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Christie Pushes Ahead With Business-Tax Cuts, Racking Up $600M in Lost Revenue

Next year’s budget calls for $660M more in business-tax breaks, despite depleted transportation fund and court-ordered pension payments


Annual spending on New Jersey transportation projects could be cut in half later this year due to a lack of state funding. And a recent court order called for Gov. Chris Christie and lawmakers to find billions more for the state public-employee pension system.

Yet despite those fiscal pressures, Christie -- a Republican exploring a run for U.S. president in 2016 -- is planning to go ahead during the coming fiscal year with the next phase of a business-tax cut initiative. Christie’s business-tax cuts started out modestly at less than $200 million in 2011. But after several phased-in increases, the cuts have resulted in over $1 billion in lost revenue over the past several years even as items like the pension system have been underfunded.

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And Christie’s proposed $33.8 billion spending plan for the fiscal year that begins on July 1 will sacrifice another roughly $660 million to the business-tax cuts, according to figures provided by Christopher Santarelli, a spokesman for the state Department of Treasury. Those cuts will follow an estimated $616.5 million worth of business tax cuts in the current fiscal year, which ends June 30.

For context, capturing the $616.5 million that will be sacrificed to the business tax cuts in the current fiscal year would allow the state to nearly double the $681 million currently being set aside for the pension contribution.

In all, the business-tax cuts, which include technical changes to the tax code that benefit small businesses and incentives to encourage more business investment in New Jersey, like changing the single-sales factor formula, will end up costing the state more than $2 billion once Christie’s initiative is fully phased-in by the end of June 2016.

New Jersey’s business community has long advocated for the business-tax cuts, saying they level the playing field given what they consider to be other high costs of doing business in the state, including income and property taxes.

Michele Siekerka, president of the New Jersey Business and Industry Association, pressed during an interview Monday for the last installment of Christie’s tax cuts to be implemented according to schedule.

“It’s very important that we continue the phase in of these tax cuts,” she said.

Christie also frequently points to these cuts, which operate in addition to the corporate-tax incentive programs administered through the New Jersey Economic Development Authority, as necessary for a state that regularly scores at the bottom of most business-tax climate surveys.

The official booklet for the new budget Christie put forward last week also highlights his tax-cutting effort.

“Governor Christie tackled New Jersey’s worst-in-the-nation business tax climate with tax cuts and reforms that stalled in Trenton for years,” the booklet says.

Also as part of the new budget, Christie is proposing turning the state’s Business Employment Incentive Program from a grant program to one offering tax credits in exchange for job creation. That move comes after lawmakers last year cut about $175 million in BEIP funding from the budget to help close a revenue shortfall.

“This proposal will establish certainty for the business community and remove the BEIP program from the unpredictable annual budget process,” the budget booklet says.

But taken together, the business-tax cuts and the new BEIP credits will siphon away hundreds of millions from the budget at the same time New Jersey has been making only partial payments into the state pension system, helping to widen an unfunded liability that measures between $37 billion and $83 billion.

Last week, Superior Court Judge Mary Jacobson ordered Christie and lawmakers to come up with another $1.6 billion for the pension system after public-employee unions sued the state in a bid to make Christie live up to a law he signed that committed New Jersey to more robust pension contributions. A Christie spokesman said the governor will appeal the judge’s ruling.

Turning to the next fiscal year, state Treasurer Andrew Sidamon-Eristoff announced last week that after July 1 state spending on transportation projects will be scaled back to about $600 million in the new fiscal year. That’s because only funds generated by issuing debt will be available as the current source of revenue for road, bridge, and rail projects. New Jersey’s 14.5-cent gas tax, will bring in only enough money to pay off the state Transportation Trust Fund’s existing debt.

Christie and lawmakers have been discussing a new way to generate the full $1.2 billion the state has been spending on transportation projects annually since the administration of former Gov. Jon Corzine. But they have yet to strike a deal.

Taking the $660 million that will be sacrificed to the business-tax cuts during the next fiscal year and combining it with the $600 million in borrowed money would allow the state to sustain transportation spending without hiking the gas tax, one of the options that has been up for discussion this year and is still on the table.

The tax cuts are also supposed to generate investment and job creation, but New Jersey’s unemployment rate, at 6.2 percent, is still higher than the 5.7 percent national average.

Still, Siekerka, the business association leader, said surveys conducted by her organization indicate two straight years of increased business profits and sales. The tax cuts are a factor encouraging that success, she said.

Announcing their continuation early in the year sends a positive signal to the business community. Rolling back the cuts would “have a chilling effect,” Sierkerka said.

Gordon MacInnes, president of the liberal-leaning think tank New Jersey Policy Perspective, said the next phase-in of the tax cuts means losing about $45 million more in tax revenue, not too significant a number on a nearly $34 billion state budget.

“Nobody is advancing the idea that we should take these tax cuts away,” said MacInnes, whose organization has questioned the effectiveness of some of the tax-incentive programs administered by the Economic Development Authority.

But he said for another roughly $60 million the state could restore a cut to the Earned Income Tax Credit that Christie authored in 2010. That change hit only state workers earning the lowest wages.

It may be indicative of the administration’s general approach to tax relief, MacInnes said, citing several years of flat funding for Homestead property-tax relief credits as another example. Seniors earning up to $150,000 annually and other homeowners making up to $75,000 annually qualify for Homestead credits in New Jersey.

“Attention has been provided only to businesses and to high-wealth individuals,” he said.

Rob Duffey, a spokesman for the New Jersey Working Families Alliance, said the state should instead be looking to scale back the tax cuts and close corporate loopholes.

Every dollar sacrificed to the tax cuts is “another dollar that can’t be spent meeting our obligations or investing in our future,” Duffey said.

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