Top Democrats split with N.J. Senate president over extending business tax surcharge

Gov. Phil Murphy on Tuesday again rejected extending a 2.5% surtax on profitable businesses as a means of bridging stark funding gaps NJ Transit faces in the coming years.

Murphy recommitted to his plan to let the surtax sunset at the end of the year during remarks at the New Jersey Business and Industry Association’s annual conference.

“On the one hand, a deal’s a deal. We said this was a bridge until we get into a better place, and we meant it,” Murphy said.

Murphy’s comments, which acknowledged state spending has outstripped revenue, may spell doom for a proposal by Senate President Nicholas Scutari (D-Union) to extend the tax to help NJ Transit avoid the steep fiscal cliffs it faces in the coming years.

The beleaguered transit agency, whose ridership did not recover to pre-pandemic levels as virus fears receded, is fully funded in the current fiscal year by a patchwork of fare revenue, diversions, subsidies, and federal funds that are due to run dry partway through the next fiscal year.

The agency faces a $119.4 million deficit in the fiscal year that begins July 1, with a $917 million shortfall expected in the following budgetary year.

Scutari earlier this month said legislators had discussed extending the surcharge, which brings the state roughly $1 billion in annual revenue, amid sagging tax collections.

“I tell you one thing that I’ve talked about in terms of a funding source would be the reinstitution of the corporate business tax,” he told NJ Spotlight News. “That’s a funding source that would provide a billion dollars a year.”

Originally enacted as a temporary measure in 2018, the surcharge applies a 2.5% surtax on business profits above $1 million. The provision was temporary, but lawmakers extended it in 2020 amid concerns about what effect COVID-19 and severe virus restrictions would have on New Jersey’s finances.

Business groups have urged lawmakers to allow the surcharge to expire, noting its inclusion made New Jersey’s corporate tax rate the highest of any state in the union.

Democratic legislators have mostly aligned behind an expiration — a decision made easier by the party’s renewed focus on affordability following legislative losses in 2021 — but progressive groups and some others have campaigned for the surtax’s extension, charging its end would be a handout to the state’s most profitable businesses.

“A backroom deal with the big business lobby doesn’t change the fact that New Jersey desperately needs this revenue to balance the budget and continue paying for schools and transit infrastructure,” said Peter Chen, a senior policy analyst for New Jersey Policy Perspective. “As the governor noted in his remarks, the state is operating at a structural deficit, which is neither sustainable nor fiscally responsible.”

Given their profitability, businesses do not need the tax break, Chen said.

The surtax will expire on Dec. 31 unless legislation extending it is made law, whether by the governor’s signature or a veto override, though an override — which would require a two-thirds supermajority in both chambers — appears far less than likely.

New Jersey lawmakers have not overridden a governor’s veto since 1997, and there’s no indication majority caucus members are inclined to break that streak.

Sen. Paul Sarlo (D-Bergen), who chairs the upper chamber’s budget committee, echoed Murphy’s embrace of a surcharge sunset Tuesday.

“I have ruled out using a CBT surcharge for a dedicated revenue source for New Jersey Transit. I did it last year, and I just did it again here today,” he said during a separate panel at the NJBIA’s annual conference.

Sarlo said he was uncertain what other revenue source lawmakers could dedicate to NJ Transit.

It’s less clear where Assembly Democrats fall on the issue. Chris Aikin, a spokesperson for Assembly Speaker Craig Coughlin (D-Middlesex), said the lower chamber’s leader had no public comment on the surcharge Tuesday.