In a matter of weeks, Gov. Mikie Sherrill and lawmakers must reach an agreement on state government’s next annual budget, and this year the stakes may be higher than ever.
If the governor and both houses of the Legislature can’t come together on the budget by July 1, the government will shut down, as required by the state constitution..
A shutdown this year would coincide with the state’s hosting an international soccer tournament that promises to bring New Jersey worldwide attention, and the potential for a massive economic boost.
The top fiscal experts from both the Sherrill administration and the Legislature issued their final revenue estimates last week. They showed the executive and legislative branches of government appear to be in general alignment on forecasting tax collections.
That’s a key development because it suggests there won’t be a major dispute this year over how much funding will be available to spend over the July-to-June fiscal year.
To be determined, though, is exactly how to divvy up a tax haul that’s now expected to top $59 billion, if those revenue estimates prove accurate. Hanging in the balance is funding for everything from aid to public schools to tax relief for senior homeowners.
Here are some key issues to watch as the final budget negotiations play out in Trenton.
Structural gap
Even before Sherrill, a first-term Democrat, released her budget plan in early March, she said closing a wide gap between annual revenues and expenditures was a top priority. To do so, she’s been urging lawmakers to work with her to curb overall spending, which has outpaced the rate of revenue growth in recent years, threatening the state’s long-term sustainability. Earlier this year, the structural gap was projected to hit nearly $3 billion. A final draft of a cost-cutting, $60.7 billion budget Sherrill sent to lawmakers last week, if enacted unchanged, would reduce the gap to less than $1.5 billion.
Legislative additions
Helping to widen the gap between revenues and expenditures in recent years are hundreds of new line items that lawmakers added to the governor’s final draft of the budget in the run-up to the July 1 deadline. This year, Sherrill sent a loud message to fellow Democrats who control the Legislature by stripping out such spending from the budget proposal she put forward in March. And while Sherrill has remained open to restoring some of the Legislature’s budget priorities, administration officials have insisted that any added appropriations sought by lawmakers in the coming weeks must be offset with coinciding cuts.
Stay NJ
How much state government will spend on property tax relief benefits for senior homeowners making up to $500,000 annually is another key issue. Unless the state changes course, it will cost more than $1 billion to maintain the Stay NJ relief program, which debuted earlier this year and offers annual benefits that can total as much as $6,500. Establishing Stay NJ was a key priority for legislative Democrats, though Sherrill, as part of her cost-cutting efforts, wants to make some changes. Her plan, which is subject to approval by lawmakers, would reduce Stay NJ’s maximum benefit to $4,000, and cut the income ceiling in half. If lawmakers go along, it will save an estimated $500 million.
Business taxes
Sherrill has called her proposed spending plan an “affordability budget,” and it does not call for any tax hikes on individuals. Her fiscal plan, though, would raise about $750 million in new revenue by making several key business-tax revisions that remain subject to legislative approval. These include a temporary cap of a corporate tax deduction for net operating losses and the establishment of a per-employee fee that businesses would be forced to pay if they have more than 50 workers receiving Medicaid benefits. Some lawmakers have raised concerns about these tax proposals during recent budget hearings in Trenton, and administration officials have left the door open to a compromise.
The surplus
The importance of maintaining a robust budget surplus is often overlooked and misunderstood by rank-and-file lawmakers, though Sherrill has nonetheless staked it out as another key fiscal priority. Under the administration’s latest projections, by the close of the 2027 fiscal year, the surplus would drop below $6 billion, which would equal less than 10% of annual appropriations. In recent decades, state government has had to cut property tax relief for senior homeowners and hold back planned spending on K-12 public schools in response to revenue shortfalls brought on by economic downturns, such as the 2007-2009 Great Recession, all because it did not have an adequate budget surplus. President Donald Trump’s ongoing war in Iran has raised new concerns among economists as gas prices and inflation surge, and the state is also bracing for the economic fallout from other Trump policies, including major cuts to federal social service programs.
This story is made possible in part by the Corporation for Public Broadcasting, a private corporation funded by the American people.
