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TRENTON — A former state budget director under both major political parties says the state should raise taxes now and slash pension contributions rather than borrow billions of dollars to close a huge coronavirus-created deficit.

Richard Keevey, who worked in state government from 1969 to 1994, told the Senate Budget and Appropriations Committee at a hearing Thursday that the borrowing plan being pushed by Gov. Phil Murphy and already approved by the Assembly would be “a disaster.”

“In my judgement, it is best to bite the bullet for the remainder of this year and next than to invite struggles for many years to come,” Keevey said.

Citing projections that revenues will fall $10 billion behind earlier forecasts through June 2021, in part because $1 billion in proposed tax increases aren’t factored in, Murphy wants permission to borrow $5 billion by selling general obligation bonds and borrow up to $9.2 billion from the Federal Reserve.

“While we certainly need to address our immediate needs, we must also worry about the future. Current solutions that create problems in subsequent years would in my judgement be a big mistake,” Keevey said.

Keevey said the magnitude of the current financial problem is unprecedented and that significant spending reductions will have to be made under any scenario. But he said that if the state relies on borrowing to limp though its 2021 budget, those billions will be missing – and debt payments would rise – starting in 2022.

“The challenge must be handled carefully and limit one-time actions that will complicate and potentially ruin the state’s finances for the years to come,” Keevey said.

Murphy’s short-term budget plans are prudent, Keevey said, such as revoking spending on programs that were put into reserve and eliminating $850 million in planned spending increases for fiscal 2021.

Going forward, Keevey said the state should tell schools to plan for aid cuts of 5% to 10%, in case that’s necessary, defer all salary increases, put off most hiring, begin a furlough program for non-essential workers through October and defer most of the planned $4.6 billion contribution to the pension funds.

“None of these actions are without considerable pain, but we are in a situation where shared sacrifice is needed. We have to worry about the perils facing the state,” he said.

“We can and should reduce spending,” Keevey said. “But the people who think that there’s sufficient leverage to solve the problem by cuts, massive reductions, they’re not being realistic and will mislead the public.”

Keevey said it is unlikely and perhaps impossible that state revenues will return to pre-COVID levels for many years.

“More taxes, never a great option, is in my opinion inevitable,” Keevey said. “Best to do it now and carefully explain to the public why the Legislature supports it in lieu of bonding,”

Senators who had worked with Keevey on the Path to Progress report commissioned by Senate President Steve Sweeney, D-Gloucester, didn’t exactly embrace his call for tax hikes. But Republicans have rebuffed Murphy’s borrowing plan, which Sweeney also hasn’t yet embraced.

“It’s a hard pill to swallow for our business community, for our residents,” said Sen. Declan O’Scanlon, R-Monmouth. “On the flip side though, we have to concede there is no way to simply cut our way out of this. You’re absolutely right that we have to be honest about that.”

“There’s probably many on this call who agree now is not the time to raise any kind of taxes. And there’s probably many on this call who agree with perhaps pushing certain next payments into the next fiscal year and making significant painful cuts,” said Sen. Paul Sarlo, D-Bergen. “I don’t know if you still get – you don’t get there without borrowing. There’s got to be some other revenue source.”

Keevey didn’t say tax hikes are a good option but that borrowing would be worse.

“Any time we raise taxes – I sat with two governors when they decided to raise taxes and all hell went loose,” said Keevey, who worked in the Office of Management and Budget, and eventually headed it, under Govs. Tom Kean and Jim Florio.

Earlier this week, the liberal think-tank New Jersey Policy Perspective suggested that the state could raise as much as $1.5 billion annually by creating new income tax brackets at $250,000, $1 million and $2.5 million and increasing the rates now charged at $500,000 and $5 million in income.

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