Top Democrats have split with the New Jersey Senate president over extending the surtax on businesses

Gov. Phil Murphy on Tuesday again ruled out expanding the 2.5 percent surtax on profitable businesses as a means to address major funding shortfalls NJ Transit will face in the coming years.

Murphy recommitted to his plan to let the additional tax lapse at the end of the year during remarks at the New Jersey Association of Business and Industry’s annual conference.

“On the one hand, a deal is a deal. We said it was a bridge until we got to a better place, and we really have,” Murphy said.

The comments by Murphy, who acknowledged that state spending has exceeded revenue, could doom a proposal by Senate President Nicholas Scutari (D-Union) to extend the tax to help NJ Transit avoid the steep fiscal cliff it faces in the coming years.

The beleaguered transit agency, whose ridership has not recovered to pre-pandemic levels as virus fears eased, is fully funded in the current fiscal year by a mix of fare revenue, diversions, subsidies and federal funds that are set to disappear by the end of next fiscal year.

The agency faces a $119.4 million deficit in the fiscal year that begins July 1, with a $917 million shortfall expected in the next budget year.

Scutari earlier this month said lawmakers had discussed extending the surcharge, which brings the state roughly $1 billion in annual revenue amid low tax collections.

“I’m telling you one thing I’ve talked about in terms of a funding source would be the corporate business tax refund,” he told NJ Spotlight News. “It’s a source of funding that will provide a billion dollars a year.”

Originally introduced as a temporary measure in 2018, the surcharge applies an additional 2.5% tax on business profits above $1 million. The provision was temporary, but lawmakers extended it into 2020 amid concerns about what effect COVID-19 and severe virus restrictions would have on New Jersey’s finances.

Business groups urged lawmakers to let the surcharge expire, noting that its inclusion makes New Jersey’s corporate tax rate the highest of any state in the union.

Democratic lawmakers have mostly gone along with the expiration — a decision made easier by the party’s renewed focus on affordability after legislative losses in 2021 — but progressive groups and some others are campaigning to extend the surtax, charging it at the end would was a gift to the state’s top-grossing businesses.

“A backroom deal with the big business lobby doesn’t change the fact that New Jersey desperately needs this revenue to balance the budget and continue to pay for schools and transit infrastructure,” said Peter Chen, senior policy analyst for New Jersey Policy Perspective. “As the governor noted in his remarks, the state is operating with a structural deficit that is neither sustainable nor fiscally responsible.”

Given their profitability, the businesses don’t need the tax break, Chen said.

The surtax will expire on Dec. 31 unless legislation extending it becomes law, whether through the governor’s signature or an override of a veto, although a repeal — which would require a two-thirds majority in both chambers — seems much more likely. unlikely.

New Jersey lawmakers haven’t overridden a governor’s veto since 1997, and there’s no indication the caucus majority is inclined to break that streak.

Sen. Paul Sarlo (D-Bergen), who chairs the upper chamber’s budget committee, echoed Murphy’s embrace of sunsetting the surcharges on Tuesday.

“I ruled out using the CBT surcharge for a dedicated revenue source for New Jersey Transit. I did it last year and I just did it again here today,” he said during a separate panel at the NJBIA annual conference.

Sarlo said he wasn’t sure what other revenue source lawmakers could dedicate to NJ Transit.

It’s less clear where Assembly Democrats fall on the issue. Chris Aikin, a spokesman for Assembly Speaker Craig Coughlin (D-Middlesex), said the House leader had no public comment on the surcharge Tuesday.

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