Legislature Passes Budget, Moves to Gov’s Desk

Both houses of the Legislature passed the FY2016 budget June 26. The Assembly passed the new $34.1 billion state budget bill by a vote of 48-31, the Senate moved the legislation forward in a vote of 24-16. Both votes were along party lines.

The bill, S2015 (Sarlo) / A-3482 (Schaer), makes several key changes to the budget proposed by the Governor back in February including the inclusion of the four-sevenths required pension payment as well as several new tax increases, including an increase in the corporation business tax as well as a ‘millionaire’s tax. The bill also eliminates several business incentive programs, to balance the extra revenue required by the required pension payment. The Governor, who has broad, sweeping line-item veto authority, is expected to veto the tax hikes and reduce the pension payment to cover the shortfall before signing the spending plan.

An veto-override attempt is expected but an override is not likely.

Heightened Tension

In the midst of a day of prepared speeches and pre-determined votes, state Senate President Stephen Sweeney (D-Gloucester) thundered at his Republican colleagues at one point arguing that the pension reform he and Christie enacted three years ago "came with an obligation, damn it! … What about damn fairness?"

It underscored the tension between the political parties in the budget standoff. Democrats and Republicans have been arguing for weeks how to fix a $1.7 billion budget gap in the fiscal year that begins July 1. The Governor called for reducing the State’s contribution to the public-worker pension system from $2.25 billion to $681 million. Democratic lawmakers say the state should institute more than $1 billion in tax increases to those who can afford it.

During yesterday’s Senate debate, a string of Republican lawmakers said they agreed with Christie and warned that tax hikes would hurt New Jersey’s economy and cause residents to flee.

In the end, both houses passed the budget plan along party lines, with all Democrats voting yes and all Republicans voting no.

One of the Democrats’ proposed hikes would raise the marginal tax rate on income above $1 million from the current 8.97 percent to 10.75 percent — an increase that would expire after three years. Another would also raise the corporate business tax rate from 9 percent to 10.35 percent — which would expire after one year.

The state constitution requires that New Jersey has a plan in place by the start of the fiscal year July 1. But that plan could change.

Christie said Wednesday he would veto any tax hikes sent to his desk, and is expected to reduce the pension payment, actions Democrats don’t have enough votes to override.

Springing Case

Of course, the budget may remain in flux after July 1 because a state judge wants to see what kind of pension payment is included and could order the state to make a higher contribution. For more information please read Chief Counsel Bob Schwartz’s article Round 1: Court Rejects Emergent Relief Application to Force the State to Comply with the Pension Contributions in Accordance with Chapter 78

The Governor has publicly argued that while the pension cut will hurt workers’ retirement funds, it’s a better option than raising taxes and slashing funding for schools and hospitals.

The Legislature’s budget plan also includes on the education side:

· Cuts Statewide Assessment Program by $1M

· Eliminates the $5M Innovation Fund

· Reduces School Choice by $4.7M

· Reduces Social Security Tax by $7.7M

· Reduces TPAF non-contributory insurance by $1.053M

· Adds new $2.5M Education Reform Implementation Grant Program

· Increases the non-public technology initiative by $2.441M

· Establishes new $3M County Vocation School District Partnership Grant Program

· Increases Charter School Adjustment aid by $3M

In addition, the bill calls for several reductions in the Alternate Benefit Program.