Sweeney and Oliver Offer a “Democratic Budget”

Mark J. Magyar | June 24, 2011 | Budget
Hammered by the unions for working with Christie on pension and health benefit reform, Democratic leaders propose their own $30.7 billion spending plan, including a millionaire’s tax

Credit: Saed Hindash/Star-Ledger
Shrugging off union attacks on him for not being a “real Democrat,” Senate President Stephen Sweeney (D-Gloucester) yesterday laid out a robust $30.7 billion Democratic spending plan for the new fiscal year that is more than $1.3 billion higher than the budget Republican Governor Chris Christie proposed in March.

The budget proposal developed by Sweeney and Assembly Speaker Sheila Oliver (D-Essex), as expected, includes a tax hike from the current 8.97 percent to 10.75 percent on all income above $1 million, an increase that would affect 16,000 New Jersey taxpayers.

It also includes full formula funding for every school district, more money for city police departments, restoration of the Earned Income Tax Credit, money for family-planning clinics, elimination of the Family Care and Medicaid cuts, and even stopgap funding for New Jersey Network.

In short, it’s a Democratic wish list — and one, Sweeney hastened to say, that he and Oliver did not discuss with Christie.

Sweeney shook off a reporter’s question about whether the budget agreement was developed as a political response to the drumbeat of attacks by the unions against his controversial bill to require state and local government workers, including teachers, police and firefighters, to pay thousands of dollars more toward their pensions and healthcare coverage.

“No, it’s not. It’s a taxpayers budget. I make no bones about what we did the other day,” Sweeney insisted.

Nevertheless, Sweeney’s 4:30 p.m. budget press conference upstaged a day of angry protests by 8,500 chanting union members and the Assembly’s subsequent 46-32 vote last night to approve his pension and healthcare bill, which effectively stripped public employees of the right to bargain over healthcare benefits for four years.

Breakaway Bloc

To the chagrin of union leaders, the bill was passed by a breakaway bloc of 14 Assembly Democrats aligned with South Jersey Democratic leader George Norcross, Essex County Executive Joseph DiVincenzo and Union City Mayor Brian Stack — three Democratic power brokers who have been close to Christie — voting with 32 GOP Assembly members whom Christie kept in lock-step.

While union leaders were in no mood to be assuaged last night, the Sweeney-Oliver budget contains a number of measures that would find favor with the Democratic Party’s traditional labor allies, including the millionaire’s tax, money to rehire laid-off police, and provisions to delay both the closure of the Vineland Developmental Center and the sale of New Jersey Network.

Senator Joseph Kyrillos (R-Monmouth), a Christie confidante, saw the Sweeney-Oliver budget as a clear effort by the legislature’s top two Democratic leaders to make amends to their base heading into the November election, when they will be trying to hold onto their 24-16 majority in the Senate and 47-33 edge in the Assembly.

“They’re trying to throw in everything but the kitchen sink,” Kyrillos said. “We really don’t have the money to do any of that.” He said the millionaire’s tax “won’t happen.”

Kyrillos also criticized Sweeney and Oliver, who negotiated with Christie to reach agreement on the pension and healthcare legislation, for failing to do the same on the budget. “In order to make political points, they punted on the opportunity to negotiate with the governor,” he said.

A True Millionaire’s Tax

The Sweeney-Oliver spending plan, which the Senate president sketched out yesterday, will consist of two bills — a $30.5 billion state budget and a $500 million to $550 million measure increasing the top tax rate from 8.97 percent to 10.75 percent on income over $1 million.

Sweeney was careful to point out that the new Democratic plan is a “true millionaire’s tax,” not a return to the plan enacted by former Democratic Governor Jon Corzine, which increased income taxes on the 63,000 taxpayers making over $400,000.

While the Democratic tax surcharge on millionaires that Christie vetoed last year was tied to increased property tax rebates for senior citizens and the disabled, this year’s bill is designed to go directly to provide $446 million in increased aid to hundreds of suburban, rural and small urban school districts and to provide the $65 million needed to exempt retirees’ pension income up to $100,000 from the state income tax. Only pension income up to $20,000 is currently tax-free.

Christie has said repeatedly that he will veto any tax increase, including specifically a tax on upper income residents, no matter what program it is intended to fund.

But the way the Sweeney-Oliver bill is structured could also force Christie to veto up to $600 million in programs in the regular budget.

Christie’s spokesman, Michael Drewniak, declined to comment on the Democratic budget plan last night, but there are clearly two fiscal elements of the Sweeney-Oliver plan that the GOP administration will find objectionable.

Dueling Numbers

The first is a dispute over revenues.

Andrew Sidamon-Eristoff, Christie’s treasurer, and David Rosen, budget officer for the non-partisan Office of Legislative Services (OLS), agree that state revenue are up since Christie proposed his original $29.4 billion state budget in March. However, Rosen estimated that state revenues would be a total of $913 million higher in the current fiscal year that ends June 30 and in the upcoming budget year, while Sidamon-Eristoff was more cautious, forecasting a $511 million increase in revenue over the two fiscal years.

Sweeney announced yesterday that he had a written opinion from Rosen that $800 million in increased revenue would be a safe number to include in the budget, and noted that OLS has been more accurate over the years in forecasting state revenues than either Democratic or Republican treasurers, whose forecasts may be shaded by political considerations.

Sidamon-Eristoff defends his more conservative estimate. He asserts that he would prefer to have more money in the state treasury in the middle of next year and have to decide what to do with it because he had underestimated revenues than to have a shortfall because he had been overly optimistic in what is still a volatile economy climbing back slowly from the 2007-2009 Great Recession.

The final decision on revenue rests with Christie’s treasurer because the state Constitution gives the governor the right to certify revenues. But going with the treasurer’s projection would require Christie to cut $289 million in new spending included in the Democrats’ election-year budget.

An Objectionable Maneuver

Christie and Sidamon-Eristoff will find the second Democratic fiscal maneuver as objectionable as the first. Reasoning that state budgets over the past decade have averaged $447 million in budgeted spending that was later reallocated, the Democratic budget includes a $300 million assumption that similar “efficiencies” will be found in the upcoming year.

The Democratic budget bill, therefore, includes a $300 million unspecified cut in interdepartmental accounts, making that money available to fund other programs under the assumption that $300 million allocated to various programs will not be spent during the upcoming year.

Using a cut in interdepartmental accounts to force a governor from the other party to find efficiencies is not new. The Republican-controlled legislature that was elected in the anti-tax landslide forced Democratic Gov. Jim Florio to find $800 million it needed to roll back the state sales tax in 1992 by making a similar cut in interdepartmental accounts; by the end of the year, the “gap” had been covered.

However, Christie and Sidamon-Eristoff are not going to want to be forced to find $300 million in additional savings in the upcoming year because it effectively reduces the state’s ability to deal with a revenue downturn, and New Jersey’s highly graduated state income tax is heavily reliant on Wall Street performance, which fluctuates greatly.

Including the OLS revenue estimate, which is $289 million higher than Sidamon-Eristoff’s projection, and the $300 million unspecified interdepartmental cut in the budget enables Democrats to include many of their funding priorities in the budget — and force Christie to use his line-item veto to eliminate popular programs.

Ideological Vetoes

Some of those vetoes could be ideological: Christie, who has made his anti-abortion beliefs clear, has vetoed the $7.5 million for family planning programs included in the budget in the past, even though the state funding is matched on a 9-to-1 basis by the federal government. Christie also has made clear that he intends to let New Jersey Network “go black” on July 1, even if the Legislature rejects his plan to turn over the state’s public television network to WNET Channel 13 in New York, so the small appropriation for NJN could very well be one of his first cuts. The Assembly last night voted 45-30 along party lines to reject the NJN sale, and Sweeney said he expected the Senate to follow suit on Monday.

But the budget bill — like the millionaire’s tax legislation that will accompany it — is designed to force Christie to either cut school aid to the suburbs that are his base or to acquiesce to the increase in school funding. Either way, Democrats will be able to point to the result when they run for reelection in the fall.

Altogether, the two bills contain $1.6 billion in increased school aid (see The Millionaire’s Tax Makes a Comeback — as a School-Funding Vehicle ). In addition to the $447 million for the 31 urban Abbott districts that cannot be cut, the budget bill includes $580 million for 215 suburban, rural and urban districts to restore the formula aid that was cut in the last Christie budget, plus $87 million to be shared by every other school district. The millionaire’s tax includes $446 million in funding to bring all of the non-Abbott school districts in the state up to full funding.

While the $446 million is sure to be a casualty of a millionaire’s tax veto, much of the $580 million school aid increase for the 215 non-Abbott districts will also fall victim to Christie’s line item veto unless the governor is willing to go along with the higher OLS revenue estimates and the $300 million cut in interdepartmental accounts.

Additional Arguments

School funding is not the only issue that is subject to dispute between Christie and the legislature.

Oliver has been particularly vocal in her opposition to Christie’s proposed cuts in the FamilyCare program that provides health coverage to the working poor and to a proposed change in Medicaid rules that would lower income eligibility limits for new enrollees to just $5,000. Sweeney said the Democratic-controlled legislature would address the issue by approving a resolution specifically instructing the federal Department of Health and Human Services that it opposed the inclusion of such cuts in any Medicaid waiver granted to the Christie administration.

Sweeney said the Democratic budget also would include $50 million in additional funding for police departments in about 100 municipalities with high crime rates, many of which were forced to cut police staffing this year to balance their budgets.

He said the budget would include $61 million to fully fund the senior citizen property tax freeze, and that direct property tax rebates would be doubled, as proposed in Christie’s original budget — not tripled, as Sidamon-Eristoff had proposed when revenues first came in higher than expected.

Sweeney added that the budget would include the $506 million pension payment Christie had originally proposed, rather than the $750 million payment Sidamon-Eristoff had later suggested. Sweeney’s pension and health benefits bill, passed by the Assembly last night, had legally locked the state into making the $506 million payment, which was required under a 2010 pension reform law that required the state to make one-seventh of the needed pension payment in the upcoming year and to phase up to full funding by 2018.

The Democratic budget bill also would block Christie’s plans to close the Vineland Developmental Center, at least temporarily. Sweeney said yesterday that Democrats wanted the administration to set up a commission to evaluate the state’s developmental centers and decide objectively which one should be closed.

“If they say in March, ‘Vineland’s it,’ then Vineland’s it,” said Sweeney, who emphasized that he has a developmentally disabled daughter and agrees philosophically that one or more of the state’s large developmental centers should be closed in order to put more money into community programs.