Audrey Lane, a seasoned policy expert, recently spent time at the New Jersey Statehouse in Trenton, observing the passage of the state’s budget. The $56.6 billion budget, a significant increase from previous years, has sparked concerns over deficit spending and fiscal policies. The budget spends $2.1 billion more than it takes in, creating a structural deficit of more than $3.5 billion for the next year. This shortfall relies on the state’s declining surplus to fill the gap.
Economic Implications of the New Budget
The budget also reinstates the corporate business tax, giving New Jersey the highest corporate business tax rate in America at 11.5%. This move contrasts sharply with neighboring Pennsylvania, which has used its surplus funds to reduce its state business tax rate to 4.99% by 2031. The tax hike was anticipated, as Gov. Phil Murphy and the Legislature’s Democratic majority had signaled their approach for months.
Despite receiving $8.5 billion in pandemic-related federal aid, New Jersey policymakers missed an opportunity to make long-term investments or significant agency changes that could have spurred economic growth. They failed to improve infrastructure, did not address pension solvency for future retirees, and cut funding to 140 public school districts, leading to teacher layoffs and school closures.
New Jersey’s largest corporations had planned for the sunset of the 2.5% Corporate Business Tax surcharge in 2023, but six months into 2024, they face a retroactive tax increase. These corporations will adapt by shifting jobs to other states or leaving altogether, continuing a trend that has seen the number of Fortune 500 companies headquartered in New Jersey fall from 22 in 2016 to just 14 today. Those that stay will increase prices for goods and services, affecting working families and seniors.
Reforming New Jersey’s Budget Process
How can New Jersey budget better? Audrey Lane and the Garden State Initiative (GSI) advocate for better policies and more transparency in state government, particularly regarding the state budget. Currently, the budget is negotiated behind closed doors by a few individuals, leaving most legislators in the dark. Lane observed legislators expected to vote on a 373-page document with only 15 minutes’ notice.
GSI’s recent Fiscal Cliff Report addresses New Jersey’s addiction to higher taxes and more spending. It suggests reforms such as “stress-testing” the budget through multiyear assessments, ensuring annual spending is covered by recurring revenues, making the final state budget bill public seven days before a vote for scrutiny, and adding a detailed annual capital report outlining the state’s assets and planned investments.
No single policy recommendation is a cure-all, but maintaining the status quo is not an option. Lane’s experience at the Statehouse underscores the urgent need for these reforms.
