The 411 on New Jersey's New Budget

July 20, 2021

This was one of the most unusual budget seasons in New Jersey's history! Instead of being several billion dollars short, as was projected when the fiscal year 2021 budget was being drafted, the state has seen a $10 billion surplus. Listen to our interview with NJBIA's Chris Emigholz to find out where all of that money is going. 

Episode Transcript

Jeff Kaszerman: Hi, I'm Jeff Kaszerman, vice president of government relations at the New Jersey Society of CPAs, and welcome to episode 75. Today, we're going to talk about the very unusual budget season New Jersey just went through. Instead of being several billion dollars short, as was projected when the fiscal year 2021 budget was being drafted, instead the state has seen a $10 billion surplus. On top of that, there's the $6.2 billion the state will receive under the federal American Rescue Plan, which I'll call ARP from here on in, though that money is not technically a part of the budget and... Believe it or not, there's more, local governments will receive another $4 billion from ARP. So how did lawmakers deal with all this extra money? Were they fiscally responsible or have they gone on a spending spree? Or is it some of both? Our guest today is Chris Emigholz, the tax and budget lobbyist with the New Jersey Business and Industry Association, who will help us make sense of it all. Chris is my go-to guy on all things budget related, and I am sure he rues the day that I got hold of his cell phone number. Welcome Chris.

Chris Emigholz: Thanks for having me, Jeff.

Budget Overview

Jeff Kaszerman: Before we get started, let me kick things off with a broad overview of the budget. The budget is $46.4 billion, which is $1.6 billion more than the budget Governor Murphy proposed in February. This budget represents a 35-percent increase in just four years and a 15-percent increase over last year's budget. Once you adjust for inflation, that makes this budget about 20-percent larger than the last budget under former Governor Christie. As a further comparison, Christie increased spending by just 5 percent over eight years. I mentioned earlier that there is about $10 billion more in revenues than projected. Approximately $4 billion is from the bonding the state did last year, and $6 billion is from unanticipated tax revenues. The budget includes a $6.9 billion contribution to the state's underfunded pension system. That's a $505 million increase over what the Governor originally proposed. When you throw in a few billion more for other worker benefits like health insurance, these benefits eat up about 20 percent of the budget. There's also a new $319 million tax rebate program with about 760,000 New Jersey residents eligible to receive up to $500. This budget sets aside $3.7 billion for a debt defeasance fund: $2.5 billion of it is to retire state debt, and $1.2 billion is to pay for capital projects upfront to avoid bonding. There's also a $580 million increase in school aid. The budget includes expansion of the homestead rebate program, child and dependent care credits, and the earned income tax credit. There's also an increase in the state income tax exclusion for retirees. For certain retirees, it will be raised to $150,000. And, depending on how you calculate it, the budget also includes a surplus of around $2.8 billion. Chris, all things considered... And there's a lot to consider, is this a good budget for New Jersey, a bad budget or somewhere in between?

Chris Emigholz: Well, that's an excellent question, Jeff. I think that's what we always want to try to decipher when we're at this time of the year, early July. All the dust is settled, and we still have dust settling, and as we've been talking about, there's still things in the budget that are somewhat up in the air, but I think it's definitely in between. I think there's parts of this budget that are definitely good, there's parts that are probably too good to be true, and there's still parts of this budget that are bad that have reason for taxpayers that are out there. I think the good... This is the first proposed budget by Governor Murphy out of his four, now it's signed into law, that does not include a direct tax increase on taxpayers. That is something to give credit for because his first three budgets had a significant number of taxes on many different segments of the economy. Probably to your CPAs, it would be able to say, "Well, some of them were very complicated and were difficult for taxpayers to comply with." And so, to have something where there's no new taxes going up and even a part of the good with this... And it doesn't hit the business community as much, but it's still good, is that there is a smattering, as you mentioned in your intro, of tax relief for individuals in this budget. I'd even like to point out, too, that I think probably many taxpayers, CPAs, I think they're good for the economy, good for getting people to continue to live in New Jersey and that's on higher ed affordability. Anytime we can convince more people to either save for, pay for or pay back loans for college, I think it's good for workforce development, which is good for the economy. And we're going to get a little bit of a tax incentive on paying for college, paying for college loans or saving for college, putting money into those savings plans.

And then also the one you mentioned for the retirees, kind of smooth that fiscal cliff where it used to be: You make a $100, 001, boom, you don't get any of this tax benefit that anybody under a $100,000 did. Now, it's smooth to... For $100,000 to $125,000, you get a little bit of that tax benefit, and then $125,000 to $150,000, a little bit less, but still something. And then just at $150,000, is now the smoother cliff, as opposed to the kind of cliff dropping at a hundred right away. So I think those are two positives.

There's some good things. There's also good things... I like to call it the big three of pro-growth spending, and that's anytime we can put money into infrastructure, innovation or workforce development, I think we are helping the economy. I think the Governor proposed some significant infrastructure investments in his budget back in the winter that lasted through the negotiations and through the legislative process. Now the Legislature put a little more money into workforce development, and BIA was happy to work with the legislature on that. We worked with our county colleges to put a little bit of money into some of the great workforce programs that they do. And then innovation, our state does a lot of innovation, but we can always do more. We've got to keep our place where we have a lot of jobs in the innovation stem economy. And I think we did a few things in the budget that'll help on that.

Help for Small Businesses

Jeff Kaszerman: Should there have been more direct aid for small businesses, kind of like the money that was being distributed by the EDA when the coronavirus was in full swing?

Chris Emigholz: I think so. It's probably... I wouldn't quite say it was bad because I think there's still federal money left. I think we saw significant amounts of federal money going towards business, whether it was from CARES and now the plan is for more American Rescue Plan money to go towards business. And the EDA has done a great job with the money they've been given. I think the only negative I would say about the EDA is I wish they had more money. Small businesses, we still know, we look at some of the data out there that the small business revenue has consistently been down about a third from before the pandemic, and small business that are closed, there's been about a third closed since before the pandemic. Part of that is the pandemic, and it's no one's fault, but some of that is government's response to the pandemic where they said certain businesses couldn't be opened or certain businesses couldn't operate the same way that they used to. And so, the government, in response to a natural disaster that's no one's fault, is putting requirements on business that has forced them to close or forced them to limit their revenue. I think it's incumbent upon government to come back and give them some aid. I think the federal government has... Whether it's the PPP program or the EIDL program, other programs that they've had embedded in some of the massive stimulus programs that we've seen. And I think the state government has as well. I think state government needs to continue that because we're still seeing businesses that are struggling.

We're still seeing the hiring crisis out there where they can't find enough people to work for them. We hear the retort from a lot of our lawmakers, legislators, policymakers... just pay people more. Well, they can't afford to pay people more because they've been limited in their revenue for the past year and a half because of government mandates. And now you're saying, "Oh, just pay them more to get them to work for you." They can't afford that. And so, I think if we were to give them more grants, for small businesses, if revenue was down about a third from before the pandemic, and yet these businesses have gotten these EDA programs again, they've been great, but they've been generally capped at $5,000, $10,000, $15,000, $20,000, that's not equal in the third of the revenue that they lost. And so, I still think we need to do more. And every iteration of the EDA program has been more successful in getting money out the door and hitting different businesses and maybe being a little larger, but there's still some cracks. There's still some businesses that I think have slipped through. Businesses that have opened up relatively close to the start of the pandemic have not gotten the aid they needed either federally or nationally. I think there's other ones.

We want to encourage new businesses to kind of fill some of those vacant storefronts on main street, take the plywood down, open back up, take those for sale, for rent signs down. The way we do that is, we get to stimulate those guys to start. And so, I think money is necessary. And the good thing is we still have a significant amount of the American Rescue Plan money to spend. I believe this budget, depending on how you calculate it, it probably spent $1 to $2 billion of the $6-plus billion that that state had. And so we still have more than two thirds of that money left.

Jeff Kaszerman: Oh. So some of the ARP money is actually in the current... the budget that was just passed? For some reason, I-

Chris Emigholz: It's a good reason to question it, because it's not in the budget. So the line-item spending in the budget is not backed up by the federal money. And then that's a good thing because I think the federal money should not be going for anything that's recurring. And if you have a line item in the budget, that's probably for a recurring program and we don't want to be using federal one-time money for anything recurring in our state budget. But there is budget language in the budget that dedicates federal money for certain programs. One of the last budget language items, and it has a variety of, some of it probably public health related, some of it is business related, some it's infrastructure related. But they dedicate a fair amount of the federal money towards various programs. Some of it is all business relief and that's great, but I still think we probably need more of it.

Rushing the Budget Through

Jeff Kaszerman: So just about every group in the shape from every part of the political spectrum has criticized the legislature and the Governor for rushing the budget behind closed doors, so to speak. The budget wasn't signed until five days after the legislature passed it. So certainly they can't say, "Well, there wasn't enough time to give the public more time to look at it." So what’s up, Chris? Why the lack of transparency, which is especially concerning to me at least-

Chris Emigholz: That's a good question, Jeff. I think there are troublesome things in our budget process and that's not news. I think we've seen this for years when... I've worked now on many budgets, and working with the Legislature, working the executive branch and every budget, you probably don't have the level of transparency that taxpayers deserve and should get in a state like New Jersey. And with the amount of taxes they pay, they should have more of a seat at the table and be part of the process. And taxpayers meaning, your members, my members, the public in general, the vulnerable that pay taxes, the business taxpayer, the individual taxpayer, the sales taxpayer just behind things. Everybody in the state should have a seat at the table and should be able to feel a little more behind the scenes in what goes on in this budget. The $46.4 billion is coming from the New Jersey population. And I think they have a right to be a little more part of the process, but it's also something that... It's good to see that, I guess, the angst and the tension and the pushback has grown this year, but I don't think the process is radically different this year. The Legislature goes through a significant number of public hearings where the public can listen in to them going through and grilling, in some cases, every single one of the Governor's department heads about their budget, what they're spending money on, why they're spending more here, less here. And I think the public also has a chance to directly weigh in via public hearings, beginning of the process to say, "What are the priorities?" I know BIA does, many other associations around New Jersey do, and many people in the public show up to these meetings in Trenton and Newark to Camden to say, "Hey, good job with this. But what about this?"

I've seen some of that public input translate into changes in the budget. And you have a mom or dad going through an awful thing with their family and saying, "We need help with this or that." And the legislators start asking questions and they ask questions based upon hearing from that family through the commissioner that might be overseeing a program that their son or daughter or family member benefits from, and then things just get made. I think that's an important part. I think it does get forgotten about sometimes, and there is a public process to this, but where things do fail is that, despite all of that, there's still a lot of stuff that goes on behind the scenes. A lot of money that gets added to the budget that no one knows about, and it's not for a public purpose.

So I think that's the frustrating part of the budget. And, for example, you said it in your introductory notes, but we saw the Governor propose a pretty generous budget back in the wintertime. And from that very generous budget, we saw $1.6 billion more added to that. I said there was the good, the too good to be true, the bad. One of the bad numbers is that we found out we had $1.2 billion more in revenues than the Governor thought back in the winter. And so you say, "Hey, that's good news. We're at $1.2 billion more, maybe that we can see some of the structural imbalance go away if we have $1.2 billion more than we thought." Oh, not so fast, because you now have $1.6 billion being added. The structural imbalance actually went from $4 billion to $4.4 billion. So we were spending $4 billion-plus more than we're bringing in, in this budget. We're adding a lot on personal proprietary parochial projects for certain legislators, certain constituencies that did not get vetted, did not go to a public hearing. They were things that just came out at the last second. Should we be funding money for parks and recreational activities and intersections in particular counts that don't go through the Department of Transportation or Community Affairs or Department of Health, they’re formulaic grant processes that they have in place will do great work. You can't say what's a waste and what's not a waste because it's probably, a lot of this is for good purposes, but why are we funding one park and not another park? Why are we funding one intersection, not another intersection? Is it the most dire intersection in the state? We have no idea because we don't know where this came from, we don't know anything about it.

A few years ago, under Governor Codey, when Governor Codey was also Senate President Codey, we did some reforms and we instituted this budget resolution process and no change could come to the governor's proposed budget without the legislature putting their name next to it and saying, "Senator so-and-so assemblyman so-and-so was asking for this." A lot of times we get those budget resolutions come out months after the budget's signed, sometimes they don't come out at all. And that's problematic, the public needs to see where this is coming from, why this is happening and they don't get to see as much as they should.

Debt Defeasance Fund

Jeff Kaszerman: So, Chris, let's take a look at the $3.7 billion put aside for a debt defeasance fund. And that includes $2.5 billion to retire state debt, and $1.2 billion to pay for capital projects upfront to avoid bonding. This was something that the business community including CPAs, as well as NJBIA and others, was something we strongly advocated for, but quite frankly, I was surprised to see how much lawmakers actually put into this. After all it is an election year and New Jersey lawmakers aren't especially well-known for being so fiscally responsible. So tell me, were you surprised?

Chris Emigholz: I was probably surprised to the extent of it. I thought they would do something on debt and something on capital construction. But yeah, $3.7 you make an excellent point that it's a big, big investment. It's something that I know CPAs and NJBIA have been asking for and pointing out that they need to look at debt and see where we can retire some of the more expensive debt and see if we can avoid some future debt. I think the capital construction is exciting for me, and infrastructure spending in general is exciting for me because anytime you're doing capital construction, yes, it's avoiding future debt. Yes, you're creating jobs, but there's a stimulative effect.

Chris Emigholz: Those jobs you're creating... That new school, that new 5G, that new water infrastructure you created, it's going to last for years, and many people are going to benefit from that. And so this stimulant [inaudible 00:19:40] the economy of capital infrastructure spending is a great thing. And so, I think spending money now on that, you're going to see future revenues grow from the state and for the state. And so again, hopefully that helps avoid some of that structural imbalance that I was talking about, where if we do enough stimulate the economy now, because we have all [inaudible 00:20:00] cash on hand, maybe when we don't have the cash on hand in the future, we're not going to have that fiscal cliff because the economy is booming a little bit.

Jeff Kaszerman: Yeah. So we'll give the lawmakers an A for the defeasance fund. Well, as always Chris, our time together goes quickly and I could lock the doors and talk to you for hours about this stuff, but I wouldn't do that to you. I hope I wouldn't. But thanks again for joining us today.

Chris Emigholz: No, it was nice to talk to you as always, Jeff. I always enjoy talking to your members and hearing from CPAs and hopefully I was helpful, and always look forward to talking to you again. Thank you, Jeff.

Jeff Kaszerman: If you'd like to read more about the budget, visit and stay tuned for our next episode in two weeks.


Christopher Emigholz

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Jeffrey  Kaszerman

Jeffrey Kaszerman

Jeff Kaszerman is the vice president of government relations for New Jersey Society of CPAs. He works with the CEO and board of trustees to create and implement advocacy initiatives that protect and promote the interests of the CPA profession, the business community and the public.

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