Facing a deadline just days away, New Jersey lawmakers Wednesday night introduced and quickly began approving a record new $56.6 billion state budget that’s backed by a new tax hike on large companies, adds some funding for property-tax relief, and includes big spending on public schools and pensions. But Democratic leaders once again faced objections from critics who believe the budget process is rushed and not transparent enough, while Republicans and business leaders decried that the state’s taxing and spending continues to grow despite a tough financial outlook.
The budget — which determines how the state government will spend taxpayer money in the fiscal year that begins Monday — includes revenue from a five-year tax hike on the state’s wealthiest businesses that would ultimately be a dedicated funding source to beleaguered NJ Transit, though not yet. Gov. Phil Murphy and his fellow Democrats who lead the state Legislature agreed to the increase as part of budget negotiations. Lawmakers, meanwhile, added around $700 million in new spending on various projects to the budget proposal Murphy laid out in February. In another new development, the state is also planning to phase out a sales tax waiver on electric cars by next summer, quicker than the three-year phase-out that Murphy originally proposed.
Highlights of the Budget
- A 2.5% surtax — known as a “corporate transit fee” — on the 600 companies in New Jersey that make at least $10 million. It is slated to provide money to NJ Transit, the state’s bus and rail agency, which faces a $766 million financial shortfall starting next summer and has been beset by cancellations and delays of late. But it will funnel money this cycle into the state’s general fund and won’t begin going to NJ Transit coffers until 2026. The tax is retroactive to Jan. 1 and expected to generate about $1 billion annually before ending after five years. It’s on top of the state’s 9% corporate business tax. This also comes as NJ Transit riders are set to see a 15% fare hike starting next month, though this tax will not stop it.
- A roughly $7 billion payment to the public-worker pension fund, which supports the retirement of about 800,000 active and retired state and local government workers. This is the fourth straight year there has been a full payment to the long-underfunded system.
- A roughly $12 billion full payment to the state school funding formula. This is the first time there is a full payment to the formula, completing a seven-year ramp up.
- A “rainy-day” surplus fund of nearly $6.2 billion — about 11% of the budget’s spending.
- More than $2 billion to cover a third year of funding for the ANCHOR tax relief program, which gives 1.3 million homeowners up to $1,750 and more than 700,000 renters up to $700 to help offset property taxes.
- $220 million more in ramp-up funding for the Stay NJ property tax cut for New Jersey seniors, scheduled to take effect in fiscal year 2026. Questions remain about whether there will be enough funding for it to launch in next year’s budget.
- About $700 million for what critics call “Christmas tree” items — spending on projects that lawmakers want, usually added in the final days and hours of horse-trading. Among the most expensive this year are $12.5 million for a learning annex for the school district in Wood-Ridge, where Senate Budget Committee Chairman Paul Sarlo is mayor, and $10 million for capital construction at Fairview public schools in Bergen County, which is also in Sarlo’s legislative district.
- Lawmakers added $20 million for the state’s community colleges, reversing cuts Murphy proposed.
- Phasing out a sales tax exemption on electric vehicle sales. That means people who buy electric cars in the state will have to start paying 3.3% in sales tax for the first time, perhaps as early as the fall. By July 2025, all electric vehicles sold would carry the state’s full sales tax of 6.625%.
Notably not included in the budget:
- A plan to increase the state’s sales tax from 6.625% back to 7%. Murphy and state Senate President Nick Scutari, D-Union, contemplated the hike as a way to raise revenue, but Assembly Speaker Craig Coughlin, D-Middlesex, opposed it during budget negotiations. The tax was reduced in 2018 as part of a deal to raise the gas tax.
- A $1 tax on every truck delivery to New Jersey’s many warehouses, which Murphy proposed but leaders ultimately nixed.
- Raising fees on individual gun permits and gun seller licenses in the state. Murphy wanted to increase fees on firearms purchaser identification cards from $50 to $100. But that all was cut, as well.
- A pandemic-era sales tax holiday on back-to-school items and free entry to state parks. Both are ending.
Sarlo, D-Bergen, said while the budget is “not perfect,” it is “a balance of needs and priorities,” with “one of the largest surpluses that I have ever seen.” He also lamented the tax hike on the richest corporations but said it was necessary.” We have to do better with transit,” Sarlo said.
Assemblyman Benjie Wimberly, D-Passaic, noted that “when you look at issues when it comes to healthcare, food insecurity, domestic violence … we took care of those who usually can’t take care of themselves.” The budget once again raises spending to a record level even though the state faces a tight fiscal picture. The plan includes a structural deficit, meaning the state would spend about $2.1 billion more than it draws in from taxes and fees, and officials might have to use money from its surplus and debt defeasance fund to help cover some spending.
Sen. Declan O’Scanlon, R-Monmouth, the Republican budget chair, called the spending plan “in many ways a runaway freight train.” “It was an already bloated budget and now it’s worse,” he said.
A budget expert from the nonpartisan Office of Legislative Services said in the spring that if the state continues to spend down its surplus at this rate, it would “raise concerns about the sustainability of the state’s fiscal path.” Even Coughlin has warned the state needs to be mindful of that. “Meeting some of those challenges and ensuring we’ll able to do it over the next decade, we’re going to have to tighten belts in this budget,” the Assembly speaker told NJ Advance Media earlier this month.
The final plan largely mirrors the $55.9 billion budget proposal Murphy unveiled five months ago, although the add-ons make it $728 million larger. It is $2.3 billion — or 4% — more than the current $54.3 billion budget Murphy signed last June. Each budget in recent years has carried a record-breaking price tag. It’s up to the Legislature every year to pass a final plan, and Murphy, Scutari, and Coughlin spent recent weeks negotiating what is and isn’t included — a usually hectic period filled with behind-the-scenes deals.
If a budget isn’t in place by July 1, the start of the fiscal year, the state government could shut down — something that has happened twice in the last 20 years. That isn’t happening this time as Murphy and lawmakers reached an agreement earlier this week. But, like in recent years, negotiations were finalized so close to the deadline that the Legislature has to scramble to pass the budget on time. Last year, Senate and Assembly committees also held a late-night vote on a budget before a bill was released to the public, sparking outcry from good-government advocates. This year was similarly rushed.
Assemblywoman Nancy Munoz, R-Union, said Republicans were given only a few hours to digest hundreds of pages.” The process seems to get worse every year,” she said.” (Former Gov.) Jon Corzine managed to get a budget by June 11. The public deserves to know what’s in this $56 billion budget.”
Leaders of advocacy groups who blasted the process over the past two years said this should not become a Trenton tradition.” The budget touches the lives of every single person in the state, and members of the public should have at least 72 hours to review the budget before it is passed,” said Eric Benson, campaign director of For The Many NJ, a coalition of advocacy groups.” Some lawmakers may think this is all normal and appropriate, but other states do not operate this way and the people of New Jersey deserve better.”
Republicans and business groups have been angry at the inclusion of the new transit tax on the state’s wealthiest companies (A4704). They argued that Murphy agreed to let a previous 2.5% corporate business tax — on a larger number of companies — expire at the end of last year and this would simply replace it.
Michele Siekerka, president of the New Jersey Business and Industry Association, excoriated lawmakers for supporting the new tax, calling it “terrible policy” and “a blatant disregard for New Jersey’s largest job creators.” Siekerka also noted the estimated $1 billion the tax will raise a year for NJ Transit won’t go directly to the agency for another year when its deficit hits.” Why is the money going to sit in surplus for over a year?” she asked.” It is a sad day for the business community.”
Tom Bracken, president of the New Jersey Chamber of Commerce, said the tax would give New Jersey the highest business taxes in the nation. He argued it “effectively wipes out much of the progress and momentum our state has enjoyed” when it comes to business and “does nothing to solve New Jersey’s long-term structural budget deficits.”
Sen. Michael Testa, R-Cumberland, said because NJ Transit provides so little in services to South Jersey residents,” this is taxation without representation.” Supporters of the tax counter that it would affect corporations such as Amazon and Walmart while helping commuters.” This is a historic win for riders and the state of New Jersey as a whole,” said Alex Ambrose, a policy analyst at left-leaning think tank NJ Policy Perspective.” Until now, NJ Transit has never had a dedicated source of funding, and the new fee will help get the agency back on track after decades of disinvestment. For riders, more funding means more reliable service and fewer delays and cancellations and no major service cuts.”
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