Analysis: New Jersey Faces Four-Year Fiscal Crisis
A $4.6B increase in retiree and debt-service costs, a Transportation Trust Fund running on empty, a governor who wants to cut taxes -- and the bond agencies are watching
- Credit: Office of the Governor/
New Jersey is facing a four-year budget crisis, with the cost of pensions, retiree health care benefits and debt service projected to rise at least $4.6 billion over Gov. Chris Christie’s last four budgets, a. The four-year jump would be equal to 14 percent of the current $32.6 billion budget, and would represent a significant challenge for any governor or Legislature.
But New Jersey’s fiscal crisis is deepened by four years of overborrowing that has, a reliance on fiscal gimmicks and a cannibalization of the state surplus that led to , and a governor so eager to cut taxes that he jumped at the idea of eliminating the $325 million realty transfer tax at the same time that he is proclaiming that New Jersey is like Detroit headed down the road to bankruptcy.
Furthermore, while New Jersey could conceivably cover its soaring pension, retiree health benefit and debt-service costs over the next four budgets, that depends on Wall Street’s bull market continuing at least another three years to keep tax revenue flowing in from the. It was a “recession of the rich,” not the increase in middle-class unemployment, that sent state revenues plummeting from 2008 to 2010.
Despite the deepening state fiscal crisis, the Fiscal Year 2015 budget that Christie proposed two months ago is likely to be enacted with few changes. For the third year in a row, Christie Treasurerthan those of the nonpartisan Office of Legislative Services’ budget director, David Rosen.
But unless an “April surprise” shows lower income tax collections for the biggest month of the year when the figures are released in mid-May, Christie and Sidamon-Eristoff will simply use their executive branch power to certify their $34.4 billion revenue forecast for next year’s budget. And even if Democrats did reintroduce a millionaire’s tax to fund new initiatives, as progressive coalitions have suggested, Democrats lack the two-thirds majority needed to override a Christie veto.
The real battle over New Jersey’s finances will be fought after the FY15 budget is enacted at the end of June, and it will be fought out on two fronts over the ensuing eight months. First, Christie and Sidamon-Eristoff will have to come up with a plan to renew the Transportation Trust Fund without relying entirely on borrowing,and without any money left over in future state budgets to provide pay-as-you-go financing -- and without violating Christie’s “no new taxes” pledge by raising the gas tax, as Democratic lawmakers want him to do.
Unless he can persuade New York Democratic Gov. Andrew Cuomo to help himso he can use its toll revenue to refinance the Transportation Trust Fund -- and can somehow overcome that represents the “Democratic wing of the Democratic Party” -- Christie does not seem to have any good options on TTF.
Whatever Christie and the Legislature eventually agree to do to fund at least a five-year, $8 billion extension of the TTF to pay for highway, road, and mass transit construction projects, the solution will undoubtedly include at least $4 billion to $5 billion in additional borrowing that will add to the state’s debt-service costs.
Politically, Christie does not appear to have any better options to reduce the soaring costs of pension and retiree health benefits over his last three budgets either.
While the governor storms from town meeting to town meeting warning Democratic legislative leaders that he will take action to fix the state’s fiscal crisis unless they demand further concessions on pensions and health benefits from state workers, the truth is that there is very. State governments, unlike cities like Detroit, do not have the power to declare bankruptcy, because, as sovereign entities, they have the ability to raise taxes.
And while Christie has renewed his attacks on public employees over their pension and health benefits -- the political formula that made him a national Republican star in his first year in office -- the governor does not want a full-fledged. That is especially so since Sweeney and his political mentor, South Jersey powerbroker George Norcross, are the only Democrats who have expressed any qualms publicly about continuing the Legislature’s investigation of the Bridgegate scandal.
It was Sweeney, an Ironworkers union leader, who put his career on the line by bucking public employee union opposition to sponsor thethat locked Christie into a series of escalating pension payments that started at $458 million in FY2012 and are expected to rise to $4.8 billion by FY2018.
That would be Christie’s final budget -- and ironically, the end of the state’s immediate fiscal crisis. The next governor -- and Sweeney is one of the leading Democratic candidates -- would inherit a manageable annual pension increase in FY19, a projected reduction in debt service, and lower annual increases in retiree health benefit payments due to changes in Sweeney’s pension and health benefits bill.
Sweeney is not going to want to do anything to help Christie push off any of those costs past FY18, especially the seven-year ramp-up to the full actuarially required pension payment that was a cornerstone of the 2011 bill he and Christie teamed up to pass. That legislation was designed to make up for 15 years in which Democratic and Republican governors and legislatures put off making billions of dollars of pension contributions not only for state workers, but also for teachers in every school district, whose pension costs are paid for by the state government.