With few options, Christie faces state budget deficit - APP

With few options, Christie faces state budget deficit

Rebate, no-tax-hike pledge limit choices

By JEAN MIKLE
STAFF WRITER

As a U.S. Attorney, Chris Christie took on mobsters, crooked politicians and New Jersey's infamous culture of corruption.

That seems simple compared to the task Christie now confronts: balance a state budget that is projected to be $9.5 billion in the red. That's equal to about a third of the current budget.

When he is sworn in as governor Jan. 19, Christie will have less than two months to get the state's fiscal house in order. He must present his first budget to the Legislature on March 16.

Unlike the federal government, which routinely spends more money than it takes in, New Jersey's constitution mandates a balanced state budget.

"This is not a fun time to be governor, to say the least," said James W. Hughes, a Rutgers University dean and public policy expert. "Just to survive, there are going to have to be significant budget cuts."

Projections of multibillion dollar deficits prior to the introduction of the state budget each year are as common in New Jersey as robins in the spring. Past governors have closed the gaps through tax increases, cuts in programs, federal aid and so-called one-shot budget tricks that raise hundreds of millions of dollars from unique revenue sources.

Last year, for example, Gov. Jon S. Corzine raised $725 million from a tax amnesty program. He used the money to restore property tax rebates for many property owners.

When Corzine took office in 2006, the budget gap was estimated at slightly more than $5 billion. Even though Corzine actually reduced the size of the state budget during the last two years of his term, the worst national economy since the Great Depression has driven down New Jersey's revenues and left the state in even worse fiscal shape.

Quite simply, New Jersey continues to spend more money than the state receives in tax revenue. It is a structural deficit that the state's Office of Management and Budget predicts will continue "absent strong action."

More fees?

"I think (Christie's) first job is to go through all the cushions and sofas in Drumthwacket and see if Gov. Corzine left anything behind," joked Joseph Marbach, dean of the College of Arts and Sciences at Seton Hall University.

Short of finding several billion dollars in spare change, Marbach said it will be difficult for the new governor to balance the state's budget without raising taxes.

"What will likely happen is that various fees will be increased," Marbach said. "They're not taxes, all the fees for various government services, and those are things you can sell to the public because it's a payment for a service you are using. If you're not using that service, than you don't have to pay for it."

Christie so far has ruled out tax increases and promised not to cut state aid to local school districts. He also pledged to restore property tax rebates for those earning more than $75,000, a limit imposed last year by Corzine as part of his efforts to close a $4 billion budget gap. Christie's promises may leave him with little room to maneuver when it comes to balancing the budget.

State aid to education, including contributions to teacher pensions, was $11.4 billion for fiscal year 2010, more than a third of $29.8 billion total budget.

Joseph Henchman, director of state programs for the nonpartisan Tax Foundation in Washington, said the Christie administration should consider expanding the sales tax to items like clothing and groceries.

"Something needs to be done with the revenue volatility," Henchman said. "Over the last 30 years or so, it's quite dramatic. It's a roller coaster I would not ride."

The reason for the sharp spikes and drops in state revenues are New Jersey's reliance on high income earners to pay the bulk of its income taxes, its heavy dependence on corporate taxes and its decision to exempt necessities such as clothing from the sales tax, Henchman said.

Corporate earnings, as well as the wages brought home by those at the top of the income tax tier, tend to fluctuate widely with swings in the economy, Henchman said. The deep recession of the past 18 months has caused steep drops in income, corporate and sales taxes, leading to an even bigger budget deficit.

Financial emergency

Toms River resident Victor Antonelli, 70, said he supported Christie in the general election and expects him to take on the state's employee unions to reduce costs.

"The first thing he's got to do is attack the pension system because it's out of control," Antonelli said. "Also, the state government, the way it is run today, there are simply too many people on the payroll."

It seems likely that Christie will forgo the state's contribution to the employee pensions this year. Corzine's fiscal year 2010 budget gave $400 million to the pension funds, but from 1997 to 2005, no money was set aside for pension payments.

Published reports have stated Christie is considering declaring a financial emergency in the state, a move that could allow him to layoff some of the 74,600 state workers, who are paid a collective $2.9 billion in salaries and wages. Last year, Corzine considered such a move before negotiating a deal with the state's largest employee union, the Communications Workers of America.

Under the deal, the union agreed to take 10 unpaid furlough days while deferring a wage increase. The agreement included a no-layoff pledge by Corzine through December 2010; if layoffs occur, a 3.5 percent raise due in January 2011 would be due immediately.

Christie has said he will not be bound by the terms of Corzine's deal with the union.

The problem with cuts, of course, is residents are likely to howl if it impacts state services. When Corzine proposed closing the Agriculture Department and shutting down nine state parks in 2008 to save $4.5 million, the public protest caused him to abandon his plans.

"New Jerseyans want Mercedes Benz-level services, and they don't even want to pay Kia prices," Rutgers' Hughes said. "The basic reality is, both as a nation and as a state, we have been living a lifestyle we can no longer afford. There are going to be wrenching adjustments that have to take place."