By Joseph De Avila 

New Jersey lawmakers approved a $38.7 billion budget that doesn't raise taxes on millionaires, in the latest rift between Gov. Phil Murphy and his fellow Democrats.

The Senate and Assembly passed a budget Thursday that includes $100 million more than Mr. Murphy's proposed budget for legislative priorities including education and health programs and $50 million more than the governor's for NJ Transit. The spending plan keeps many of the governor's proposals, such as making a $3.8 billion payment for the pension system, but the rejection of the millionaire's tax denied Mr. Murphy of fulfilling one of his campaign promises.

"Sustainable revenues are essential to digging New Jersey out of the financial mess left for us," Mr. Murphy, a Democrat, wrote in a letter to lawmakers Wednesday. "The people of New Jersey believe strongly that now is the time for tax fairness."

Mr. Murphy also cast doubt on the legislature's revenue projections, which estimate that revenue from corporations will generate $230 million more than what the governor's office projected. He told the legislators that he could support their spending plans if they were backed up by sufficient figures.

"But if not, I will be forced to take corrective action," the governor wrote, alluding to his power to line-item veto the budget.

If the governor issues a line-item veto or vetoes the entire bill, that could lead to a government shutdown. A new budget must be enacted before the end of the fiscal year at the end of the month to avoid a shutdown.

Mr. Murphy wants to increase income-tax rates from 8.97% to 10.75% for people with income above $1 million. That could bring in an additional $536 million annually, according to the governor's office.

The governor, however, hasn't been able to change the minds of Senate President Steve Sweeney and Assembly Speaker Craig Coughlin, both Democrats who opposed raising taxes. Messrs. Sweeney and Murphy have clashed repeatedly since the start of the governor's first term last year.

"New Jersey is in a financial death spiral," Mr. Sweeney said Thursday on the Senate floor, referring to the state's growing pension and heath-care costs. "We need to change what we are doing in this state. It's getting worse."

The governor and Mr. Sweeney also disagreed about raising taxes on the wealthy last year. In a compromise deal, they agreed to raise the top income-tax rate to 10.75% on filers earning more than $5 million annually.

The Democratic-controlled legislature passed a millionaire's tax several times under Republican Gov. Chris Christie, who vetoed it each time. Mr. Sweeney now is against the millionaire's tax because of federal tax-law changes that cap state and local tax deductions at $10,000 a year, which have the most impact in high-tax states like New Jersey. That changed his mind about a millionaire's tax, he has said.

(END) Dow Jones Newswires

June 20, 2019 16:37 ET (20:37 GMT)

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