New Jersey lawmakers this week are set to vote on the Democrats’ $30.6 billion fiscal 2012 budget plan while debating a proposed temporary tax increase for residents making $1 million or more to help fund education spending.

The tax-increase initiative — which is a separate measure from the fiscal 2012 budget plan — would boost the tax rate for those earning $1 million or more to 10.75% from 8.97% for the 2011 and 2012 tax years, according to the bill.

Officials calculate the tax hike would generate $676 million annually in additional revenue to be used for suburban and rural school spending, according to Tom Hester, the Democratic spokesman for the General Assembly.

The temporary tax increase would sunset at the end of 2012.

Democrats control the General Assembly and the Senate. Gov. Chris Christie, a Republican, has said that he does not support a tax increase. Democrats would need to override any potential veto from Christie with a two-thirds vote.

New Jersey’s fiscal 2012 begins July 1 and lawmakers must pass a budget by June 30 or face a government shutdown.

Democrats’ $30.6 billion spending plan is $1.18 billion larger than Christie’s $29.4 billion budget proposal that he presented to the Legislature in February. Democrats anticipate $29.87 billion of revenue — $497 million more than the governor’s plan due to revised revenue projections released in May by the Office of Legislative Services, according to a summary of the Democrats’ proposed budget. Democrats expect stronger tax collections next year than the administration.

In addition, Sen. Paul Sarlo, chairman of the Senate Budget and Appropriations Committee, stressed that the fiscal 2012 budget plan does not rely upon the proposed millionaire’s tax, as the initiative is separate from the spending proposal.

“We are basing our budget on realistic nonpartisan estimate of revenues,” Sarlo said Monday during a budget hearing. “The governor’s office has made it clear where they stand. And today we mark our position where we stand.”

The budget plan allocates an additional $446.8 million to underprivileged school districts, as the state Supreme Court last month ruled that Christie’s fiscal 2012 school funding plan was unconstitutional.

Under its constitution, New Jersey must sufficiently fund underprivileged areas, called Abbott districts, to match spending at public schools in its wealthier neighborhoods.

The spending plan also allocates additional funds for public safety for local governments that are experiencing a spike in crime rates, and also provides money for health and human services.

Conversely, Republican lawmakers believe the Democrats’ budget will ultimately be balanced with the help of the millionaires’ tax and said Democrats’ revenue projections are too generous.

“Are we really going to pick up where we left off in the past by taxing to balance the budget?” Sen. Anthony Bucco, R-Morris, said during the committee hearing. He warned against “disregarding the testimony of the state treasurer that the unanticipated revenue projections in the alternative budget that you are proposing is irresponsible and indefensible.”

The budget debate follows a bipartisan initiative that Christie signed into law last week that aims to strengthen the state’s pension fund and reduce retirement costs by requiring government workers to contribute more to their pension plans and their health insurance.

In a report released Monday, John Hallacy, head of municipal research at Bank of America Merrill Lynch, wrote that the firm is “favorably impressed” with the pension reform legislation and a stronger retirement fund could help New Jersey in the municipal market.

“When most industry participants trade Illinois paper, one of the first thoughts is about the pension funding status,” Hallacy wrote in the report, referring to that state’s pension problem. “New Jersey has been in a similar position, but the reform package could go a long way towards changing this embedded practice for the better.”

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