Now that Gov. Phil Murphy and some legislative leaders rejected the idea of extending a surcharge on New Jersey’s Corporate Business Tax as a funding option to keep NJ Transit from going over an approaching fiscal cliff, how can the state close an almost $1 billion shortfall predicted for 2026?
Extending the surcharge, which raised $1 billion annually, to help the state’s rail and bus agency was seen by many as a no-brainer to help avoid fares hikes and service cuts. It was proposed by Jersey City Mayor and 2025 Democratic gubernatorial candidate Steve Fulop in August and by the left-leaning think tank New Jersey Policy Perspective in September. State Senate President Nick Scutari, D- Union, also recently suggested the option.
But Murphy said in a speech to a business group Wednesday he is standing by a promise to let the surcharge sunset on Dec. 31, and leaders of both the state Senate and Assembly budget committees publicly agreed.
“All options on NJ Transit are on the table,” the Democratic governor told reporters Thursday when asked how the state plans to fund the agency instead. “The corporate business tax surcharge was a temporary step we took when we first got into office because the fiscal state of the state was so weak.”
In turn, “these corporations committed to investing more and creating more jobs,” Murphy said.
Funding NJ Transit is “a work in progress. It’s not hanging over our heads tomorrow,” he said.
Transit advocates and experts interviewed by NJ Advance Media said that’s the kind of thinking that got NJ Transit into the current funding crisis.
“Whichever route the state pursues, the time to act is now,” said Zoe Baldwin, Regional Plan Association New Jersey director. “Our toes are already hanging off the lip of the fiscal cliff and riders deserve better.”
In April, a four-year NJ Transit budget forecast predicted a growing shortfall as federal COVID-19 aid runs out next year, starting at $119 million in fiscal year 2025, beginning on July 1, 2024. That snowballs to $917 million in fiscal year 2026 and hits $957 million in FY 2027. That’s based on flat state funding and no fare increases.
While the agency embarked on a “realignment” in April to look at cost-cutting efficiencies, fare increases and service cuts, results of that exercise haven’t been made public.
Advocates and experts had very concrete ideas.
“There really aren’t many single revenue streams that would yield the funds necessary to bridge the gap,” Baldwin said. “One that should be examined is raising the sales tax back to 7% from the current rate of 6.625%.”
That could yield an estimated $750 million annually and have an “incredibly low impact on families at any income level,” she said.
“That revenue would get us within spitting distance of the agency’s need,” Baldwin said.
NJ Transit also should pursue and “double down on revenue” from transit oriented development projects where developers pay an annual ground lease to build on agency property, she said. That was done in a recent Transit Oriented Development agreement for Metropark station in Woodbridge.
That 99-year agreement approved Nov. 8 provides a $600,000 annual ground lease payment with 2% annual increases, 4.5% of gross revenue generated by the developers, and $300,000 annually from a parking lease to NJ Transit.
Ground leases with recurring annual payments could be used for other large transit oriented developments on agency land and parking areas, NJ Transit CEO Kevin Corbett said on Nov. 8.
Dedicating funds to NJ Transit from the current Corporate Business Tax could be examined, Baldwin said.
Democrats — who also control the state Legislature — should look at tax cuts that Republicans suggested and use the savings to fund NJ Transit, said state Senate Minority Leader Anthony Bucco, R- Morris.
“Republican budget members propose spending restraints every year. Many are still viable and could free up funds to help New Jersey Transit,” Bucco said. “Democrats ignored those proposals in the past and shoveled up to $1 billion of wasteful spending into the budget at the last minute.”
Bucco also criticized NJ Transit for approving “the most expensive lease option for a new headquarters at 2 Gateway Center in Newark, despite two less expensive options.
“If Democrats and Governor Murphy continue rejecting reasonable proposals to free up money for more important priorities, like NJT’s deficit, taxpayers and public transit riders will continue to get whacked with fare increases or service reductions that could have been avoided,” he said.
Dedicating a Corporate Business tax surcharge to NJ Transit is the best way to close its budget gap with stable recurring funding, said Peter Chen, New Jersey Policy Perspective senior policy analyst. Nothing is stopping the Legislature from reinstating it in 2024, he said.
Scutari also said it could be revisited next year.
”We could do that. Everything’s on the table,” he told NJ Advance Media on Thursday. “You’re talking about multinational corporations who do really, really well. These are not small businesses.”
The state has “a real problem with NJ Transit funding,” he said. “We’ve got a real problem with other funding sources.”
That problem is slowing revenue collections, said state Sen. Declan O’Scanlon, R- Monmouth, the Republican budget officer, in an interview with NJTV’s David Cruz. Similar to NJ Transit, federal coronavirus aid and funds are being drawn down and will be gone, a warning he gave in March.
An advantage is NJ Transit has a seat at the table with board chairperson and the governor’s chief of staff Diane Gutierrez-Sacchetti , said Micah Rasmussen, director of the Rebovich Institute for New Jersey Politics at Rider University.
“It would be a surprise if the outcome was the worst possible,” Rasmussen said. “The problem for Governor Murphy is he felt constrained to rule out the option that happens to be the most palatable to most New Jerseyans.”
Transit advocates and experts say the business tax surcharge is the best option and want it revived.
Tri-State Transportation Campaign backs the Corporate Business Tax “or any progressive funding alternative that supports frequent and reliable transit service,” said Renae Reynolds, executive director. “It is unacceptable to do nothing, and it would be slap in the face to NJ Transit riders to continue to lose service, while also being asked to pay more.”
Chen said advocates are “pushing hard” for the Corporate Business TaxCorporate Business Tax, holding a recent rally at the Statehouse in Trenton and petition campaign.
That tax targets the largest profit-making businesses based on earnings, sparing small businesses and individuals from tax increases in other options, he said.
“Corporations are making money off the economic engine of NJ Transit and transit access. It makes sense for them to pay to keep the service for their employees and customers,” Chen said. “The entire economic engine relies on the transit system.”
Increasing sales taxes is an unpopular option, he said.
“Most state rely on sale taxes for public transit,” Chen said. “In times of inflation, legislators are not eager to raise the sales tax.”
Other options include resuming the estate tax or raising the inheritance tax on high income earners, Chen said. The existing agreement with the New Jersey Turnpike Authority to provide funding for NJ Transit operations could be made more permanent, he said.
Chen cautioned about hitting up the toll authority for more money.
“I don’t think we can dig deeper into the turnpike without affecting its mission,” he said.
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Larry Higgs may be reached at [email protected].
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