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Battered and bloodied, NJ Dems look to future after budget battle

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Gov. Phil Murphy, flanked by Assembly Speaker Craig Coughlin, immediate left, and Senate President Stephen Sweeney, immediate right, after a fiscal 2019 budget compromise was reached.
Gov. Phil Murphy, flanked by Assembly Speaker Craig Coughlin, immediate left, and Senate President Stephen Sweeney, immediate right, after a fiscal 2019 budget compromise was reached. - ()

There's an old saying about Garden State politics: New Jersey has three parties – the Republicans, the Democrats and the Democrats.

And if there was any time to prove that statement true, it was the fiscal 2019 budget showdown, at least according to Patrick Murray, who heads the Monmouth Polling Institute in West Long Branch.

“There’s a rift certainly in the Democratic party, because this degenerated into name-calling,” Murray said. “I think that lining this up as a liberal wing of the party versus the Legislature has created some bad blood.”

And it’s a bit murky, depending on who you ask, as to who, if anyone, emerged a clear winner: First-term Gov. Phil Murphy or Senate President Stephen Sweeney, D-3rd District, arguably the most powerful elected official in the Legislature.

“I think in the end, the legislative leadership got more of what they wanted than Murphy did, even though they agreed on 85 percent,” Murray said.

Murphy signed the $37.4 billion budget just before midnight July 1, but not before a whole lot of saber-rattling and gamesmanship that at times seemed to portend a government shutdown was on the horizon.

The governor wanted a millionaires’ tax and Sweeney didn’t, and so they agreed on a 10.75 percent levy on earners above $5 million.

“There wasn’t a big winner or loser, because overall both sides got the vast majority of what they wanted.”

Patrick Murray, Monmouth Polling Institute

Murphy wanted an increase in the sales tax from 6.625 percent to 7 percent, but yielded on that demand.

The governor vowed to end the so-called “one-shot gimmicks,” but hundreds of millions of dollars of those types of short-term cash injections are baked into the budget.

Sweeney wanted to increase the corporate business tax, topping off at 13 percent for corporations making over $25 million a year.

Murphy pushed back, but ultimately Sweeney got his CBT increase, albeit a more modest one: 2.5 percent for two years and then 1.5 percent for another two years, which is projected to bring in $425 million in the first year alone.

“There wasn’t a big winner or loser, because overall both sides got the vast majority of what they wanted,” Murray said. “There were just a few different items that they differed on, and on those few items, you have to give the edge to Sweeney in particular, both on the revenue and also on school funding.”

Sweeney’s school funding measure, which Murphy now backs, calls for transitioning state aid from “overfunded” school districts to “underfunded” ones, so that eventually, every district will have no less than 58 percent of what the formula calls for under the School Funding Reform Act of 2008.

The transition will take seven years, and no district will lose more than $3.5 million a year; nevertheless, roughly 200 stand to take a hit.

Game of chicken

Matthew Hale, a political science professor at Seton Hall University, argued the budget process didn’t need to achieve such a high level of publicity.

“It seems to me that there needs to be a lot more negotiating a lot earlier between [Murphy’s] team and the Assembly leadership and Senate leadership,” Hale said. “There needs to be a lot less negotiating and politicking in the press.”

Hale decried the involvement via Twitter of some public figures, such as former Vice President Al Gore, New York Mayor Bill de Blasio and comedian Chelsea Handler, as they tried to persuade the Legislature to agree to a millionaires’ tax.

Murphy’s TV ad campaign throughout June aimed at getting lawmakers and the public to rally around his agenda also didn’t help, Hale said.

Gov. Phil Murphy holds a press conference to discuss executive budget negotiations.
Gov. Phil Murphy holds a press conference to discuss executive budget negotiations. - ()

“I think that the Assembly members and the Senate members, when they see an ad — even one that is as vanilla as those ads — they can feel attacked and they can feel that they’re being pressured,” he said.

Added Murray: “It’s good to do a lot of these things behind closed doors, and choose what you’re going to stand on publicly. You can ratchet down the rhetoric when you do that.”

A failure to communicate

The fast-paced nature of the budget led to a myriad miscommunications, right up until the Senate approved the budget and sent it to the governor’s desk.

Just before the vote on the evening of July 1, Sen. Joe Vitale, D-19th District, said he was worried the corporate business tax, if applied to health insurers in the state, would ultimately be passed down to consumers.

“It’s my fear that this language would cause a dramatic increase when insurance companies are hit with a surtax or a premium charge,” Vitale said. “Largely they pass that through to consumers, they don’t get to, or they don’t have to, absorb it.”

But he, along with Sweeney, later clarified in a statement that the corporate surtax in no way would extend to insurers.

There were other last-minute additions and ensuing confusion over the course of the week prior.

Lawmakers and business advocacy groups noticed a potential “$7 billion mistake” stemming from a “repatriation fee,” a tax on money New Jersey corporations choose to move back to the state from overseas as a result of the Trump tax cuts.

Senate President Stephen Sweeney.
Senate President Stephen Sweeney. - ()

It’s slated to collect $200 million, but the mistake, had it gone through, would have resulted in billions of additional dollars unintentionally being taxed. Lawmakers chalked it up to the rush of the budget season and the looming end of the fiscal year.

And then on June 30, business groups said they were surprised when the combined reporting provision was quietly tucked back into the budget.

The provision prevents corporations from being able to move money to entities in other states to avoid taxation. It does that by looking at the corporation’s overall profits, rather than those of its New Jersey-based entities only.

“That was a last-minute addition that nobody expected in negotiations,” said New Jersey Chamber of Commerce President Tom Bracken.

“It’s going to impose a tax liability on some of the largest corporations who have multiple facilities in and out of the state,” Bracken added.

The reinsertion of the provision dragged the July 1 voting session on for 12 hours, as legal counsel from the Legislature and Murphy’s office scrambled to prevent a surprise similar to the averted repatriation fee mistake.

Banking on weed

The fiscal 2019 budget was to have called for $49 million from a sales tax on adult-use marijuana, and another $20 million from the state’s existing medical marijuana program.

One problem remains: Recreational weed still isn’t legal.

Sweeney, at a press conference following the Senate budget vote, set his sights on legalizing recreational use of cannabis by the end of the summer.

“We’ve got to get it done, that’s our intention. Come back in three to six weeks and get it done,” said Sen. Nicholas Scutari, D-22nd District, author of legislation to expand the state’s cannabis industry.

Scutari said his newly revamped version of the bill will draw heavily from Senate Bill 2703. Sponsored by Sweeney and unveiled a month ago, it is the most ambitious marijuana legalization bill under consideration.

To fast-track the legalization process, lawmakers will bake the entire regulatory framework into the bill, so the wheels can be set in motion as soon as possible.

Scutari said the marijuana industry will be regulated by a newly created Division of Marijuana Enforcement, which will be an arm of the Department of Health.

“That’ll probably take around 180 days to get done,” Scutari said.

In the meantime, the state’s six medicinal cannabis dispensaries, also known as alternative treatment centers, will handle the expected demand of adult-use cannabis.

“One of the measures will be to allow the current medical dispensaries to sell to the public, and they’re aware of that and they’re getting ramped up for that opportunity,” Scutari said. “That’ll drive a significant increase in their business.”

Scott Rudder, president of the New Jersey CannaBusiness Association, said current infrastructure will allow the consumer marijuana industry to get up to speed fast.

“The medical program, those operators are already growing cannabis; they’re already regulated; they already have security up and running; they already have tracking systems, point of sale,” Rudder said.

Medical patients ultimately would take priority over recreational customers. Just this month, the New Jersey Department of Health announced 10,000 residents had enrolled in the state’s expanded medical marijuana program since Murphy took office, bringing the total in the state to about 25,000.

“Keeping up with the demand, either way, still seems like a strong possibility,” Scutari said.

S2703 calls for 98 additional medicinal marijuana dispensaries, and another 120 for recreational sales.

“Even in a best-case scenario, it’s hard to expect that there will be actual revenue for adult use sales in the next year,” said Kris Krane, president of 4front Ventures, a medicinal cannabis business. “That seems a bit aggressive. But the numbers themselves don’t seem outrageous once the program is operation.”

Scutari, Sweeney and Rudder all seemed to agree that the tight timeline would put the pressure on them to get things done quickly.

Some loose ends

Still to deal with are pension and health care reform, both of which Sweeney has called the “800-pound gorilla in the room.”

Although the 2019 budget allocates $3.2 billion towards the state’s pension obligation, it still doesn’t hold a candle to its $90 billion-plus pension obligation.

“It’s consuming the entire budget,” Sweeney said of pension and health care. “We need reform. … It’s radical surgery that needs to be done to save this state.”

The underfunded pension led to the state’s credit being downgraded 11 times under former Gov. Chris Christie, a trend Murphy has vowed to reverse.

One idea, floated by Michele Siekerka, president and CEO of the New Jersey Business & Industry Association, would be to transition the pension to a 401(K)-style retirement plan.

Wall Street rating agencies are expected to soon publish their financial outlook on the state, taking the 2019 spending plan into consideration.

Sweeney said progress has been made in a committee aimed at addressing some of the state’s fiscal woes. Other members include Senate Budget Chair Paul Sarlo, D-36th District; Sen. Steven Oroho, R-24th District; and Assembly Majority Leader Lou Greenwald, D-6th District.

They are compiling a report that is expected to be finalized and published by the end of the month.

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Daniel J. Munoz

Daniel J. Munoz


Daniel Munoz covers politics and state government for NJBIZ. You can contact him at dmunoz@njbiz.com.

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