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What Does Murphy’s 2021 Budget Mean for the County?

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By Vince Conti

COURT HOUSE – Gov. Phil Murphy showed his cards on his revised 2021 budget proposal, at Rutgers University’s football stadium Aug. 25. 

The proposal includes $1.2 billion in spending reductions over the previous 2021 budget. It calls for the borrowing of roughly $4 billion to offset state revenue shortfalls due to the pandemic and includes new taxes, most notably with a return to Murphy’s millionaire tax. 

In his budget, the governor preserves school aid at previous levels, doesn’t cut “core” state municipal aid, and provides funds to support school reopening expenses and direct subsidies for child care. 

Murphy also proposed a $1,000 “baby bond” for children born, in 2021, along with additional funding to the affordable housing trust fund to support municipal efforts to build more affordable housing. 

The proposed abbreviated nine-month budget, beginning Oct. 1, projects a $2.2 billion surplus, which represents over half of the COVID-19-related $4 billion borrowings. Murphy said the surplus is the state’s cushion for a second wave.  

“We will not meet a second wave unprepared,” he added. 

Schools 

School spending is the single-largest expense in the state budget. Murphy’s 2021 $32.4 billion proposal would keep the formula funding flat, which means that most Cape May County districts will still be dealing with the reduced aid levels included in the earlier budget, as the state moved to alter funding priorities. 

The budget contains additional funding for preschool, with existing programs included, along with about a $70 million increase for additional districts to start programs. 

New funds for pandemic-related costs would likely help, but most experts believe that the amount proposed, roughly $300 per student, on average, will fall short of actual expenses, which some estimate at $1,000 per student. 

Murphy sees this emergency budget as a “pause” in his ongoing plan to fully fund the state’s School Finance Reform Act, meaning it would continue to  proceed with the projected annual reductions in state aid for most Cape May County districts over the next several years. 

Property Tax Relief  

The budget restores programs popular in Cape May County, including the Senior Freeze and Homestead Benefit. 

The budget contains funding for county-level dispatch centers and payments for Open Space preservation, which the state claims will reduce pressures on municipal taxes. 

Municipal Aid 

 

The budget preserves municipal aid at the previous year’s levels. These funds come almost exclusively from the energy tax receipts in each municipality, meaning the distribution of the funds should also remain as it was in the previous year. 

Public Pension Payment 

The budget also maintains the full increase in the public pension payment under an agreed-upon formula, raising the payment from $3.7 billion to $4.9 billion. This would be the largest percentage of the Actuarially Determined Contribution paid in 25 years. 

New Taxes 

 

Paying for many of the initiatives in the budget leads Murphy to push for new sources of tax revenue.  

Murphy’s proposal includes a higher maximum tax on incomes over $1 million, makes permanent a 2.5% corporate surcharge that was set to expire soon, places higher taxes on limousine and boat sales, while also removing the tax cap on boat and yacht sales.  

It also puts in place a 5% surcharge on high-income individuals who benefit from federal Qualified Business Income (QBI), created under the 2017 federal tax cut. Gun buyers and cigarette smokers would also pay more if this budget is enacted. 

Murphy called the measures an increase in fairness and justice in taxation. 

In 2016, Cape May County boat and yacht sales began a period of growth following a 50% cut in the sales tax for the items and the establishment of a $20,000 cap on total taxes.  

Murphy’s budget would restore the full sales tax and remove the cap; a move that the industry says would place it at a serious disadvantage with states along the Atlantic Coast, especially Florida. 

One example is that a $4 million yacht purchase would carry with it a nearly $300,000 tax instead of a tax capped at $20,000. 

The proposed cigarette tax hike would move the state from its current position of 12th most heavily taxed state for cigarette purchases to number one, at $4.35 a pack. 

The budget projects revenues of $13 million from restoring the tax on limousines, $7 million from boat sales, and $6.3 million from increasing the tax on firearms sales, along with an excise tax on both firearms and ammunition. 

The big increases in revenue will come from the taxes on the wealthy. 

Murphy’s budget calls for the imposition of a millionaire’s tax, an increase of the top marginal tax rate imposed on income over $1 million.  

It currently begins at $5 million. He estimates that the state will gain $390 million from the move.  

His budget also calls for a 5% surcharge on QBI, starting at $1 million. While Murphy said this will net the state $75 million in needed revenue, he also argued that it is “a measure of equity following the substantial federal tax cuts instituted, in 2017, that disproportionately benefited higher-income earners.” 

In other words, his emergency 2021 budget takes direct aim on one of the Republican Party’s major federal legislative achievements under the current administration. 

Another $210 million is gained, the budget projects, by extending the 2.5% Corporate Business Tax surcharge, which was set to expire. 

Borrowing 

The budget proposal calls for $4 billion in new borrowing, but says little about the specific use of the borrowed funds. Does the $2.2 billion in surplus come from stashing away more than half of the new borrowing? 

Even if the surplus can be attributed to cost cutting and new tax revenue, a difficult argument if the cuts in expense and the new tax revenue together equal just about what will be in surplus, the question is whether Murphy’s victory in the Supreme Court anticipated a large portion of the new borrowing being placed in surplus. 

Legislature 

 

None of this is law. Murphy’s budget is still a proposal, which must be enacted by the Legislature before Oct. 1.  

Many aspects of the budget are likely to meet opposition. Murphy has failed in the past to get his millionaire’s tax enacted, for example. 

To contact Vince Conti, email vconti@cmcherald.com. 

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