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 on 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 in his letter that he could support their spending plans if they were backed up by sufficient figures and warned he would "take corrective action" if they weren't.

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.

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.

"We need to change what we are doing in this state," Mr. Sweeney said Thursday on the Senate floor, referring to his opposition to the millionaire's tax.

Mr. Coughlin said the budget gave the governor 95% of what he asked for.

"We didn't include the millionaire's tax because there was enough revenue around to be able to accomplish what we wanted to do without it, " Mr. Coughlin said at a news conference.

Also on Thursday, the legislature passed a temporary extension of the state's tax-incentive programs, ignoring a veto threat by Mr. Murphy.

Both the Senate and Assembly, controlled by Democrats, approved a seven-month extension to the programs that is set to expire at the end of June. Lawmakers said it would give them time to negotiate a deal with Mr. Murphy.

A task force appointed by Mr. Murphy released an initial report Monday that concluded many companies might have misrepresented their intentions to leave the state in order to receive the incentives. The governor said Thursday he had "no choice but to veto this bill."

"The extension of this flawed legislation that not only has not served its intended purpose, but has resulted in potential fraud on a huge scale, is nothing more than politics at its worst," Mr. Murphy said in a written statement.

Write to Joseph De Avila at joseph.deavila@wsj.com

(END) Dow Jones Newswires

June 20, 2019 17:23 ET (21:23 GMT)