Unappealing choices for closing budget gap
A new year; a new governor. But still the same old annual state budget blues. As Jon Corzine has doubtlessly discovered, he is about to inherit a financial mess far exceeding any he saw on Wall Street — and one which is an annually occurring event at that.
New Jersey faces an estimated $5.3 billion budget gap this coming year. That doesn’t even account for the $1.1 billion per year needed to keep the state’s transportation trust fund functional, or the billions needed for court-mandated school construction for low-income districts.
And, oh yes, on top of these budget woes is that little matter of the governor-elect’s promise of property tax relief, which should cost the state an additional $530 million.
The situation doesn’t allow for many appealing choices. Basic rules of math dictate that Corzine can either make budget and spending cuts, or plug the gap through tax increases. That is what happens when you have years of borrowing, budget gimmicks, and excessive spending. We can thank our governors and legislators for this. After all, it really doesn’t have to be this way. Our neighbors in New York made some difficult fiscal decisions and now enjoy a multibillion-dollar budget “surplus.” That’s a word we don’t get to hear often in New Jersey.
According to newspaper reports, State Treasurer John McCormac doesn’t think we have a revenue problem. To him, it’s all a matter of expenditures.
So how can the state cut expenditures?
Two possible avenues are a state hiring freeze on nonessential personnel and/or a layoff of state workers, say 5 percent or 10 percent of the work force. While it would save money, the latter move is considered unlikely to be done by Corzine, who has good relations with state unions, not to mention his former personal relationship with Carla Katz, president of the state’s largest employee union. (Fair or not, this is where those who objected to Corzine’s “loan” — later turned “gift” — of $470,000 to Katz can raise their eyebrows and say, “I told you so!”)
Still, while layoffs may not be on the agenda, a hiring freeze very well may be.
Another option is to resort to the well-established state tradition of budget gimmickry. Corzine could choose to skip payments to the public pension system and save $1.5 billion. Of course, that only postpones the inevitable, and one day we or our children will face the consequences of an already looming pension crisis. Except we’ll now be able to add the word “underfunded” to the last sentence.
Corzine could choose to cut state expenditures across the board, but even a 10 percent cut would only save about $200 million, giving him less than 5 percent of what he needs to plug the hole.
Such a move would likely also be supplemented by reducing state funding to schools and municipalities — another old Trenton gimmick. It’s been done before. While it may save face at the state level, the disastrous consequences would be local property tax increases, making Corzine look like a hypocrite on property taxes, an issue that is the No. 1 priority to most voters. We already live in the state with the highest property taxes in the nation. Causing them to go up further with one hand while pushing rebates with the other will brand him a political charlatan.
After the governor cuts expenses, there is only one other way he can balance a budget, and that is to increase state revenues, better known as increasing taxes.
If he went that route, it would be politically dangerous, as former one-term Gov. James Florio can attest. But, political opposition and likely public anger aside, he would have several choices. He could increase state income taxes — a 10 percent increase could net him more than $1 billion. Or he could increase the state sales tax and gain a billion as well. And he could generate additional revenue by extending the reach of the state sales tax to professional services, like your lawyer or doctor bills.
We are also likely to see an increase in state gasoline taxes, something initially ruled out by Corzine during the campaign, but back under consideration after gas prices fell from their record highs of late summer. But that money would be utilized to replenish the state’s Transportation Trust Fund, which runs out of money for anything other than debt service on July 1. But that money will not close the budget gap — it will be strictly utilized for transportation needs. Let’s face it, the state may need the funds, but the prospect of paying another 10 or 20 cents per gallon at the pump when gasoline is already $2.25 for regular won’t exactly make us jump for joy and thank Trenton.
There is one more far-fetched and almost desperate ploy the state can use to raise money. The idea, first proposed by acting Gov. Dick Codey is to lease the NJ Turnpike and the Garden State Parkway to a private investor, which then gets to run the roads under a 99-year lease. For the state it would mean up to $22.5 billion — for the rest of us, it would likely mean higher tolls and more New Jersey jokes.
The worst part of all of this is that we are only talking about this year’s budget crisis. Next year there will be a whole new shortfall to fill. Either way, we’re likely to get less and to pay more for the privilege.