Governor Chris Christie yesterday proposed a budget that both he and Republican legislators can build a campaign on – a little more school aid, a little more for property tax relief, a business tax cut, a pension payment with strings attached and a little fiscal sleight-of-hand to make sure the overall budget number goes down, even if state revenues keep going up.
“The old way of budgeting and thinking must be stricken from our collective minds if we are to successfully emerge from this fiscal crisis with permanently reformed budgeting and spending habits,” Christie declared Tuesday, in his budget address to the legislature. “This is a new paradigm for state government — a New Normal — that cuts and spends responsibly, incentivizes our local governments to do better with what our taxpayers entrust to them and causes businesses to feel welcome and want to stay and expand or relocate to our state.”
The New Normal
The “New Normal” is a phrase that Christie borrowed from economists like James Hughes and Richard Seneca of Rutgers University (also NJ Spotlight columnists), who used it not to describe government budgeting practices, but the idea that unemployment would remain persistently high even after the Great Recession of 2007-2009 ended. However, there was almost a palpable sigh of relief that greeted yesterday’s budget, and a sense that New Jersey had indeed returned to a “Normal” state after four years of devastating cuts wreaked by the deepest economic downturn since the Great Depression.
While state revenues, particularly income tax receipts, have been rising faster than expected for months, the Christie administration constantly cautioned that the increases might be short-lived and that the state should brace for further cuts. The budget Christie proposed yesterday, however, is more like a traditional election-year budget, with a little something for almost everybody, although Christie took pains to say state budget spending continues to drop. Whether that proves to be true is open to debate.
Buoyed by a $1.3 billion increase in revenues, Christie’s 2012 budget:
Christie promised to fulfill the state’s obligation to provide $506 million, one-seventh of the amount required to meet the state’s pension obligation for next year. The payment is in compliance with a law Christie signed that requires the state to ramp up pension payments to full funding over the next seven years.
Surprisingly, the governor said he would not only make the Fiscal Year 2012 payment as scheduled, but also that he would make it early — before this July 1 — if the Democratic-controlled legislature passed the series of pension changes he proposed last fall. This demand includes an increase in the amount current employees pay into the system and the elimination of a 9 percent increase in pension payments added by a Republican-controlled legislature 10 years ago in a vain effort to maintain control in the then-upcoming 2001 elections.
Working the Numbers
Christie’s willingness to make a $506 million pension payment early stems partially from the fact that state tax revenues, particularly income tax receipts, are running $500 million ahead of projections through December. But it also seems to have political calculations.
Normally, a $1.112 billion increase in revenue to $29.4 billion caused by an across-the-board surge in income, sales, corporate and miscellaneous taxes would be regarded as an unmitigated triumph — a four-year high that signaled that state revenue was finally bouncing back in the direction of the $31 billion and $32 billion marks topped in the first two budgets of the Democratic Corzine administration.
Even with a final reduction of $876 million in Obama stimulus money, next year’s state budget would rise to $29.926 billion — up from $29.692 billion for the fiscal year that ends June 30, 2011.
That, however, would require Republican legislators – and Christie, if he decides to jump into the Republican presidential race – to run on a state budget that would be higher in Fiscal Year 2012 than it was in Fiscal Year 2011.
By shifting the $506 million pension payment forward into Fiscal Year 2011 – even if, for example, the state makes the $506 million payment on June 30, 2011, rather than the following day on July 1 — the size of the current year’s budget would conveniently go up from $29.692 billion to $30.198 billion, while the size of next year’s budget would just as conveniently go down to $29.420 billion. (See the chart.)
That fiscal sleight of hand enables Christie to assert during his budget speech and in his official budget documents that his budget represented “a 2.6 percent reduction in year-over-year spending.”
The Biggest Losers
About the only apparent losers in Christie’s budget are the public employee unions.
Christie adeptly made his increases in property tax relief for senior citizens contingent on the Democratic-controlled legislature pushing through large increases in public employee contributions to their healthcare. He also insisted that his speeded up $506 million pension payment would be contingent on Democratic passage of his pension changes, which also would come out of the pockets of public employees.
“We estimate that his proposals would cut the average teacher’s compensation by 15 percent or more,” said a furious Barbara Keshishian, president of the New Jersey Education Association.
Charles Wowkanech, president of the New Jersey State AFL-CIO, was also critical. “Rather than respecting the collective-bargaining process and entering into good-faith negotiations with state worker representatives, the Governor is offering an ‘either/or’ scenario — either trample collective bargaining and legislate health and pension changes, or grant property tax rebates to senior citizens. This truly is politics at its worst.”
Christie, however, insisted that requiring state employees to pay an additional $323 million toward their medical costs through increased co-payments and higher premiums represented a “shared sacrifice” that would save other vital programs.
As expected, Christie also announced that he would seek to reduce state spending on Medicaid by about $350 million, joining other Republican governors in seeking a waiver on federal Medicaid spending requirements. The governor cast some of his Medicaid cuts as a shift to managed care programs that would be more cost-efficient, and the magnitude of his Medicaid reduction was far below the $1 billion cut in federal support for the program that provides healthcare to the elderly and the disabled.
Democrats were reduced yesterday to complaining that Christie’s funding increases for popular programs did not go far enough. “Throwing an extra $250 million at our schools this year is only giving them back one percent of the five percent the Governor took away last year,” Assembly Appropriations Committee Chairman Louis Greenwald (D-Camden) stated. “You cannot cut over $2 billion in overall property tax relief without having an honest discussion about how to fund our broken system.”
Meanwhile, Senate President Stephen Sweeney (D-Gloucester), who infuriated public employee unions with his proposed legislation to require government workers to pay between 12 percent and 30 percent of the cost of their healthcare, used the Democratic press conference to try to mend some fences.
“Public employees are not the enemy,” Sweeney said, referring to the governor’s call for them to join in making sacrifices. “It’s wrong to villainize people who go to work every day because of a deal put in place years ago.”