On Tuesday, Gov. Phil Murphy delivered his budget proposal for New Jersey’s new, nine-month fiscal year that begins Oct. 1. The New Jersey Society of Certified Public Accountants is deeply concerned that the proposal looks very much like the unworkable budget introduced six months ago — plus $4 billion in new borrowing — before the coronavirus pandemic decimated New Jersey’s economy.
For more than five months, New Jerseyans have endured significant hardships and made difficult choices to overcome the challenges posed by COVID-19. The statewide business shutdown reduced revenues and operations of many businesses, leading to the loss of employment for more than 1.4 million of our residents. According to a recent NFIB small business survey, 1 in 5 owners fears they will close if economic conditions don’t improve in the next six months.
Yet, in a budget proposal that borrows $4 billion, the governor plans to make a $4.9 billion contribution to the public employee pension system. That would be the largest in state history and essentially equals the entire budget shortfall. Bonding that is undertaken as a last resort to meet the FY2021 budget deficit should only be for critically important, one-time expenses, not a deferral of our well-documented imbalance in spending. Has the need for pension reform ever been clearer?
In a recent New York Times article, Murphy said, “This is one of those moments where we’ve got to see beyond what’s in front of us.”
We couldn’t agree more. The borrowing and revenue-raisers in the governor’s budget will have far-reaching consequences, affecting New Jersey’s ability to grow and attract business well into the future.
The governor’s proposal to expand the millionaire’s tax and reinstate a 2.5% surtax on corporations will drive businesses and high-earning residents and their tax dollars out of the state. A reliance on higher taxes to finance unsustainable spending levels will sentence New Jersey for decades to remain last in business climate and first in outmigration.
New Jersey is facing an unprecedented fiscal crisis, and this budget does not commit our lawmakers to making the difficult decisions that will put the state on sound financial footing. Now is the time to address our long-term structural debts by making the tough choices that lawmakers have avoided for so long. We urge the governor and Legislature to accept that responsibility.
The only way to solve the state’s debt problem is through pension and benefit reform, which is why the NJCPA continues to endorse Senate President Steve Sweeney’s “Path to Progress” package of bills that would, among other things, shift from the current defined benefit pension system to a sustainable hybrid system and change benefits for new public workers, which could save the state hundreds of millions of dollars a year.
New Jersey needs a more competitive economy, not just for the businesses operating here and their executives, but for the employees who depend on these businesses for their livelihood. According to the New Jersey Business & Industry Association’s 2020 Business Climate Analysis, New Jersey has the least-competitive business climate in the region. Compared with the six other states in the region, New Jersey had the highest top income tax rate (10.75%), top corporate tax (10.5%), state sales tax (6.625%) and property taxes paid as a percentage of income (5.05%). This is on top of New Jersey’s onerous regulatory climate.
NJCPA members serve tens of thousands of businesses and individuals. They are on the front lines of the state’s economy, in the trenches with the people who make the thousands of decisions every day, big and small, that shape New Jersey’s economic climate. Our members are, by and large, practical and realistic. They know that the state can’t tax its way off this fiscal cliff and that real spending reforms are needed.
There’s much at stake. The NJCPA stands ready to be a resource to the governor.
Ralph Thomas is the CEO and executive director of the New Jersey Society of Certified Public Accountants, an organization he joined in 1999.