Senior citizens and homeowners expecting to see cuts in their August property tax bills will have to wait another nine months after Gov. Chris Christie pushed off payment of almost $400 million in promised 2014 homestead rebates to May 2015 as part of his strategy to cope with the state’s $2.7 billion budget shortfall.
Christie said he moved the rebate payment from August to May for cash-flow reasons because state revenues come in most heavily in March and April. The delay means almost a million New Jerseyans will go 21 months between rebate checks.
“It’s important to be paid, but I think it’s also important to us how we manage our cash,” Christie said, dismissing Democratic assertions that the shift was a ploy to cancel the rebate payment. “If I wanted to eliminate it, I would just have eliminated it. I did that before in 2010.”
Christie’s decision to delay the rebates was discovered the day after the governor announced that he would cut $900 million in pension payments this year and $1.5 billion next year to plug the two-year budget gap, triggering a major confrontation with the Democratic-controlled Legislature and the public employee unions over.
The Communications Workers of America yesterday joined the New Jersey Education Association in announcing plans to file suit challenging Christie’s right to disregard the 2010 law he signed obligating the state to a seven-year ramp-up to full actuarially required funding of the deficit-ridden pension system by Fiscal Year 2018 – a promise Christie says the state can no longer afford to keep.
Meanwhile, the nonpartisan Office of Legislative Services, which warned in early April that Christie’s Treasury Department was, came in with a revenue forecast at yesterday’s Assembly Budget Committee hearing that was within $100 million of Treasury’s $2.7 billion estimated shortfall. “Now that we’re officially a basket case, they finally agree on the numbers” one Democratic staffer lamented.
Christie was asked about the property tax rebate shift yesterday at a Statehouse news conference after Assemblyman John Burzichelli (D-Gloucester), vice chairman of the Assembly Budget Committee, uncovered the unannounced decision to delay the rebate payments during questioning of state Treasurer Andrew Sidamon-Eristoff yesterday.
Both Burzichelli and Assembly Budget Committee Chairman Gary Schaer (D-Passaic) expressed concern that delaying the rebates for “cash-flow purposes” until after next April’s income-tax collections means that the rebates will be the easiest budget item to cut if tax revenues come in lower than expected next spring for the fourth year in a row.
“Working class residents rely on this property tax relief to make ends meet, especially amid the nearly net 20 percent property tax hike they’ve endured over the past four years,” Burzichelli said. “Delaying this relief will cause pain and stress for families struggling to pay the bills and keep their homes, and now they face the specter of having this relief eliminated if the governor’s budget numbers once again don’t add up. I’m concerned that this property tax relief is being set up for the budget ax.”
Regardless of whether the rebates are paid in May 2015, Christie’s decision effectively eliminates the 2014 rebate payment -- just as he did in 2010 when the state faced another $2 billion budget crisis. As a result, homeowners earning up to $75,000 and senior citizens with income up to $150,000 will receive only three rebate payments during Christie’s first five years in office.
Christie’s three rebates add up to an average of just $1,188 for eligible and homeowners over those five years, compared to an average total of $4,247 paid out to all homeowners earning up to $150,000 by his Democratic predecessors, Govs. Jon Corzine and Richard Codey, from 2005 to 2009, an NJ Spotlight analysis showed.
Furthermore, Christie’s elimination of a second year of rebates for low-income and middle-income families, while leaving property tax deductions on state income taxes untouched, means that wealthier taxpayers will receive twice as much property tax relief as upper middle-income families and three times as much as most working-class families making $40,000 to $60,000 in Christie’s first five years in office.
Under Corzine and Codey, working-class families received as much property tax relief as upper-income taxpayers, and families earning $70,000 to just under $150,000 received the most, according to NJ Spotlight’s analysis of 10 years of state Department of Community Affairs, state Treasury Department and U.S. Census data.
The rebate issue is at the core of the debate over.
The 2 percent spending cap and limits on interest arbitration awards for police and firefighters that Christie teamed up with the Democratic-controlled Legislature to pass limited average property tax increases to just 9.7 percent during Christie’s first four years, compared to a 20.1 percent hike in Corzine’s four years.
But for lower- and middle-income homeowners who received large rebates under Corzine, Christie’s rebate cuts mean that net property taxes – the amount paid after rebates are subtracted – actually rose 20.3 percent under Christie compared to 14.1 percent under Corzine.
The issue is such a sore point for the Christie administration that state officials in late Marchshowing average rebates and net property taxes that had been posted since 1998 on the Department of Community Affairs site, in an apparent effort to prevent future comparisons.
This year’s rebate shifts would be the third since the Christie administration took office. The governor eliminated the 2010 rebate in order to close a $2.2 billion budget gap that spring and shifted the payment date from October to May. Then, in 2013, Christie moved that year’s payment from May to August in order to createin the FY13 budget; because the fiscal year ends June 30, the three-month shift moved the $395 million cost of the rebates out of FY13 and into FY14.
The FY13 rebate was paid promptly in August, three months before Christie’s landslide reelection, but the decision to delay the August 2014 rebates until May 2015 created fears among Democrats that the Christie administration would be tempted to shift the rebates yet again to create a relatively painless “one shot” saving if tax revenues come up short again in April.
“We’ve seen any number of tricks and procrastinations by this administration,” said Schaer, the Assembly budget committee chairman. “There’s little that would shock me at this time. So often, we just deal in numbers and forget there are people behind the numbers.
“There are people on fixed incomes who depend on these rebates, and it makes it harder for them to put food on the table when they have to wait another nine months for property tax relief they were led to believe they could count on in August,” he said.
Schaer said the Christie administration’s need to move the $400 million to rebate payments from August to May constitutes further evidence of “just how tight this budget is.”
He noted that the state generally borrows money – often $1 billion or so -- each July for cash-flow purposes. Past administrations often borrowed money at low interest rates in order to make rebate payments in October – a New Jersey political tradition that that started in 1977 when Gov. Brendan T. Byrne issued the first rebate checks, which were paid for out of the unpopular income tax he had enacted the year before, and went on to a come-from-behind reelection victory.
Burzichelli was equally puzzled. If Christie didn’t want to have the property tax rebate money available in May in case he needs it, “Why else would he suddenly be delaying payments of this vital relief until late next fiscal year?” he asked.
What didn’t escape their notice was the fact that the $1.558 billion pension payment the Christie administration had promised to make by June 30 this year was the large budget item that had yet to be paid out when Treasury suddenly discovered in mid-April that income tax collections had plummeted, creating an $807 million current year shortfall that is now estimated at $1.1 billion.
While Christie had been setting the stage for a fight over pensions since his State of the State speech in January -- when he warned that soaring pension, retiree health benefit and debt service costs were eating up 94 percent of this year’s revenue increase -- it was clear that Christie) because so much of the rest of the budget had already been spent.
Christie yesterday said he decided not to push back the last $400 million school-aid payment or a smaller final payment due to the state’s public colleges and universities. “I wasn’t going to touch that,” he said, adding that in the end he had “very limited options for 2014 and slightly less limited options for 2015.”
Sidamon-Eristoff defended the decision to pay the $696 million actuarially required employer’s contribution for active employees due in FY14 and the $681 million due in FY15, noting that active employees are contributing a percentage of their salary toward their pensions -- a percentage that was increased under the 2011 pension law pushed through by Christie and Senate President Stephen Sweeney (D-Gloucester) in an effort to fix the pension system.
However, Assembly Budget Committee members from both parties noted that the state’s unfunded pension liability would increase as a result of Christie’s decision not to pay $2.4 billion in FY14 and FY15 to “pay for the sins of the past,” as Christie described the failure of past governors and administrations to make required pension payments over the past 15 years.
“This isn’t a savings. It’s just a deferral,” said Assemblyman Jay Webber (R-Morris), a former Republican state chairman, who urged Sidamon-Eristoff to look for permanent spending cuts instead. “We’re going to have to make this payment,” he warned, and “when we pay it in the future, the cost is going to grow.”
Indeed, Christie warned that without major changes to cut costs in the pension system, the next governor would be facing $5 billion in annual pension payments.
Christie unleashed his wrath on a new target yesterday – the three bond rating agencies who downgraded the state’s credit rating to single-A status over the past five weeks, a bottom-tier rating shared by only Illinois and California.
The governor asserted that “these are the folks who in 2006, 7 and 8 sat on their hands … and looked the other way” during the last fiscal crisis, and “now they’re trying … to make sure nothing like that ever happens again. That’s what discredited institutions do. I’m sorry they’re going so far back and forth on the scale of reasonableness, but people pay for their opinions. They’re worth whatever people think they’re worth. But if you relied on their opinion in 2006, 7 and 8, you’d have a lot less money.”
Christie dismissed the threatened lawsuits by the Communications Workers of America and the New Jersey Education Association challenging his right to make the pension cuts.
“The decisions I made are the right things to do,” Christie said. “They want to sue, the courts are available. They want to protest, they have the First Amendment. But I will tell you this. What people need to understand is we cannot afford this system. I’ve been saying this since January. We cannot afford this system, and there are not enough taxes to raise. For those who believe taxes are the answer, detail for me how you’re going to raise enough taxes to solve a $2.7 billion problem.”
Christie renewed his attack on public employee union leaders, his favorite targets since his first year in office. “I know that the CWA, the NJEA want to be able to promise their members everything, but they pay for none of it,” Christie asserted. “Union leaders pay for none of it. I’m going to try to fix it.”
However, Hetty Rosenstein, New Jersey state director for the CWA, said Christie’s pension cuts not only break his personal promise to make the required pension payments, but break faith with the social compact the state government has had with its employees.
"New Jersey made a promise to its public workers: work hard, serve the people of New Jersey, and take a salary that is less than what you might earn in the private sector, and you can look forward to a secure and stable retirement," said Rosenstein. "It is not lavish: the average state pension, including managers, is $23,000 a year; and just $14,000 for local government workers.
“Retirees and long-term public workers, who in many cases have devoted their entire working lives to the state of New Jersey, can't go back and choose a different path," she said. "They earned every penny of their pensions, and if Trenton politicians won't keep their promise, we have no choice but to go to court to force them to uphold their end of the bargain."