releases the following statement. 
 

Brandon McKoy, President, NJPP:

“The rush to approve more than $14 billion in corporate tax breaks is a stunning disappointment, especially at a moment of tremendous suffering and economic uncertainty for so many families. There is broad consensus that subsidizing corporations is an irresponsible and wasteful use of taxpayer dollars, whether it’s research from institutions across the ideological spectrum, independent investigative reporting, or even Governor Murphy’s own tax incentive task force. The bill passed by the Legislature today ignores all of that and instead doubles down on the failed trickle-down policies of the past, with an overall price tag that eclipses that of the infamous 2013 Economic Opportunity Act.

“We acknowledge that this legislation contains important labor protections along with critical provisions for oversight, program assessment, and accountability. Checks and balances are plentiful in this proposal, but the sheer size of it rests on the erroneous assumption that corporate tax subsidies significantly persuade businesses to relocate to New Jersey. The Garden State used to spend approximately $100 million dollars annually on these programs, and comparable states continue to operate at that level. A program of this size goes beyond merely “competing” and represents total fiscal irresponsibility.

“The implementation of this bill bucks the previously stated positions of this administration and is rightly being lampooned by state and national experts alike. In his 2019 State of the State Address, Governor Murphy remarked that it “simply put, is nuts” for the state to forgo more than $1 billion a year in corporate tax subsidies. We agreed with that statement then, and we agree with it now. Over the next several years, New Jersey will be forgoing billions more in revenue while grappling with increased need for education and transit investments, paying back billions in borrowed funds, and maintaining vital services and support for workers, families, and small businesses.

“Now, the same justifications that were used to pass the 2013 Economic Opportunity Act are being used to legitimize this bill. And just as those reasons turned out to be wrong, so will those being used today. The best way to stimulate an economy is by supporting proven sectors of economic growth like education, public transportation, and the development of safe and affordable homes. Expecting investments to trickle down from corporations to communities is a proven failure, a proven waste of taxpayer dollars, and it must end.”

New Jersey Policy Perspective (NJPP) is a nonpartisan think tank that drives policy change to advance economic, social, and racial justice through evidence-based, independent research, analysis, and advocacy.
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Legislators Should Vote No on $11.5 Billion Corporate Tax Subsidy Program

Posted on by Sheila Reynertson

The following testimony, on A4, was delivered to the Assembly Appropriations Committee on December 18, 2020.

Good morning, Chairman Burzichelli and members of the Assembly Appropriations Committee. My name is Sheila Reynertson and I am a senior policy analyst at New Jersey Policy Perspective. Thank you for the opportunity to testify on A4.

First, we applaud the important improvements in this legislation regarding oversight and accountability: a robust Community Benefit Agreement requirement, scaled down tax credit cap on each newly created job, tighter reporting requirements, and newly appointed compliance officer and an Inspector General to protect public dollars.

But the scale of this proposal is simply too large. Up until 2010, New Jersey averaged less than $100 million per year on programs authorized by the Economic Development Authority. Only during the Christie administration did the size of the programs balloon to over $1 billion year after year. This proposal takes what should be viewed as unnecessarily exorbitant and attempts to give it a sense of credibility it doesn’t deserve.

Comparable states like Maryland and Massachusetts spend an average of $100.4 million and $193.5 million a year, respectively, on economic development subsidies annually. The idea that New Jersey must have a program of this scale — over $1.5 billion per year — is irresponsible and threatens the state’s short- and long-term fiscal health.

Let’s step back a moment. The original proposal from 2019 topped off at $3 billion. As of last week, negotiations for this bill more than doubled to $7 billion total. And now, here we are looking down the barrel of a $11.5 billion proposal.

What happened? The two biggest programs — the same ones that were out of control under the Christie administration — have ballooned from a combined $300 million limit per year to $1.1 billion a year. At the same time, the minimum job and affordable housing requirements have both been watered down. How does that serve New Jersey taxpayers?

And the spending caps on these fabled “mega-projects” that may or may not transpire have ballooned as well. Originally, up to three redevelopment deals in the transformative program could each receive up to $100 million in tax credits. Now, 10 such large projects could be approved, and each could receive up to $250 million in tax credits each. The annual cap for the other mega-project concept — the institution-anchored redevelopment program — doubled from $100 million to $200 million.

Meanwhile, as we witness the biggest crisis to hit small businesses in our lifetime, this legislation throws them a bone with a loan program that may or may not allocate $50 million per year.

Two years. This legislature had two years of expert testimony from the state Comptroller and national experts at organizations like Pew Charitable Trusts and the Conference of State Legislatures who described the downsides of massive subsidies and limited upside. Best practices and sound research were tossed aside to “get this done before the year ends.” And nobody had the courage to say, “We’ve gone too far.”

Just yesterday, Forbes published an article on the utility of corporate tax subsidies. The jury decision is final, according to economists of all political stripes.

“Conservative scholars at George Mason University’s Mercatus Center find ‘sub­sidies have little to no effect on where companies choose to invest.’  And progressive economists Alan Peters and Peter Fisher conclude that subsidies work at best 10 percent of the time, ‘and are simply a waste of money the other 90 percent.’”

Ultimately, this bill represents a doubling down on the failed strategy of the 2013 Economic Opportunity Act and will weaken our ability as a state to afford our existing obligations and emerging needs — especially as we recover from the COVID pandemic and recession. The proposal is not sufficiently targeted to the areas of New Jersey’s economy that will need the greatest support and will weaken our ability to bolster proven economic drivers and pay down our oversized obligations.

A vote in favor of this legislation says you have confidence that the state will have enough resources in 10 years to simultaneously pay down the recently borrowed $4.5 billion and dole out tax subsidies by the billions. It’s the height of irresponsible stewardship of the public’s money.

We are not implying that the state completely forgoes tax subsidies — we are stating unequivocally that a program of this size is irresponsible and needs to be scaled back, specifically in the job growth and redevelopment programs.

We respectfully request legislators to vote NO on A4 and allow for time to rightsize this tool of economic development so it can fit back into the toolbox.

I am happy to answer any questions you may have. Thank you.

For The Many Calls on Governor and Legislature to Take EDA Bill Off Fast-Track

Posted on by NJPP Staff

December 17, 2020 – With state lawmakers fast-tracking a 200-plus page bill to renew New Jersey’s corporate tax subsidy programs, good government watch dogs and advocates from across the political spectrum are urging Governor Murphy and legislative leaders to slow it down.

In an open letter sent earlier today to Governor Murphy, Senate President Sweeney, and Assembly Speaker Coughlin, the For The Many NJ coalition calls for the bill to be taken off the fast-track so the public can properly scrutinize it, and for lawmakers to rein in the $11.5 billion price tag of the proposal.

“This bill is far too big, and it is moving far too fast,” the letter reads. “Fast-tracking billions of dollars in new corporate tax breaks through the Legislature in less than a week will not allow the public, press, policy experts, or advocates time to adequately vet such a comprehensive and costly proposal.”

The letter highlights that the proposal (A4/S3295) would allow the state to award even more corporate subsidies than under the Economic Opportunity Act, the controversial bill passed in 2013 that was heavily scrutinized by an independent task force commissioned by Governor Murphy.

“The task force’s findings, combined with independent investigative reporting, made clear that New Jersey’s corporate tax subsidies had robbed the state Treasury of billions of dollars with little-to-no return on investment for the average taxpayer,” the coalition writes. “That is why we are so surprised by the sheer size of the new corporate tax subsidy legislation that was announced on Tuesday.”

During the Christie administration, New Jersey awarded more than $8 billion in corporate tax subsidies with little-to-no return on investment for the average taxpayer. The new proposal being fast-tracked through the Legislature would normalize this level of spending and crowd out funds in future state budgets that could otherwise go toward public schools and transit, public goods proven to grow the economy.

“The sky-high caps in this bill are even larger than what the state spent under the Economic Opportunity Act and would cement New Jersey’s standing as a national outlier in corporate tax subsidy spending,” the letter adds.

The letter is signed by more than thirty organizations, including New Jersey Working Families, New Jersey Policy Perspective, Americans for Prosperity – New Jersey, and the Good Government Coalition of New Jersey.

Read the full letter here.

For The Many is a statewide coalition of more than 30 organizations working collectively to expand funding for essential services and improve budget practices to adequately meet current and future needs, especially for communities that have been historically marginalized.

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