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Budget Games: How Christie Plugged $3 Billion Structural Deficit

Mark J. Magyar | February 27, 2013

Governor banks on one-shots, property-tax rebate delay, Medicaid savings, and Internet gaming to bridge budget gap

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Credit: Governor's Office/Tim Larsen

Proclaiming that he had restored “fiscal discipline,” Gov. Chris Christie yesterday unveiled a $32.846 billion election year budget that accomplishes the difficult task of making a huge, statutory pension payment in FY14. But the governor was forced to delay almost $400 million in scheduled May property-tax rebates until August to cover a stubborn FY13 revenue shortfall.

“We have turned Trenton upside down. We have gotten the budget under control, and we have begun to address the long-term health of pensions,” Christie declared in a budget address that previewed the major themes of his upcoming gubernatorial reelection campaign.

Taking aim at Sen. Barbara Buono (D-Middlesex), the Democratic gubernatorial candidate who was seated below him in the front row, Christie warned against a “return to the reckless budgeting practices of the Corzine years” and the “115 tax and fee increases in eight years” before his own election.

Wrapping himself in the mantle of bipartisanship as he has increasingly done since his public embrace of President Barack Obama during Hurricane Sandy, Christie once again suggested that Democrats who want “to fight over every item in this agenda, to play the old partisan games” would be hampering New Jersey’s recovery.

But Buono and Democratic leaders made it clear that Christie’s speech was just the opening salvo of what is likely to be a bitter four-month budget battle. “The governor said he went to law school because he wasn’t good at math,” Buono noted, adding that in his rush to declare victory over property taxes, the governor had missed the fact that property taxes for the average New Jerseyan had risen more than 20 percent on Christie’s watch once his cuts in property tax rebates are figured in.

Assembly Speaker Sheila Oliver (D-Essex) quickly zeroed in on Christie’s decision to shift property tax rebate payments, which average $518 for senior citizens making up to $150,000 and $409 for other homeowners earning up to $75,000, from May to August. “The highest property taxes in the nation just got higher because of the governor’s decision to push off the rebates,” Assembly Majority Leader Lou Greenwald (D-Camden) added.

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The property tax rebate shift was the most controversial of a series of budget maneuvers employed by Christie to cover a $473 million revenue shortfall in the combined FY12/FY13 budgets, $1.2 billion in one shot nonrecurring revenues, and almost $1 billion in built-in increases in pension costs, previously approved business tax cuts and promised pay-as-you-go transportation capital funding.

Christie, who branded Dr. David Rosen, chief budget officer for the nonpartisan Office of Legislative Services, the “Doctor Kevorkian of the numbers” for challenging his revenue projections as overly optimistic, effectively conceded defeat on the point yesterday when Christie’s treasurer, Andrew Sidamon-Eristoff, officially lowered his current-year revenue estimates by $407 million to $31.326 billion.

Pushing Off Property-Tax Rebates

It was to cover the lion’s share of that $407 million revenue shortfall that Christie decided to push off the property tax rebates. By shifting the property tax rebate payments permanently from May to August, Christie effectively moved the $392 million cost of the rebates from the FY13 current fiscal budget, which ends June 30, to the FY14 budget, which begins July 1. The accounting gimmick creates a one-time savings of $392 million in this year’s budget by effectively skipping a budget year of rebates, with the only cost being the three-month delay in people receiving their property tax rebates.

Treasury is anticipating a 6.5 percent increase in income tax revenues, a 4.7 percent jump in sales tax receipts, and a 7.0 percent boost in corporate business tax collections to make up most of an overall 4.9 percent -- or $1.52 billion -- increase in revenues in the upcoming year.

Nevertheless, Sidamon-Eristoff, who was forced to rely on $1.2 billion in nonrecurring revenues to fill a budget gap last May when tax collections for FY12 and FY13 started coming in $676 million short, acknowledged yesterday that he would have to use $1.07 billion in one-shot revenues in the FY14 budget.

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The treasurer confirmed that the state would once again take $150 million in Clean Energy funds that are supposed to go to energy efficiency programs to balance the budget, but otherwise refused to say what the other one-shot revenues are, saying that they would be included in the full budget that will be released in a week or two. Treasury spokesman William Quinn said last night he did not know what the other one-shots were.

Clearly, one of the additional one-shot revenues is the elimination of the $376 million in pay-as-you-go transportation capital funding that was promised by Christie to reduce future debt when the five-year Transportation Trust Fund extension was approved in December 2011. Sidamon-Eristoff said the state had realized higher proceeds than expected on two previous transportation bond sales, which would enable the state to provide the full $1.6 billion state match for federal transportation dollars without relying either on pay-as-you-go financing or further borrowing.

Another one-shot evidently is the treasurer’s decision to tap $75 million of the expected $375 million end-of-year surplus to help balance next year’s budget. The $300 million surplus that remains is less than half of the $640 million surplus that the state listed on July 1 at the start of the current fiscal year and represents less than 1 percent of the proposed $32.846 billion budget.

Wall Street Is Watching

The low surplus and the continued reliance on one-shot nonrecurring revenues are likely to send up red flags with Wall Street’s three bond ratings agencies -- Moody’s, Standard & Poor's, and Fitch Ratings -- all of which have downgraded New Jersey’s debt since Christie took office. Standard & Poor's reduced New Jersey’s fiscal outlook from stable to negative in September because of concern over the state’s failure to meet revenue projections.

Christie also is relying on a pair of Democratic initiatives to provide more than $400 million in new revenue for his FY14 budget.

The governor yesterday signed legislation pushed by Sen. Raymond Lesniak (D-Union) to allow Atlantic City casinos to run Internet gambling. Sidamon-Eristoff estimated that the Internet gambling would generate $180 million in new revenue next year, enabling Treasury to project a $200.4 million overall increase in casino payments to the state. Treasury projected a $40 million increase in casino revenue last year that never materialized, but state officials are confident that a new Atlantic City marketing campaign will help boost conventional casino earnings, even with Revel heading into a Chapter 11 bankruptcy reorganization.

Christie also announced that he would agree to have New Jersey expand Medicaid eligibility to cover 104,000 more New Jerseyans, which will save the state $227 million in the current budget and similar amounts in the next two budgets thanks to a provision of President Obama’s Affordable Care Act, under which the federal government picks up 100 percent of the cost. Even when the federal share drops to 90 percent in FY2017 – as opposed to the usual 50-50 federal-state split – the program will essentially pay for itself.

The fiscal boost from Internet gaming and Medicaid were critical because more than 40 percent of this year’s $1.52 billion in projected revenues is being eaten up by the $646 million increase in pension funding required in the third year of a seven-year phase-in to full pension funding required under the controversial 2011 pension and health benefits overhaul.

Budget experts have speculated in recent weeks about whether Christie would move funding for property tax rebates or for the pension payment into the following year to create a one-shot budget savings, and the governor undoubtedly decided on the rebate shift because a similar maneuver with the pension payments would have generated an immediate lawsuit by public sector labor unions.

Another large built-in cost was the $194 million increase for the third year of Christie’s 2010 business tax hikes. Christie would have been short an additional $183 million in the current budget and would have had to come up with another $550 million in FY14 to cover the second-year cost of the original 10 percent across-the-board income tax cut he proposed or the $1,000 property tax credit urged by Senate President Stephen Sweeney (D-Gloucester) that he later endorsed.

That didn’t prevent Christie from excoriating Democrats during his budget speech for refusing to approve a tax cut unless the governor’s ambitious revenue projections came in -- which they never did. “I believe New Jerseyans are overtaxed and obviously you do not,” Christie thundered. “I have compromised and offered your plan for tax cuts. You have reneged on your promise to me and the people of New Jersey.”

Christie said if Democrats would go along with a tax cut, he “will figure out how to pay for this long-overdue tax relief,” presumably through cuts in other programs. “If you do not, I am content to let the voters decide this in November,” he said, evidently referring to his plan to make the tax cut central to his gubernatorial and Republican legislative campaigns.

Assembly Budget Committee Chairman Vincent Prieto (D-Hudson) dismissed Christie’s pitch as disingenuous. “If he wanted a tax cut, he would have put one in the budget,” Prieto said. “He knew he couldn’t pay for it.”

Christie did include a $97 million increase for school funding in the budget, a $40 million emergency fund to cover Sandy relief programs not addressed immediately by federal aid, and a $2 million “school voucher” pilot program to enable 200 students in failing inner-city schools to attend other public or private schools.

Mark J. Magyar is an editor at large for NJ Spotlight.

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