New Jersey Abruptly Freezes Spending As It Nears Financial Disaster

New Jersey Governor Phil Murphy's administration ordered an immediate halt to state spending and hiring, because of what describes as "an esoteric accounting maneuver caught up in charged state budget talks."

In short, if the state doesn't quit non-essential spending or the state Legislature doesn't allow the Murphy administration to shuffle spending from one part of the budget to another, they risk ending next month's fiscal end-of-year in the red, according to the New Jersey Treasury Department.

State Treasurer Elizabeth Muoio on Friday ordered the immediate hold on both spending and hiring "until further notice," according to a news release.

"We have to reserve all available resources in order to ensure we close out the general fund in a positive position," said Muoio.

While more than half of New Jersey state funding comes from the general fund, the other half is generated through gross income taxes - which are currently unable to be spent on anything aside from property tax relief. Muoio has been sounding the alarm on the general fund of late, saying it will run into the red unless she can shift $788 million in utilities revenue. 

"It is essential that we freeze all discretionary spending to ensure we can support the crucial functions that keep the state operating -- everything from caseworkers for children in foster care to the operation of our developmental centers to the safety and protection provided by the State Police," she said.

The ability to shift the revenue has become a key bargaining chip in New Jersey legislature, with State Senate President Stephen Sweeny (D) demanding that the governor restore $123 million in funding to various programs which the Murphy administration previously slashed from the budget.

"The administration needs to do what they need to do. We're not saying no. We're just saying 'Listen, you've shown us your priorities. We'd like a commitment on our priorities'," Sweeney said Friday. "It's part of a negotiation."

"At the end of the day, there's things that the Legislature feels are important and they stand for. $20 million in additional funding for people who work with the disabled and poor and needy. They're things that matter to us," he continued. "I didn't think I'd have to fight with a Democrat to fund programs that help sexually abused kids."

While a spending and hiring freeze isn't the same as a government shutdown, the governor's office circulated a letter to Cabinet officers on Friday giving them a heads up to prepare contingency plans in case a shutdown occurs. 

The letter to Murphy's cabinet members, obtained by NJ Advance Media, asked them to update contingency plans for their departments.

It was sent shortly after top staffers in the state Senate and Assembly met with Murphy's senior staff Friday morning amid ongoing negotiations about Murphy's first state budget proposal -- which so far have been fraught.

The meeting was tense and unproductive, according to six sources with knowledge of the event who would speak only on the condition of anonymity. One source described it as "ugly."

As we noted in March, New Jersey's fiscal situation is so dire that new Governor Phil Murphy has proposed taxing online-room booking, ride-sharing, marijuana, e-cigarettes and Internet transactions along with raising taxes on millionaires and retail sales to fund a record $37.4 billion budget that would boost spending on schools, pensions and mass transit.

The proposal which is 4.2% higher than the current fiscal year’s, relies on a tax for the wealthiest that is so unpopular it not only has yet to be approved, but also lacks support from key Democrats in the legislature, let alone Republicans. It also reverses pledges from Murphy’s predecessor, Republican Chris Christie, to lower taxes in a state where living costs are already among the nation’s highest.

Murphy, a Democrat who replaced term-limited Christie on Jan. 16, said his goal is to give New Jerseyans more value for their tax dollars; instead he plans on bleeding them dry. He has promised additional spending on underfunded schools and transportation in a credit-battered state with an estimated $8.7 billion structural deficit for the fiscal year that starts July 1.

“If we enact another budget like the one our administration inherited, our middle class will continue to be the ones shouldering the burden, while seeing little in return,” Murphy said Tuesday in his budget address to lawmakers. His solution? Socialist wealth redistribution: "A millionaire’s tax is the right thing to do –- and now is the time to do it."

A better way of putting it, as Bloomberg has done, is that New Jersey's budget "would raise taxes on almost everything."

On the bright side, Murphy agreed to cut sales tax in half in five New Jersy cities; Bridgeton, Camden, Newark, Plainfeld and Trenton, restoring a decades-old program allowing the cities to levy half the state's sales tax to help economically struggling areas. 

For the remaining residents of New Jersey, one wonders what the sales tax rate will need to rise to in order to offset the change. While the state sales tax currently sits at 6.625%, Murphy has proposed returning it to 7% - reversing a deal both Christie and Democratic lawmakers struck in 2016 in exchange for a .23c gas tax hike. 

Then there's the state pension - which just hiked its expected return to an ambitious 7.5%. From March: 

New Jersey’s acting state treasurer Elizabeth Maher Muolo said that she will increase the expected rate of return for the state’s struggling public pension system which manages over $76 billion in assets, from 7% to 7.5%, "then lower it again over time" in hopes that the recent market surge persists indefinitely into the future and quietly wipes away some of the state's massive underfunding.

The announcement prompted Bloomberg's Muni expert Joe Mysak to simply exclaim that "this is madness."

Madness indeed.