The new state budget enacted in a rush by Gov. Phil Murphy and lawmakers last week addresses some of New Jersey’s long-standing fiscal issues, such as fully funding public-worker pension obligations and maintaining significant reserves.
The record-high spending plan, totaling more than $54 billion, also increases aid for K-12 public schools and pads property-tax relief for senior citizens on the eve of this fall’s legislative elections.
But proposed funding for other key initiatives, such as ongoing efforts to retire New Jersey’s significantly bonded debt, was reduced at the last minute as a spending bill and other budget legislation made it to the finish line in Trenton last week.
Meanwhile, several other key financial concerns, such as the long-term fiscal health of New Jersey Transit, were not fully addressed in the fiscal year 2024 budget.
Here’s a closer look at some of the key developments as the state begins the 2024 fiscal year:
Pension funding: After years of ignoring its annual obligations to the public-worker pension funds, New Jersey for the last several years has begun making full employer pension contributions, with the latest totaling around $7 billion. But it will take decades more of making those contributions to fully address the pension system’s long-term unfunded liability. And so far, there appears to be no added money for retired public workers who continue to go without annual cost-of-living adjustments, despite another year of relatively high annual inflation.
School funding: Among the line items that increased the most in recent years is the allocation for what’s known as “formula aid” for K-12 public schools. This year, that line item went up by another $832 million, pushing the total to a record-high, $10.75 billion. Despite the big increase, New Jersey is still not fully funding the state’s school-aid law. And some districts are actually losing aid even as the overall sum has once again gone up.
Surplus: The unreserved fund balance that is traditionally referred to as the “surplus” is projected to total just over $8 billion by the time the 2024 fiscal year closes, according to updated budget documents prepared by the nonpartisan Office of Legislative Services. That’s well above 10% of planned spending, providing a significant cushion against unforeseen revenue losses or spending needs that may arise over the next 12 months.
Structural balance: One measuring stick of fiscal health for state governments is the alignment of annual revenues with annual expenditures. Under the spending bill enacted by state lawmakers last week, annual spending is increasing to $54.3 billion. But annual revenues of $52.8 billion are projected to fall well short of forecast annual spending, leaving a structural gap of about $1.5 billion, according to budget documents. To help close the fiscal year with a balanced budget, a projected opening unreserved surplus of nearly $10 billion will be reduced to a little over $8 billion by June 30, 2024, according to budget documents.
New Jersey Transit: The annual subsidy provided to New Jersey’s statewide mass transit agency was increased to $140 million in the fiscal year 2024 budget. That represents a 40% year-over-year increase for NJ Transit, which has yet to see ridership fully rebound since the onset of the COVID-19 pandemic. But the agency will continue to operate without the type of dedicated state revenues that transportation advocates have said is long overdue, even as NJ Transit budget documents indicate the agency will be facing a nearly $1 billion operating deficit as soon as the 2026 fiscal year.
Corporation-business tax surcharge: Even as overall spending is going up, New Jersey is allowing a source of revenue that has generated millions of dollars annually over the last several years to lapse at the end of the calendar year. The long-scheduled expiration of a 2.5% surcharge levied on the profits of top-earning businesses will leave the state’s top-end corporation business-tax rate at 9% in 2024. The expiration of the surcharge was hotly debated outside of the State House in recent months, but Murphy and majority Democrats held to their promise that the surcharge would only be a temporary tax.
Property-tax relief: A full $2 billion was appropriated for state-funded “Anchor” property-tax relief, matching last year’s total. But Murphy and lawmakers planned a new wrinkle for the next round of “Anchor” benefits: a $250 increase for both senior homeowners and renters who meet income eligibility limits. That will push the maximum benefit for homeowners age 65 and older to $1,750, while senior renters can now receive benefit worth $700. Funding is also being set aside for a program dubbed “StayNJ” that calls for providing additional tax relief for seniors, but not until 2026.
Child tax credits: Citing the expenses of raising a family in a high-cost state like New Jersey, Murphy and lawmakers last year established a child tax credit that made those earning up to $80,000 annually eligible to receive credits worth between $100 and $500 per child under age 6. The new budget funds an increase in the size of those credits, up to between $200 and $1,000 per child under age 6.
Federal pandemic aid: In addition to state revenues, Murphy and lawmakers also used the fiscal year 2024 budget and other legislation to appropriate a nearly $1 billion share of the state’s remaining federal COVID-19 relief allocation. Funding for hospitals and firefighter safety grants is among the many line items listed in that section of the nearly 300-page budget.
Debt reduction: New Jersey is among the states with the highest levels of bonded debt, and Murphy and lawmakers in recent years have put billions of dollars into an account that’s been used to either retire bonded debt or fund capital projects on a pay-as-you-go basis to prevent more borrowing. Another $400 million will be deposited into that fund under legislation lawmakers sent Murphy along with the new budget last week. That’s down from the more than $2 billion deposit Murphy had proposed earlier this year, when his administration had more optimistic revenue forecasts than those that carried the day in June.
