Assembly speaker’s tax relief proposal likely to face tough negotiations
Plan to extend business tax to fund the program meets with resistance
Assembly Speaker Craig Coughlin wants to halve property taxes for seniors to address "frightening" affordability issues for them. (Hal Brown for New Jersey Monitor)
A tax relief proposal backed by the state’s two most powerful legislators appears to be heading into tough negotiations amid disagreement over how to fund it, and lingering concerns over the state’s fiscal health.
Assembly Speaker Craig Coughlin (D-Middlesex) in a Monday editorial announced he would seek to enact new legislation to cut tax bills for New Jersey seniors in half and increase tax rebates for renting seniors, saying that for senior citizens, the lack of affordability in New Jersey “is frightening.” This comes as Trenton faces a June 30 deadline to wrap up the next fiscal year budget.
It’s unclear how Coughlin intends to pay for his plan, which he has dubbed Stay NJ. Senate President Nicholas Scutari (D-Union), who said he is working with Coughlin on the proposal, on Monday floated an extension of a 2.5% surtax on business profits above $1 million that is due to expire at the end of 2023.
But even if that tax is extended, the resulting revenue would likely not cover the full cost of Coughlin’s plan. The bill’s synopsis — its text is not yet available — sets an initial funding level of up to $400 million, while the surcharge’s sunset is expected cost the state $323 million in foregone revenue in the fiscal year that begins July 1.
But a funding gap would emerge in future years, when the price tag of the new tax relief program is expected to rise to $1.5 billion, according to a source familiar with Coughlin’s proposal. The surcharge’s sunset is expected to cost the state about $1 billion annually in later fiscal years.
Support for extending the surcharge appears less than universal, even among the Legislature’s Democratic leadership. Sen. Paul Sarlo (D-Bergen), who chairs the chamber’s budget panel, on Tuesday said he still supports allowing the surtax to sunset as planned.
“I haven’t changed my mind. I’ve always maintained that from the beginning,” Sarlo told reporters.
Sarlo declined to comment on Coughlin’s proposal, saying there are many tax relief proposals legislators need to discuss.
Gov. Phil Murphy has committed to allowing the surcharge to expire, and it’s unclear whether he is willing to reverse course on the issue. A spokesperson for the governor declined to comment on the proposal but pointed to the governor’s previous statements in support of the sunset.
Business groups have urged cuts to New Jersey’s corporate business tax, noting the state’s highest rate tops national rankings and will be an outlier within the region after business tax cuts enacted in Pennsylvania take effect.
Despite some concern spurred by Scutari’s Monday comments in favor of extending the surtax, those groups still believe it will phase out at the end of the year.
“There’s a lot of positivity out there,” said Chris Emigholz, chief government affairs officer for the New Jersey Business and Industry Association. “We’ve heard from the governor’s office and lots of legislators in both houses, on both sides of the aisle, that there’s no reason for concern.”
Progressive groups, Newark Mayor Ras Baraka, and Jersey City Mayor Steve Fulop, among others, have urged legislators to extend the surcharge, calling its sunset a handout to the state’s most profitable businesses.
Fretting over revenue and ratings
Coughlin’s proposal also comes amid a dip in revenue.
Treasurer Liz Muoio and budget and finance officials from the nonpartisan Office of Legislative Services last week released updated forecasts that said New Jersey would bring in roughly $2 billion less over the current and coming fiscal year than previously expected.
Though those officials have said the state is well prepared to weather a revenue downturn, they warned a federal debt limit default could have catastrophic effects on revenue.
Ratings agencies that have steadily upgraded New Jersey’s credit over recent years — pleased by the state’s pension investments and burgeoning cash reserves — have also urged caution amid broader economic uncertainty.
States enacting major tax policy changes or adding significant new spending — things that are both on the table in New Jersey — could find their budgets pressed in the coming years, Fitch Ratings warned in early May.
Debt ceiling negotiations currently underway at the federal level could also impact state revenue if D.C. Republicans and President Joe Biden fail to reach an agreement by June 1, Muoio said during a budget hearing Tuesday.
“If they do not reach a debt ceiling agreement, with the stock market, U.S. credit ratings abroad, it would be a dire situation for us revenue-wise, especially on the GIT end,” she said, referring to the state’s gross income tax.
It’s also unclear how much more lawmakers will seek to spend on separate legislative priorities typically added late in the budget negotiation cycle. The number usually falls in the hundreds of millions.
Republicans suggest funding for locals
Senate Republicans on Tuesday unveiled their own tax relief proposal, a $4.3 billion plan to send money directly to municipalities and counties, with funding levels set based on individual municipal populations in the 2020 census.
Under their plan, towns would receive roughly $322.96 per resident, for a total of $3 billion. Counties would receive $139.95 per resident, totaling $1.3 billion.
Republicans say they would fund the program by pulling money out of the state’s Debt Defeasance and Prevention Fund and by diverting a $2.35 billion deposit into the fund proposed by Murphy.
The Debt Defeasance and Prevention Fund is meant to save the state money by paying down debt early or forgoing borrowing altogether, thereby avoiding interest payments.
The Republican plan would impose similar rules on local governments, requiring they use their share of the funds to pay down existing debt or avoid borrowing.
“We’ve got lots of municipalities and counties who have debt. The state’s not the only one that has debt,” said Sen. Steve Oroho (R-Sussex), the body’s minority leader. “Let them defease their debt, which will then help them reduce pressure on their own budgets.”
Local governments have faced a deluge of heightened costs over the last year, including sharp increases to premiums for state-backed public worker health plans, heightened pension obligations spurred by poor market performance in 2022, and rising energy prices, among other things.
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