Gov. Sherrill’s Budget: Spending Increase Funded by Depletion of Rainy Day Funds and More Money Extracted from Corporations. Meanwhile, ExxonMobil Leaves NJ for Texas.

Gov. Sherrill presented a record $60.7 billion budget to the legislature, touting her “affordability” pitch and claims of no new taxes (as opposed to tax increases) on individuals. The news headlines focused on her cutting $500 million from the StayNJ property tax rebate program for seniors (effectively a $500 million increase in property taxes for certain individuals) and her call for addressing legislative pork-barrel spending. But the legislature will have its say, so the actual results remain to be seen.

While it is true that Sherrill cuts some spending items, she also increases some, with the net being a $1.8 billion spending increase over Gov. Murphy’s last budget. Sherrill does cut Murphy’s deficit from $3 billion to $1.6 billion, but to achieve all this, Sherrill is depleting the state’s Rainy Day fund by $1.8 billion — the same amount as the overall budget increase. This continues Murphy’s practice of misusing Rainy Day funds to plug budget deficits while leaving less money to address future emergencies.

Sherrill also plans to extract another $265 million (it may well be as much as $895 million**) from New Jersey’s corporate sector, which will make New Jersey’s lousy business climate even worse. As if to confirm this, at the same time of Sherrill’s address, ExxonMobil announced that it is moving to Texas to find a better business climate.

All told, Sherrill’s budget is arguably a slight improvement over Murphy’s profligacy, and her calls for transparency and no new taxes are a nice change. Rhetoric aside, we hope Gov. Sherrill will take note of the real-world consequences of New Jersey’s tax policies.

Here are some of Sherrill’s major proposals, using data from NJSpotlight News unless otherwise noted:

• Another record budget. Sherrill is proposing a record $60.7 billion budget, up $1.8 billion, or 3%, from Gov. Murphy’s last budget. We suppose that’s an improvement over Murphy’s 69% increase over eight years, but it’s still an increase that will have to be paid for, and Sherrill is essentially paying for it by depleting the Rainy Day fund by $1.8 billion (see below).
• Another budget deficit. The same can be said for the budget deficit. Murphy left the state with a $3 billion deficit and Sherrill reduces that to $1.6 billion, but it’s still a deficit, which she is plugging by drawing down the Rainy Day fund.
• Rainy Day funds depleted again. Raining Day funds are budget surpluses reserved to support state budgets “during economic downturns or unforeseen events [like COVID],” according to Pew Charitable Trust. Sherrill is reducing Rainy Day funds by $1.8 billion to plug a budget deficit, just like Murphy. That will leave the Rainy Day fund at $5.4 billion, or 8.8% of the budget, which translates into about 32 days of spending, versus a national median of 47 days (Pew). Under Murphy and Sherrill, Rainy Day funds will have been cut in half, from $10.7 billion to $5.4 billion, to plug budget deficits, which is not their intended purpose.
• $500 million reduction in StayNJ rebates (a.k.a., property tax increase). StayNJ was the brainchild of Assembly Speaker Coughlin and aimed at easing the property tax burden for senior homeowners (so they retire in New Jersey not elsewhere). Sherrill proposes to reduce the rebates by $500 million. We will see if the legislature cooperates, but in any event, this would be tantamount to a $500 million increase in property taxes. Perhaps no “new” taxes, but certainly a tax increase for certain individuals.
• Another full pension payment. Sherrill continues Murphy’s full pension payment of $7 billion a year. This is understandable, given that if the state did not make the full payment, there would be numerous negative repercussions.* The problem is that despite Murphy’s $47 billion and Sherrill’s $7 billion, the unreformed state pension system is still only about half-funded, and it will take decades of full $7 billion payments to get it to sound footing. What happens if there is a recession and/or budget squeeze? The pension system needs to be reformed. Period.
• $265 million (or $895 million) more in corporate fees and taxes.** Sherrill may not be raising tax rates on corporations, but she is limiting certain tax deductions and proposing a fee on corporations with more than 50 employees on Medicaid. The former would extract $120 million (or $750 million**) from businesses, according to BINJE. The latter would net another $145 million from large employers like Amazon and Walmart and about 750 other corporations, according to New Jersey Monitor. All told, these would raise another $265 million in revenues, according to NJ101.5. That’s another $265 million extracted from New Jersey businesses.

ExxonMobil leaves New Jersey for a better business climate in Texas. As it happened, at the same time Sherrill presented her budget, ExxonMobil announced it is leaving New Jersey and heading for Texas “in search of a more business-friendly environment,” according to the Wall Street Journal. For the record, ExxonMobil is a $630 billion corporation that has been incorporated in New Jersey since 1882. The state’s tax revenues from ExxonMobil will drop from 11.5% of taxable income to zero. Of course, this is no surprise to Sunlight’s readers, who know the Tax Foundation ranked New Jersey in the bottom two states for its business tax climate for every year of Murphy’s two terms. Given that experience under the previous Democratic governor, ExxonMobil apparently doesn’t see much of a reason to stick around and find out if Sherrill would improve the business climate. It sure looks like they were right.

All told, Sherrill’s budget is arguably a slight improvement over Murphy’s profligacy, and her calls for transparency and no new taxes are a nice change. Rhetoric aside, we hope Gov. Sherrill will take note of the real-world consequences of New Jersey’s tax policies.

*Per GASB rules, if New Jersey stops making the full, required pension payments, GASB will use a much lower discount rate to determine the present value of the state’s unfunded liabilities, which will increase the unfunded liabilities and decrease the funded ratio. This would likely result in a credit downgrade. She would also likely get political heat from the NJEA.

**The excellent Brent Johnson of NJ.com says the number is $750 million, which would make for a total of $895 million.