Christie, Legislature on Collision Course to Government Shutdown

Mark J. Magyar | June 15, 2012 | Budget
Fearing revenue shortfall, Democrats back off original tax cut plans, but may send Christie a millionaire’s tax

Credit: Governor's Office
Gov. Christie counts down to budget deadline.
If Gov. Chris Christie and Democratic legislators stick to their guns, New Jersey could be headed to its second state government shutdown in six years on July 1.

Christie has vowed not to negotiate any state budget with the Democratic-controlled Legislature that does not include a tax cut.

But Democratic legislative leaders made it clear yesterday that the only tax cut Christie might get before June 30 would be a direct property tax cut funded by an $800 million income tax increase on millionaires, and that might not happen because Democrats are divided over whether to give Christie the opportunity to veto a millionaire’s tax for the third year in a row.

What Democrats agree on is that the $183 million Christie has earmarked for an income tax cut will be set aside in the budget in a special surplus account dedicated to property tax relief. The Legislature would appropriate these funds only if the Republican governor is on track to hit his aggressive $32.02 billion revenue projection. That decision would not be made until December or later, Democratic legislative leaders said, depriving Christie of a tax cut to trumpet in August at the Republican National Convention in Tampa, where he could be a leading candidate for the GOP vice-presidential nomination.

Christie reiterated Wednesday at a town meeting in Atlantic County that he would “not negotiate a budget with the state Legislature unless they cut your taxes” and noted that he has asked his Cabinet for contingency plans for a government shutdown in the event of a budget impasse.

Senate Budget Committee Chairman Paul Sarlo (D-Bergen) dismissed Christie’s threat yesterday as just “something he said at a town hall” and added that there would “not be a government shutdown, at least from the Legislature.”
“We’re approving his budget, with his revenue numbers, with his $183 million set aside for a tax cut if he hits his revenue projections,” Sarlo stressed. “If the numbers aren’t there, he won’t get it.”

A Nebulous Promise

Whether Christie would accept the nebulous promise of a future tax cut based on Democratic certification that his revenue numbers are on target is questionable.

“It’s absurd,” Senate Minority Leader Thomas Kean Jr. (R-Union) said. “In the end, what the Democrats are saying is that they don’t trust the governor’s revenue numbers — even though they’re going to vote for a budget based on those numbers — and yet they’re challenging the governor’s constitutional right to certify revenues by holding back appropriation of those dollars until they say the money is there.”

Kean, the son of former Gov. Thomas Kean, said such an infringement on gubernatorial powers would be unprecedented.

What would not be unprecedented would be yet another Democratic bill for a millionaire’s tax landing on Christie’s desk.

Senate and Assembly Democratic leaders presented to their caucuses yesterday a new property tax relief plan pushed by Assembly Majority Leader Lou Greenwald (D-Camden) that would use $800 million raised through the millionaire’s tax to fund approximately a $1,000 increase in direct property tax credits for those who meet the current homestead eligibility limits of $150,000 for senior citizens and $75,000 for non-seniors.

The switch from a new property tax credit on state income tax returns to an increase in direct property tax credits underscored the insistence of Greenwald and Senate President Stephen Sweeney (D-Gloucester) that their tax cut plans were designed for property tax relief – and were not simply different versions of an income tax cut, as Christie has repeatedly insisted.

The Assembly Democratic caucus enthusiastically embraced the idea of forcing Christie to veto a $1,000 property tax cut for lower- and middle-income homeowners to be paid for entirely by millionaires — a plan that regularly wins support in state public opinion polls and a winning tactic in the view of some Democratic strategists.
“He can either do what’s right for middle-class families in New Jersey or he can go to Tampa and beat the drums for trickle-down economics [by vetoing the millionaire’s tax],” Greenwald said. “I don’t care what happens in Tampa, I care about New Jersey.”

However, Senate Democrats, while supportive of the millionaire’s tax as a policy, balked at the idea of giving Christie the opportunity to veto yet another Democratic tax increase.

“Do you give the governor a loaded gun that he can shoot back at you?” one Senate Democratic insider asked after the three-hour caucus yesterday. Senate Democrats, he said, are worried that the popular governor would use his liberal conditional veto powers to completely rewrite the bill and send back to the Democratic-controlled Legislature an unacceptable alternative tax cut bill that he could hammer them for failing to approve.

Greenwald said the Senate Democratic leadership had assured him that Senate Democrats would support the millionaire’s tax, but it will clearly take at least another caucus meeting to win Senate support for the income tax increase. That meeting presumably will have to take place on or prior to next Thursday, when the Senate and Assembly budget committees are tentatively scheduled to vote out both the budget and millionaire’s tax bills so that they can be considered by the full Senate and Assembly on June 25.

Who Wants to Be a Millionaire?

The split in the caucuses over whether to approve the millionaire’s tax mirrors the original disagreement between Sweeney, who said it would be futile to include the millionaire’s tax in his original tax cut proposal because Christie would simply veto it, and Assembly Speaker Sheila Oliver (D-Essex) and Greenwald, who made the millionaire’s tax a centerpiece of their plans.

While the Senate and Assembly Democratic caucuses remain split over the millionaire’s tax, it is clear that the tentative deal reached by Christie and Sweeney on a bipartisan tax cut is dead. Under that deal, Christie agreed to support Sweeney’s plan for a 10 percent property tax credit up to $1,000 on income taxes if Sweeney would raise his income limit from $250,000 to $400,000. Greenwald yesterday also shelved his original plan for a 20 percent property tax credit on income taxes up to $2,000 for those earning up to $250,000, in favor of a revised millionaire’s tax to fund direct property tax relief.

Both the Sweeney and Greenwald plans were originally put together as alternatives to Christie’s announcement in his State of the State speech that he would seek a 10 percent across-the-board income tax that would have overwhelmingly benefited the wealthy. Like Christie’s plan, the Sweeney and Greenwald proposals relied upon $1.4 billion in anticipated revenue growth by Fiscal Year 2016 for all or part of their funding.

Yesterday, Democratic legislative leaders officially ended their “arms race” with Christie to enact tax cuts funded by future revenue growth.

Democratic legislators in both caucuses agreed almost unanimously that the $700 million shortfall in Fiscal Year 2012 and 2013 revenues acknowledged by Christie — and the $1.4 billion gap projected by David Rosen, budget director for the non-partisan Office of Legislative Services — are proof that New Jersey cannot afford to make tax cuts based on future revenue growth until they see state revenues coming in on schedule.

Instead, they agreed to set aside the $183 million Christie planned to use for tax cuts in a special fund to be allocated to property tax relief in sometime over the upcoming year, but not before December.

“If the Democrats stick to their position to set aside that money as part of the surplus, that would be the most responsible thing they could do,’’ said David Rousseau, a former Democratic state treasurer who is serving as a budget analyst for New Jersey Policy Perspective. Rousseau has previously criticized the Democratic leaders for following Christie’s lead in proposing tax cuts based on optimistic assumptions of future revenue growth.

New Jersey Comeback

Christie has stuck to his campaign-style narrative that his “New Jersey Comeback” will generate such robust economic growth that state revenues will climb by 7.3 percent next year – the most optimistic growth rate envisioned by any state government in the nation.

However, the Christie administration’s failure to meet anticipated revenue projections over the past three months has undercut the governor’s argument, as did New Jersey’s 47th-place ranking in economic growth during 2011 — the only state in the Northeast whose Gross Domestic Product actually declined last year.

The Christie administration yesterday pointed to the state’s addition of 17,600 jobs during the month of May — a figure that represents 25 percent of all jobs created in the nation during what proved to be a dismal employment month — as proof that the state is on the right track economically.

“No matter how loud they scream and yell in order to stop a tax cut, there is no evidence that the outlook for our economy is anything but positive,” Christie’s press office said in a release announcing the new jobs figures.

Christie reemphasized the point during a quick Statehouse news conference. “All of the rooting against the New Jersey Comeback, all of the poor-mouthing that’s going on down the hall purely for political purposes,” he insisted, is “nothing but pure partisan politics.”

Christie shrugged off the increase in the state’s unemployment rate from 9.1 percent to 9.2 percent as proof that New Jerseyans are optimistic and are reentering the workforce.

But Greenwald noted that the 9.2 percent unemployment rate remains a full percentage point higher than the national average. While some of the new jobs are from the opening of the new Revel casino in Atlantic City, many of the new jobs are seasonal.

Greenwald said Christie is mistaken if he thinks he can “build an economy on beach tags and ice cream cones.”