By Kate King 

TRENTON -- New Jersey state senators said Tuesday they were unsure whether they are willing to support a late-night deal that Gov. Chris Christie struck with the Assembly to cut the sales tax by 1 percentage point in exchange for increasing the gas tax by 23 cents a gallon.

The proposal put lawmakers in the Legislature's upper chamber on the defensive as they face a Thursday deadline to renew the state's transportation trust fund. Just before 1 a.m. Tuesday, the Assembly, with Mr. Christie's backing, approved a bill that would raise the gas tax to pay for transportation needs and lower the sales tax to 6% from 7% by January 2018.

A spokesman for Senate President Steve Sweeney declined to comment Tuesday. Mr. Sweeney, a Democrat, had hoped to pass legislation that won support from key Senate Republicans to phase out the estate tax in return for the gas-tax increase.

Some senators are concerned that the reduction in revenue from the sales-tax cut would jeopardize the state's ability to make constitutionally mandated pension payments. Mr. Sweeney, who is considering a run for governor next year, is pushing for a ballot referendum to require the pension payments. This is strongly opposed by Mr. Christie.

"Sweeney's hands are tied," said Patrick Murray, director of the Monmouth University Polling Institute. "The construction industry wants this [transportation] funding. Does he post that and then not post the ballot measure on the pensions and then tick off the state unions?"

Senate Majority Leader Loretta Weinberg, a Democrat, said the legislative wrangling could stretch past Thursday, when New Jersey's transportation trust fund's authorization expires.

"I would say that the Senate is not prepared to support this plan, particularly doing it at the same time that we're trying to put before the voters a plan to fund the pension payments," Ms. Weinberg said. "It blows much too large a hole in the budget."

Mr. Christie said the Assembly legislation achieves his goal of "tax fairness."

"At the same time we are going to have constitutionally dedicated revenue to improve roads, bridges and the mass transit systems in the state," he said in a statement.

Sen. Joe Kyrillos, a Republican, said he prefers the Senate's proposal, which would gradually phase out the state estate tax and eventually eliminate it completely. The tax cut would cost about $120 million next fiscal year and $512 million by fiscal 2021, according to an analysis by the state Office of Legislative Services.

Mr. Kyrillos said an estate-tax phaseout would encourage wealthy people to stay in New Jersey, generating more income for the state than a sales-tax cut would. New Jersey's threshold for taxing deceased residents' assets is $675,000, the lowest in the country.

"I'd love to vote for a sales-tax cut and have people enjoy it," Mr. Kyrillos said. "In my judgment it won't motivate the economy in a way that I'd like to see take place."

New Jersey's sales tax is projected to generate about $10.5 billion in revenue for the state next fiscal year, which begins Friday. A reduction in the sales tax would cost $376 million in the first year and $1.7 billion annually by 2021, according to the Office of Legislative Services.

The legislation would also expand income-tax exclusions and credits for retirees at a cost of $75 million in the first year and about $100 million annually after five years.

The gas-tax increase, which would take effect Friday, would generate about $1.2 billion a year through 2022, according to state projections. That money would go to the state's depleted transportation trust fund to pay for maintenance and repairs to the state's roads and bridges.

The increased gas-tax revenue wouldn't cover the revenue lost through the proposed tax cuts, which by fiscal 2021 would create a $1 billion budget hole under the Senate plan and $1.8 billion under the Assembly proposal.

Those costs would be partially offset by $346 million in annual savings New Jersey would see from not having to subsidize its transportation fund with sales-tax revenue, as is the current practice, said Mark Magyar, director of policy and communications for the Senate Majority Office.

"Basically yes we're going to have a number to deal with, but we believe it's a number that we can deal with," Mr. Magyar said.

Assembly Minority Leader Jon Bramnick, a Republican who participated in the late-night negotiations, said the Assembly's bill offers a major tax break while remaining politically viable.

Jon Carnegie, executive director of the Alan M. Voorhees Transportation Center at Rutgers University, said it wasn't immediately clear whether the proposed gas-tax increase would pay for all of the state's transit and road needs. That would depend on timing and future spending decisions, he said.

Without an increase in funding for the transportation trust fund, New Jersey would be left with only enough money to pay for existing debt service and be in danger of losing federal subsidies.

"It certainly is a step in the right direction in providing a stable source" of funding for transportation, Mr. Carnegie said.

--Andrew Tangel contributed to this article.

Write to Kate King at Kate.King@wsj.com

(END) Dow Jones Newswires

June 28, 2016 21:28 ET (01:28 GMT)