Christie, Sweeney Reach Deal on Tax Cut, but Can NJ Afford It?

Mark J. Magyar | May 15, 2012 | Budget
Greenwald warns of potential $1 billion shortfall, vows Assembly will fight for its own tax cut plan

Credit: Governor's Office/Tim Larsen
State Senate President Stephen Sweeney and Gov. Chris Christie
Republican Gov. Chris Christie and Senate President Stephen Sweeney (D-Gloucester) have reached agreement on a compromise tax cut plan. Now the question is whether Sweeney’s fellow Democratic legislators will agree with the plan themselves.

For one thing, the state could be facing a $1 billion shortfall over the next 14 months, according to Assembly Majority Leader Lou Greenwald (D-Camden). For another, the timing and details of the Christie-Sweeney compromise tax plan took Senate Democrats by surprise, and they’re wary.

Under the proposed agreement, Christie would support Sweeney’s approach of providing a property tax credit on state income taxes of up to $1,000, while Sweeney would agree to extend the tax credit to homeowners earning up to $400,000, up from the $250,000 income limit set in his original plan, according to a well-placed source. This would allow Christie to take credit for an income tax cut — even though it is nothing like the original 10 percent cut Christie originally proposed that would have disproportionately benefited the wealthiest 1 percent, and even though Sweeney can continue to insist that it is a middle-class property tax cut.

Christie administration officials scheduled a 3 p.m. press conference to announce the tax cut compromise, then were forced to cancel it abruptly at 2:40 p.m. after Sweeney pulled out for health reasons after undergoing a medical procedure yesterday morning — and after top Senate Democrats who were called by reporters howled in protest that they had not been informed of any deal.

No press conference will be held today either, as Sweeney has decided to try to persuade Greenwald and Assembly Democratic leaders to abandon their rival plan for a larger property tax credit. Their plan would provide a property tax credit on income taxes of up to $2,500 for senior citizens and $2,000 for homeowners earning up to $250,000, funded in part through the reimposition of a 10.75 percent “millionaire’s tax.”

Greenwald said that Assembly Democrats are willing to listen, but they are committed to moving their own tax cut proposal forward.

“All we know is the Assembly plans to continue its fight for significant property tax relief for New Jersey’s middle-class and seniors. Our plan is responsible, reliable, and meaningful and because it’s based on economic fairness it can withstand the sagging revenues of Gov. Christie’s failed economic policies,” Greenwald said.

Those “sagging revenues” were supposed to be detailed yesterday in an official Treasury Department report on April revenue collections, but the Christie administration abruptly cancelled release of that report late in the day — even though Christie’s Executive Order 8, signed the day after his inauguration in 2010, requires the release of monthly revenue figures on the 10th business day of the month, which was yesterday.

The fact that April revenue collections are coming in lower than expected is no surprise. David Rosen, the budget officer for the non-partisan Office of Legislative Services who has access to the Treasury Department’s revenue database, sent a confidential memo to legislative leaders on May 3 reporting that income and corporate taxes for April were coming in below projections.

But Greenwald yesterday was the first to suggest that the final gap could be as high as $1 billion.

Rosen projected on March 27 that revenues would come up $144.9 million short of Treasurer Andrew Sidamon-Eristoff’s projections in the current budget year that ends June 30 and $392 million short of Sidamon-Eristoff’s forecast for the upcoming fiscal year for a total budget gap of $537 million.

“I am now told the total gap could be $1 billion — up to $300 million in the current budget and $700 million next year,” Greenwald said.

Michael Drewniak, the governor’s spokesman, and Andrew Pratt, the Treasury Department’s communications director, failed to respond to telephone and email requests for comment yesterday.

But key Democratic senators have said in recent weeks that they wanted to see whether the Christie administration’s optimistic projection of 7.3 percent revenue growth — the highest growth forecast in any of the 50 states — was reasonable before committing to a tax cut.

Christie’s proposed budget would use up $300 million of the $580 million surplus in this year’s budget, leaving a surplus of just $280 million — or less than 1 percent — in case revenue projections come in lower than expected in Fiscal Year 2013, which starts June 30. If Greenwald is correct that the state’s revenues will eventually come in $300 million lower than expected by the Christie administration, that entire surplus will be wiped out, or the Christie administration will be forced to make budget cuts.

Meanwhile, it was unclear whether the snafu over yesterday’s planned Christie-Sweeney tax cut deal would have any long-term repercussions.

It was the Governor’s Office that scheduled the press conference, but it was unclear why Sweeney had yet to brief his Senate Democratic caucus on the details of the plan — or even that a potential deal had been struck. In any case, Sweeney was undergoing a medical procedure yesterday morning while plans for the press conference were being made and announced.

“Not one Democratic senator knew about this,” said one Democratic senator who asked not to be named. “Everybody’s waiting on the revenue numbers to come in first. This was a press conference that was hastily arranged, and I don’t really know why they did it this way.”

Senate Majority Leader Loretta Weinberg (D-Bergen) was clipped in her comments.

“I know that I have been supportive of Senate President Sweeney’s plan for property tax relief,” she said. “I’m just not going to go beyond that. The press conference was cancelled, and that’s all I can comment on.”

Sweeney has been impatient with the determination of Assembly Speaker Sheila Oliver (D-Essex), Greenwald and other Assembly Democratic leaders to push a rival plan for a larger property tax credit on income taxes that is funded by a “millionaire’s tax” that Christie has already vetoed twice in past years and has declared “dead on arrival.”

But there is a division in the Democratic ranks over whether the Sweeney or Greenwald plan is better politically for the Democratic Party. With polls showing most New Jerseyans favoring a millionaire’s tax and preferring property tax relief to Christie’s proposed income tax cut, some Democratic strategists argue that a vigorous campaign for the Greenwald plan can weaken Christie. This is important heading into August to the Republican National Convention, where Christie is likely to be on the short list for consideration as GOP nominee Mitt Romney’s vice presidential running mate, and even more important heading into the 2013 gubernatorial election, when Christie would be up for reelection.

Other Democrats, however, fear that Christie is successfully using his bully pulpit at town meetings, on TV shows, and on YouTube to paint them as the party of higher taxes based on Greenwald’s “millionaire’s tax,” and that the Assembly Democratic message that higher taxes on millionaires are being dedicated to property tax relief for most New Jerseyans is not getting through.