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Essay: Facing our Fiscal Future

Feather O’Connor Houstoun | August 18, 2011

The fiscal crunch is systemic; it affects every level of government, and will force significant changes throughout New Jersey.

It's been more than two decades since I walked out of the Statehouse at the end of Gov. Tom Kean's administration. The state budget (now pushing $30 billion) had just edged over $10 billion, and the AAA rating was intact. Although incoming Gov. Florio was facing a difficult, challenging recession, there was confidence that the state could weather the downturn and resume its course of economic growth without dramatic change in what we had come to expect in high-quality public services.

Not so in 2011.

This spring, as the budget was being debated in the General Assembly, current Treasurer Andrew Sidamon-Eristoff and I had occasion to reflect on how the fiscal problems facing New Jersey today dwarfed those of 1990. But while our current fiscal crisis built incrementally over many years, fully unwinding those decisions to restore fiscal health is neither practical nor realistic.

Tough budget choices have been made this year. But they have not solved the problem, and indeed the problem cannot be solved at any single level of government. Instead, we need a wholly different conversation about what we want in public services, how much we are willing to pay for them, and how much we are willing to accept changes in those services to preserve their intrinsic value.

That’s a pretty abstract statement. But consider the stark conclusion of a nonpartisan group of former government officials in the report Facing Our Future: If we don’t proactively address the imbalance between the cost of services and likely revenue, we will end up in five years with a hollowing out of services at all levels of government, by a minimum of 20 percent -- before we take into account the corrosive cost of inflation. (Full disclosure: I participated in Facing Our Future, and the William Penn Foundation for which I was president through June, helped to fund the research.)

Many commissions have laid out the fiscal facts for our state. As treasurer, I served on SLERP, the State and Local Expenditure and Revenue Policy Commission of the late 1980’s, and reviewed the recommendations of more recent commissions as we drew up the findings for Facing Our Future. But to twist an old metaphor, each tended to examine different parts of the elephant in the room. The fiscal crunch is systemic; it affects every level of government, and will force significant changes throughout New Jersey.

The real question before us now is whether we will look ahead at our fiscal trajectory and make purposeful decisions that will chart a new course, or, as the fiscal pressures continue, will we just whack incrementally away at our public services until we are surprised one day by how degraded they have become. Will we be confronted with the elimination of something we valued, and wonder if we had been more engaged might we have had more control over the choices being made?

What Facing Our Future does for a much-needed civic conversation is to look at all revenue sources and all public spending -- across state, municipalities, school districts and counties. It makes clear that this is not a cyclical storm that will pass: Analyses through 2016 with even optimistic projections show that state government will be unable to adopt a balanced budget over the next five years without significant changes in services, programs, and employee systems and benefits. Competing program demands and rising costs make this so even after the significant changes in employee benefits in the budget approved this summer.

More telling, Facing Our Future shows how entangled the fiscal situations are at different levels of government. Over forty percent of the state budget consists of state aid payments to municipalities, counties and school districts. Reductions in state aid coupled with property tax constraints shift the budget cuts to another venue. The result: A problem solved at one level simply moves the fiscal stress to another.

The initial report stopped short of prescriptions. The Leadership Group that directed Facing Our Future wanted to provide independent, fact-based, no-blame research that laid it all out in ways that prompted important civic discussion. The truth is, there is no silver bullet for maintaining desired services in this fiscal scenario. My colleague Rich Keevey, a former Office of Management and Budget (OMB) director whose research contributed heavily to Facing Our Future, argues that the entire public enterprise must be examined, since tweaking parts of the equation will not be sufficient remedy.

I recall a sign in a budget official's office that was probably wishful thinking: "There's nothing like a budget cut to stimulate the imagination." Unfortunately, with fiscal stress everyone runs to protect his or her priority interest. Perhaps this time we can fulfill Henry Coleman's observation in 2003, analyzing the past commissions on tax and fiscal reform, that significant reform only happens when policymakers and the general public perceive a crisis demanding immediate action.

What the Leadership Group of Facing Our Future is doing is to encourage through outreach a civic discussion by a broad spectrum of New Jersey's citizens. We've been informing the public about the scope, nature and extent of our fiscal future, and trying to spark open-minded conversations about what's next and what are our options.

To encourage imagination in the face of budget cuts, we will be looking across the country, and within New Jersey, to see how others have fashioned solutions to deliver services at greater value per dollar to citizens and taxpayers.

As we begin to look at what other places are doing, each of us needs to consider four questions to begin to address the revenue and service gap:

  • Can we afford the government we have? What changes in services are we prepared to accept to preserve those that we believe most valuable?

  • What are our priorities for government services and how do we find consensus?

  • What public investments are needed to keep the state's economy healthy?

  • Should our expectations for services and taxes change?

The members of the Facing our Future Leadership Group have many viewpoints on the answers to these questions, but we share a commitment to the future of New Jersey, and to a public conversation that informs and guides decisions that will make us stronger and more prosperous in the future.

Feather O’Connor Houstoun recently stepped down as President of the William Penn Foundation, which works to improve the quality of life in southern New Jersey and southeastern Pennsylvania. She was Treasurer of New Jersey from 1986 to 1990. She lives in Cranbury, Middlesex County, and Philadelphia.

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