Raise the business tax and use the money for NJ Transit, Senate president says
Below is an article written by Sam Marcus and Brent Johnson and published by NJ.com on February 22, 2020.
State Senate President Stephen Sweeney on Friday proposed using a 1 percent tax on corporate income in New Jersey to provide a permanent source of funding for NJ Transit, the state’s beleaguered rail and bus system.
The tax would guarantee NJ Transit $250 million to $300 million a year in state tax support, an amount equal to about 10 percent of its total operating budget. The tax hike is part of a proposal Sweeney offered Friday to find the transit system a stable source of income.
“Transit needs every dollar it can get,” Sweeney, D-Gloucester, said during a news conference at the Statehouse in Trenton. “It the lifeblood of the economy of this state.”
The Senate president wants to ask voters in November to require the state send $500 million, including these corporate tax dollars, to NJ Transit by amending the state Constitution — something that would prevent future legislatures from shifting funds to other areas during tough budget times.
Such a move would take advantage of a planned phase-out of a 2.5 percent surcharge on the corporation business tax and permanently set the rate at 10 percent for businesses with income over $1 million — the second-highest rate in the nation.
The $500 million pledge would include $125 million from the state’s turnpike and $75 million from a Clean Energy Fund to transit operations. At the same time, it would bar NJ Transit from shifting money for capital needs into operations.
“If you constitutionally dedicate funding, then they can rely on that funding year after year,” Sweeney said. “Then they don’t have take capital dollars to fund basic needs of the organization.”
Gov. Phil Murphy and state lawmakers in 2018 agreed to a four-year increase in the tax on corporate profits that would gradually phase out. At its highest, the rate was 11.5 percent for two years, before dropping to 10.5 percent for two years. It is scheduled to return to 9 percent in tax year 2022.
Sweeney said Friday he will introduce legislation that would keep the tax at 11.5 percent longer, to begin raising cash for NJ Transit in the coming fiscal year, before it drops back down to 10 percent indefinitely.
Proposed by legislative Democrats as an alternative to the Democratic governor’s desired millionaires tax, Murphy was not initially in favor of hiking business taxes for fear of making New Jersey less competitive for businesses. He agreed to the temporary surtax in exchange for a tax hike on individuals with income above $5 million.
Sweeney said a permanent 1-percent surtax would generate more than $250 million a year for NJ Transit, which regularly faces annual operating deficits.
“We’re gonna have businesses participate in funding transportation because they’re the benefactors of transportation,” Sweeney said. “That’s the beauty of this plan.”
Both houses of the New Jersey Legislature — the Senate and Assembly — would have to approve Sweeney’s plan for it to get on the November ballot. Sweeney said he has discussed only part of the proposal with Assembly Speaker Craig Coughlin, D-Middlesex.
“I’m more than open if anyone else has any other ideas,” Sweeney said.
The New Jersey Business & Industry Association swiftly criticized the plan, with the group’s president, Michele Siekerka, saying “it will greatly impact our largest employers who have already provided historic revenue to the state over the past year.”
“Its permanence will also serve as yet another deterrent for any corporation looking to relocate here,” she said.
To balance its operating budget, the agency has been transferring money from its capital budget, which is intended to pay for system expansion, major projects and buying new trains and buses. This budget year, $460 million was transferred from the capital to the operating budget, representing 20% of the operating budget.
It is also receiving $457 million from the state general fund, $129 million from the turnpike and $82 million from the state’s Clean Energy Fund.
Fares typically make up 40 percent to 50 percent of the agency’s budget.
Murphy’s state budget rollout next week will reveal the size of the state subsidy to NJ Transit, as well as any diversions from the turnpike and Clean Energy Fund. The agency projected previously it will face an $86 million operating deficit in the coming fiscal year. And Murphy already has pledged fares will not increase.
Last year, Sweeney assembled a legislative panel to investigate NJ Transits problems, and stressed he wanted a proposal for dedicated funding in time for Murphy’s budget address. He’s also said he expects NJ Transit to look for efficiencies.
During one of those hearings late last year, transportation experts argued that without dedicated revenues, efforts to reform NJ Transit — which has been plagued by train delays and cancelations, equipment problems, engineer shortages — could not succeed.
“For riders it means more breakdowns, trains and buses in poor conditions and vulnerable to fares that are the highest in the nation,” Janna Chernetz, deputy director of the Tri-State Transportation Campaign, told lawmakers. “It is stifling economic growth reducing property values. NJ Transit needs a dedicated source of operating funds.”
“We can’t continue to short change the agency and expect a miracle, even if it is the holiday season,” Chernetz added. “You can’t expect change unless you make change. New Jersey has yet to make the changes that matter.”
Sweeney unveiled his proposal Friday shortly after after the latest committee hearing into the agency’s issues, in which he and other lawmakers grilled NJ Transit Executive Director Kevin Corbett for hours.
Money on the table. Grab it.May 4, 2020