Gov. Phil Murphy proposed $55.9 billion in spending for the coming fiscal year during his annual budget address, asking lawmakers to approve a structural deficit and a shrinking surplus while reviving and altering a business tax that sunset mere months ago as the state’s revenue enters a post-pandemic sag.

Murphy will ask lawmakers to approve a 2.5% non-marginal tax on all income earned by businesses making more than $10 million in annual net income. The so-called “corporate transit fee” would replace the recently expired corporate business tax surcharge, which added a 2.5% surtax on business profits above $1 million.

“We will raise this revenue without placing any new burdens on small- and medium-sized businesses. In fact, nearly 2,500 companies will see their taxes decrease from last year. And let me take this opportunity to thank, in advance, the big companies which will be stepping up. Many of them have partnered with our administration since day one,” Murphy said.

Progressive groups have for months urged the surcharge’s resuscitation, but business leaders moved to oppose the tax hike before it was even announced, with Tom Bracken, CEO of the state Chamber of Commerce, calling it “a major step backwards.”

The new tax is expected to generate $818 million in revenue annually, though it’s expected to raise just over $1 billion this year because it will be applied retroactively to the first two quarters of 2024.

Only 600 businesses are expected to pay the new tax, compared to the roughly 3,100 that paid the old surcharge. But those who do will pay more because, unlike the old surcharge, the new tax will be levied on a larger tax base that includes the first $1 million of business profits.

Revenue from the new transit fee would be dedicated by statute to NJ Transit. The money would help the agency meet the roughly $900 million fiscal cliff it faces in the fiscal year that begins in July 2026, but the statutory dedication means the money can be diverted at the whim of a future governor and Legislature.

“As our friends in the press are fond of reminding me, I have said many times that I would fix NJ Transit even if it killed me. Well, I’ve still got a pulse,” Murphy said.

Despite the additional collections, Murphy’s proposed budget would shrink New Jersey’s surplus to just under $6.1 billion, bringing it under a statutory threshold needed to keep the StayNJ property tax relief program up and running. Democrats proposed StayNJ last year as an effort to reduce senior citizens’ tax bills by half.

Provisions in StayNJ’s enabling legislation require, among other things, the state to keep a surplus equal to at least 12% of its spending to pay out StayNJ awards. Lawmakers can waive those statutory restrictions through budget language or legislation.

But the state’s surplus is likely to be smaller in reality. The administration is pushing for lawmakers to dedicate revenue from the new tax to NJ Transit. Because corporate tax collections lag by months, fee revenue from the fiscal year that begins July 1 is likely to be used to bridge the fiscal cliff NJ Transit faces starting in July 2026. That could bring the state’s surplus down to just under $5.1 billion, though it’s not clear the agency would need all the funds.

Murphy’s proposed budget would see the state spend $1.8 billion more than it takes in through taxes and fees. It would be the second straight year New Jersey has run a structural deficit, draining the surplus to meet spending priorities.

The governor’s proposal maintains a full $7.1 billion pension payment and makes the largest year-over-year increase to state school aid in more than a decade.

Murphy proposed increasing formula aid to schools by just over $900 million, bringing the state’s school funding formula to full funding levels for the first time in its history. He asked legislators to add another $124 million to fund preschool expansion, including a tranche of $20 million set aside to create 1,000 new preschool seats.

“I promised — from day one — that instead of short-changing our public schools or skimping on our pension payments we would invest in the long-term success of our state. We promised to build a stronger economy to support our vision for a fairer New Jersey,” Murphy said. “Our strategy is working.”

Despite the worsening fiscal condition, New Jersey will maintain its largest tax relief programs in the coming fiscal year.

That includes nearly $2.3 billion for the Anchor program and a planned $200 million deposit into a lockbox fund for StayNJ.

“At a time when families are grappling with higher prices at the checkout counter, we are putting more money back into their pockets than ever before. Since it was introduced, the ANCHOR Program has effectively lowered property taxes down to levels that, in many cases, our families have not seen in a decade,” Murphy said.