Gov. Murphy Looks to Burnish Legacy With a $54.3 Billion Budget

Philip D. Murphy, a wealthy former Goldman Sachs executive who had never held elected office, took over as governor of New Jersey in 2018 as an unabashed liberal Democrat and in his first term enacted a millionaires tax, a $15 minimum wage and mandatory paid time off.

After nearly losing re-election in 2021 amid strong Republican turnout, he shifted his focus to touting fiscal responsibility and affordability in a state whose residents pay the country’s highest average property taxes. Mr. Murphy, who has national ambitions, has courted the bond-rating companies and crafted money-saving tax breaks for homeowners and large businesses.

On Friday night, he signed the state’s $54.3 billion budget, a spending plan that is 7 percent higher than last year’s and was passed hours ahead of a constitutional deadline. In the coming weeks Mr. Murphy will meet with companies that grade the state’s credit, hoping to use the new budget, among other measures, to burnish his legacy as a prudent money manager who paid down the state’s costly debts without losing sight of social justice initiatives.

“Everything in this budget is about growing and strengthening the middle class and providing more opportunity and more affordability for hard-working families,” Mr. Murphy said before signing the budget, flanked by Democratic allies.

“None of us up here has any desire to return to the bad old days, before our time here, where the state could not fulfill its financial obligations,” he added.

Just like consumers with charge cards and mortgages, states are subject to credit ratings that affect borrowing costs for transportation projects, school construction and other big-ticket improvements. Mr. Murphy’s predecessor, Chris Christie, a Republican now running for president, led the state to 11 downgrades after failing to fully fund the state’s minimum pension obligations and falling short on revenue targets.

Mr. Murphy scored two more downgrades amid early pandemic shutdowns, but in April earned upgrades from S&P Global Ratings, Fitch Ratings and Moody’s Investors Service — votes of confidence that shave millions of dollars off the cost of future borrowing.

“That creates room to address other state needs — the usual stuff government does, like education and Medicaid,” said Douglas Offerman, a Fitch Ratings senior director and ratings analyst.

But economic headwinds, and the fine-print details of the new state spending plan, may make additional upgrades harder to come by.

Senator Declan J. O’Scanlon Jr., a Republican on the budget committee, said that the budget, which is $1.2 billion larger than the draft Mr. Murphy proposed in February, was a missed opportunity filled with a “feeding frenzy of unexplained pork.”

He called it a “failure to seize what may have been a unique opportunity to set New Jersey on a path to long-term, sustainable fiscal stability.”

The adopted budget, which comes four months before the state legislative elections in November, is 45 percent greater than the first budget Mr. Murphy signed in 2018, which was $37.4 billion. By comparison, during Mr. Christie’s eight years in office, New Jersey’s budget grew by 18 percent.

The budget includes more money for public schools, doubles the child tax credit and expands the popular ANCHOR property tax and rental relief program.

It also includes provisions that are markedly different from Mr. Murphy’s past spending plans. The budget for fiscal year 2024, which starts Saturday, allows a surcharge on businesses with income in excess of $1 million to expire, as planned, cutting the corporate tax rate to 9 percent, from a national high of 11.5 percent. And it begins setting aside money to cut property taxes in half for most older residents starting in 2026, including those with incomes of as much as $500,000, as part of a program called StayNJ.

“It’s time to help seniors stay in our state, in their homes,” said Craig J. Coughlin, the Democratic Assembly speaker who first proposed the tax cut, which passed the Legislature on Friday with near unanimous support.

Brandon McKoy, who studies state fiscal policy for the Center on Budget and Policy Priorities, a Washington-based nonpartisan research group, criticized StayNJ and the reduced corporate tax rate, calling both “unsustainable tax cuts for the 1 percent.”

“I feel like I’m stuck in some ‘Twilight Zone’ episode where it’s Reaganonomics from 1989 all over again,” Mr. McKoy said.

States across the country are already grappling with tax collections that are less robust than in the boom days of the past decade, when interest rates were low and Wall Street provided generous returns on investments.

In May, New Jersey’s nonpartisan Office of Legislative Services cut its revenue estimate by $1.27 billion for the fiscal year that just ended. California’s estimated budget shortfall in May grew to $32 billion, almost a third higher than its January estimate, in part because of inflation and delayed tax filings.

“We’re no longer predicting a recession, but we certainly are seeing a slowdown in the broader economy,” said Oscar Padilla, an S&P director who studies states’ debt. “You still have high inflation, a tight labor market.”

But in part because of federal pandemic stimulus funds, the New Jersey budget signed Friday includes a roughly $8 billion surplus, the state’s biggest ever.

Of all the money set aside since 1995 to cover the retirement costs of the state’s 800,000 current and future retirees, three-quarters of the total contributions were made since Mr. Murphy took office in 2018, according to his office.

“If we paid the full pension payment for the past 25-plus years, our pension payment would have been $1 billion instead of over $7 billion,” Elizabeth Maher Muoio, the state treasurer, said Friday night. “Think about what we would have saved.”

A report last year by S&P Global Ratings showed that the retirement system was $101.6 billion short of its obligations. “New Jersey’s pension situation, while still generally poor, is improving thanks to a ramp-up in state funding,” the report found.

In 2020, New Jersey became one of the first states to borrow to plug a gaping budget hole during the early days of the pandemic. Republicans at the time warned about the long-term costs of borrowing $3.67 billion to cover operating costs — money that was not needed after all because of strong tax collections.

Since then, Mr. Murphy’s administration has been more cautious in borrowing, and has pointed to $8.8 billion in savings over two years as the state chose to pay down debt or pay cash rather than borrow.

Tom Bracken, president of the New Jersey Chamber of Commerce, praised the reduced corporate tax rate, but urged lawmakers to tackle the state’s tax policy in a more holistic way.

“New Jersey needs true tax reform so we can take advantage of all of our outstanding economic assets — and be the place of choice for executives, business owners and entrepreneurs seeking to expand and create jobs,” Mr. Bracken said in a statement.