Initial votes on new state budget could come Wednesday, top Democrat says

After reaching a deal on a new state budget, lawmakers intend to advance the annual spending bill through budget committees on Wednesday with final votes set for Friday, though the timing is still in flux, a top Democrat said during a Monday budget hearing.

Legislators must approve and Gov. Phil Murphy must sign a budget by June 30 to avert a state government shutdown, and they rarely approve an annual spending bill without rubbing against the deadline.

“The timing is still up in the air,” said Sen. Paul Sarlo, the Senate’s budget chair.

Because New Jersey’s constitution requires bills to sit for a day between moving out of a committee and seeing a floor vote, budget committees must approve a budget no later than Friday and both full chambers must approve them by Sunday to avoid shutting down New Jersey’s state beaches, public parks, and government.

As part of the budget deal, legislators and the governor have agreed to enact a 2.5% surtax on corporations with more than $10 million in profit. The tax on roughly 600 businesses operating in New Jersey is expected to generate about $800 million annually and is forecast to bring in more than $1 billion in the fiscal year that begins July 1 (it will retroactively apply to the first six months of 2024).

Murphy proposed that the tax be dedicated to NJ Transit to cover a $766.8 million fiscal cliff the agency faces starting July 1, 2025. Sarlo on Monday said legislators would dedicate the funds in the budget year that begins next week.

“Every dollar will go to New Jersey Transit, dollar for dollar. No diversion whatsoever,” Sarlo told reporters following Monday’s Senate Budget Committee meeting.

It’s not yet clear how that squares with Murphy’s vision for the next year of spending. His budget proposal calls for the first year of revenue from the surtax, dubbed the corporate transit fee, to be used as a one-shot to boost state revenue as New Jersey continues to spend more than it takes through taxes and fees.

Murphy’s budget proposal includes a $1.8 billion structural deficit that will bring the state’s surplus down to $6.1 billion, or roughly 11% of proposed spending.

The eventual fate of the new tax is also unclear. Murphy has pitched it as a dedicated source of funding for the transit agency, but lawmakers have agreed on a proposal to have the tax sunset after five years. The deal was first reported by Politico New Jersey.

That timeline is a boon to business groups that have urged against a surcharge they feared would remain in perpetuity, warning that it would leave New Jersey with the highest tax rates in the nation for highly profitable businesses.

“The problem is, for me anyway, is the regional competitiveness, because Pennsylvania is on a longer-term plan to keep reducing their CBT, and it’s usually those surrounding states of Delaware and Pennsylvania that are our biggest competition,” said Michael Egenton, executive vice president of government relations for the New Jersey Chamber of Commerce.

At present, the 9% rate charged by New Jersey’s top corporate tax bracket is the fourth highest in the nation. Pennsylvania last year put itself on a path to cut its corporate tax rate to 4.99% by 2031.

Neighboring New York levies a 6.5% corporate income tax, or 7.25% for firms with more than $5 million in profit, while Delaware levies an 8.7% corporate tax.

There’s some question as to whether the tax will actually expire. The prior corporate business tax surcharge — which sunset at the end of 2023 — was meant to phase down from 2.5% to 1.5% but never did. It was also initially set to expire in 2021.

“I think the bigger picture is how do we go forward with any of these programs if government is going to say one thing and then ends up doing something else,” Egenton said.