Gov. Murphy says proposed business tax won’t be permanent

A proposed tax on highly profitable businesses is not meant to be a permanent solution to NJ Transit’s funding woes, and the tax’s long-term fate would be left up to a future administration, Gov. Phil Murphy said Thursday.

The proposed tax — a 2.5% surtax on businesses with more than $10 million in profits — is intended to remain “until NJ Transit ultimately gets back on its feet again, and I have no doubt in my mind that it will,” Murphy said during a panel about high-growth states hosted by the Volcker Alliance and Penn Institute for Urban Research.

“But that will be after we’re gone,” added Murphy, whose term ends in January 2026.

The surtax is expected to generate $818 million annually, with most of the money going to NJ Transit. The tax, which would apply retroactively to the first six months of 2024, is meant to fill a $766.8 million deficit in the agency’s fiscal year 2026 budget that won’t be bridged by 15% fare hikes its board is expected to approve at an April 10 meeting.

While agency officials have found some cost savings that reduced NJ Transit’s projected deficits as they prepared to meet fiscal cliffs in the next two budgetary years, ridership has struggled to recover to prepandemic levels. Meanwhile, federal funds that kept the agency afloat throughout the COVID-19 crisis will run dry partway through the fiscal year that begins July 1.

It’s unclear whether NJ Transit can fill its funding gaps in future years absent revenue from the proposed surtax or a similarly large levy. The agency’s budget remains a patchwork filled by fare revenue, diversions, and state subsidies.

During his talk with the Volcker Alliance, a nonpartisan group that aims to improve the efficiency of government, Murphy also addressed the structural deficits present in the current state budget and the budget plan Murphy presented for the fiscal year that begins July 1.

The current year’s budget calls for the state to spend $1.6 billion more than it brings in, and sagging revenue expanded that deficit to roughly $2.2 billion. The governor has proposed a $1.8 billion deficit for the next budget, though that number could rise or fall as budget talks wear on.

“The one challenge that we have right now — and it’s conscious, but we have to make sure that when we walk out of here in a year-and-a-half-plus we’ve addressed it — and that is we are deliberately running a structural deficit,” Murphy told the Volcker panel.

Unlike the federal government, virtually all American states are required to balance their budgets — meaning expenses must equal revenue. When states like New Jersey run structural deficits, they balance budgets by spending down surplus or, in more dire circumstances, by borrowing.

“You keep kicking the can down in Washington, indebtedness keeps going up. That can’t happen at the state level. It certainly can’t happen in Jersey,” Murphy said. “In the budget context, that’s the one to-solve-for challenge before us over the next year-and-a-half-plus.”