Governor Signs $32.5 Billion Budget, Line Items Legislative Initiated Pension Payment Increase, Millionaire’s Tax & CBT Increases
The Governor signed into law the FY2016 budget June 30, line item vetoing a number of measures the Legislature had sought to include. The $32.5 amount is a reduction from the $34.1 billion budget presented to him by the Legislature June 26.
Among the changes – elimination of the increase in the income tax rate for those making over a million dollars to 10.75 percent as well as veto of a 15 percent surcharge on the corporate business tax. The Governor in his signing statement, argued that “punitively raising taxes on our already overtaxed residents and small businesses is not the answer to the state’s short- and long-term fiscal challenges.”
The Governor also defended his decision to cut $1.5 billion from the legally required pension payments in the upcoming budget by noting that the $2.89 billion he will contribute to the pension system in his first five years in office is more than any previous New Jersey governor. He also argued that the $681 million payment he is making in Fiscal Year 2015 will cover the current cost of benefits earned by active teachers and state workers — even though it does nothing toward the $40 billion in unfunded liability that has built up over the past 15 years. Nor does it acknowledge the 3/7 requirement that was housed in the enactment of P.L. 2011, c.78 that the Governor signed.
Several legislative priorities did make it thru, however, including increases for cancer research, financial aid for low-income college students, services for victims of domestic violence and sexual assault, and for abused and neglected children.
No Over-ride Expected
Democratic legislative leaders lack the two-thirds majority required in the state Senate and Assembly to override Christie’s vetoes of the millionaire’s tax and corporate income tax surcharge, and of the restoration of the $2.25 billion Fiscal Year 2015 pension payment the taxes were designed to fund.
Senate President Stephen Sweeney (D-Gloucester) and Assembly Speaker Vincent Prieto (D-Hudson) could call the Legislature in for a special session later this month for override votes if they want to make political points.
There is talk of legislative action to seek legislative approval to place constitutional amendments on the November 2015 ballot to increase the millionaire’s tax and to require the state to make pension payments on a regular quarterly basis during the budget year. Democrats previously used the constitutional amendment process to win approval of a minimum wage increase because the governor does not have the power to block such voter initiatives.
Impact of Litigation
Also on the event horizon is challenge to the Governor’s action to reduce the pension payment legally that continues (Round 1: Court Rejects Emergent Relief Application to Force the State to Comply with the Pension Contributions in Accordance with Chapter 78, Robert Schwartz). Jacobson last Wednesday rejected a public employee union injunction challenging Christie’s right to cut the FY14 pension payment by $900 million, accepting the governor’s argument that a plunge in state income tax revenues discovered in late April left the governor with few options other than the pension cut to fill the FY14 gap. But Jacobson also ruled that the 2010 pension law signed by Christie did create a contractual obligation for the state to make the pension payments required to ramp up over seven years to full actuarially required funding of its pension system by FY18 — an indication that the judge could order the state to revise the $32.5 billion budget Christie signed yesterday in order to make the full $2.25 billion payment over the next fiscal year.
If Jacobson does decide that the scheduled pension payment is a contractual obligation that the state must make this year, and the state Supreme Court ultimately agrees, the state Legislature could be called back into special session to revise the budget either by increasing revenues or by cutting other programs.