November 23, 2024

Rise To Thrive

Investing guide, latest news & videos!

Murphy’s New Jersey budget plan would beef up reserves, pay down debt

4 min read
Murphy's New Jersey budget plan would beef up reserves, pay down debt

New Jersey Gov. Phil Murphy unveiled his executive budget proposal for fiscal year 2024, a record $53.1 billion plan that takes into account the state’s expectation for a shallow and short recession by holding off on large new initiatives while boosting reserves and addressing long-term obligations.

“This budget will better prepare New Jersey for any national or global economic uncertainty,” Murphy said in an address to lawmakers Tuesday. “None of us hopes for an economic downturn, but should one occur we will be on a far stronger footing to react in real time to ensure that critical investments can continue, that our economy can be backstopped, and that vital safety nets can be quickly put up so no one falls through the cracks.”

The Murphy administration says the new plan adds $500 million more to the state’s surplus, bringing the total to $10 billion for the fiscal year beginning July 1.

Murphy made no major program proposals but called for more than $2 billion more in spending over 2023 as his administration seeks to continue using stronger-than-expected tax returns to fund long-term obligations.

That includes paying for the third year in a row the state’s full obligation into its pension system and allocating$2.3 billion to either pay down existing debt or fund capital projects on a pay-as-you-go basis.

“It’s a pretty level-headed proposal given the fact that New Jersey is flush right now,” said William Glasgall, senior director for public finance at the Volcker Alliance. “They’re being appropriately conservative about the next fiscal year.”

Many economists and analysts believe the nation is in for a period of economic contraction as the Federal Reserve continues to crank up interest rates in an effort to slow inflation by slowing the economy.

But no one can say how long or intense any contraction would be and Murphy’s approach of shoring up reserves and paying down debt would put New Jersey in a better position to meet whatever may lie ahead, said Glasgall.

Murphy’s fiscally responsible stance towards debt and reserves earned the state several rating upgrades and renewed market confidence already, he said.

New Jersey general obligation bonds are rated A2 by Moody’s Investors Service, A by Fitch Ratings, and A-minus by S&P Global Ratings.

The state’s high revenues in 2023 were driven by inflation’s effects on sales tax collections and would likely take a hit if the economy turned, Glasgall said, adding that the administration’s responsible use of federal pandemic relief money to cover many pending one-time cost infrastructure projects works in the state’s favor as well.

Marc Pfeiffer, assistant director at Rutgers University’s Bloustein Local Government Research Center, said the Murphy administration’s budget proposal prepares for revenue shortfalls while continuing to support popular public initiatives with an eye on local elections this year.

Murphy is a Democrat and his fellow Democrats control the legislature, though they haven’t always been on the same page.

“The entire legislature is up for reelection in the fall period, so it is an election-year budget,” he said. “At the moment, the economy’s doing stronger than the Fed expected it to and consumer spending is still up, so there’s uncertainty as to what next year’s revenues will look like.”

The proposal also seeks funding to extend initiatives popular with state Democrats including the ANCHOR property tax relief program, which will pay out refunds to 1.5 million people, according to the Murphy administration, and the Child Tax Credit program, which will see per child distributions doubled to $1,000.

That social spending will likely create “a cushion in case of a recession” for state residents, and give Democrats a win ahead of elections, said Pfeiffer.

Murphy’s proposal contains no new fare hikes for New Jersey Transit services which may not be an entirely good thing, Glasgall said, because it makes no attempts to propose a long-term financing plan to address the commuter rail and bus network’s chronic funding issues.

NJ Transit lacks a dedicated funding stream, with successive administrations tapping other revenue, including New Jersey Turnpike revenues, the state’s Clean Energy Fund, and even NJ Transit’s own capital fund, to keep service running, presenting a liability for the state, he added.

“It takes a lot of capital to keep a huge rail operation running properly and the problem with shortchanging the capital budget is that eventually, it catches up with you,” he said.

Glasgall also said the state worker and teacher pension systems, supported separately from other public pensions, remained underfunded.

All in all the budget proposal was balanced, said Glasgall, being flexible enough to accommodate a wide range of economic outcomes.

“If we got into a serious recession, New Jersey’s going into this in much better fiscal shape than before,” he said. “It’s got a very strong rainy day fund, a big general fund surplus. They’ve got a strategy now.”

Other proposals in the spending plan include upping education spending on direct assistance to local k-12 school districts by $830 million, bringing the total to $11 billion, and $100 million in funds for the preservation and development of affordable workforce housing units to meet an expected increase in demand over the coming years.

In one of several critical responses from state GOP leaders, Senate Republican Leader Steven Oroho called the budget “a huge and unsustainable spending increase.”

“Gov. Murphy’s budget proposal for next year is 5% larger than this year’s budget, and it’s 50% bigger than the prior administration’s final budget,” Oroho said. “We know that billions of that will likely be pork spending that should be redirected to tax relief.”