Democrats Defy Christie By Delaying Tax Cut in $31.7 Billion Budget

Mark J. Magyar | June 22, 2012 | Budget
Senate panel OKs budget and millionaire's tax, but rift delays expected Assembly vote

Defying Governor Christie’s veto threats, Senate Democrats took the first steps to approve a $31.7 billion budget that does not include an immediate tax cut and to impose a new millionaire’s tax in order to increase property tax credits for senior citizens and low-to-middle-income homeowners.

The Senate Budget Committee voted 8-5 along party lines to approve the budget bill, which sets aside $183 million in a special property tax relief fund that would be used to enable an additional property tax cut next April, but only if the Christie administration is on track to meeting its projected revenue growth of 7.2 percent, said Senate Budget Committee Chairman Paul Sarlo (D-Bergen).

Senator Jennifer Beck (R-Monmouth) said it was “a shell game to promise people, but not act on, a tax cut” that could have been authorized in the budget, and Christie denounced Democrats for putting together a budget “holding tax relief hostage.”

While Democrats and Republicans clashed in the Senate Budget Committee, the real action was taking place behind closed doors in the Assembly Democratic caucus, where nine North Jersey Democrats led by Assemblyman Joseph Cryan (D-Union) threatened to vote against the budget bill on Monday unless leaders agreed to delay legislation authorizing the merger of Rutgers-Camden and Rowan University until November.

Civil War

The mini-revolt forced the postponement of Assembly Budget Committee votes on the budget and the millionaire’s tax until this morning. Assembly Democratic leaders predicted that their caucus would produce the 41-vote majority needed to pass the budget by Monday. But Assemblyman John McKeon (D-Essex) insisted that the nine would stick to their principles on the issue, which would leave Assembly Speaker Sheila Oliver (D-Essex) two votes short because the lower chamber’s 32 Republicans are expected to vote against the budget for failing to include an immediate tax cut.

“The nine of us made this commitment and signed the letter refusing to vote for the budget unless the Rutgers-Rowan bill is delayed,” McKeon said. “From my perspective, I will not consider voting for this budget and simultaneously vote for a Rutgers-Rowan merger that has the potential of adding $1 billion in future budget costs. Someone has to bring some sanity to the process, and thankfully we have the leverage to do it.”

McKeon, the former Assembly Environment Committee chair, and Cryan, the onetime Assembly majority leader, have nothing to lose by trying to exert maximum leverage over the budget. Both were stripped of leadership posts for challenging the authority of Assembly Speaker Sheila Oliver (D-Essex), who rose to the top as part of a political coup orchestrated by South Jersey power broker George Norcross and Essex County Executive Joseph DiVincenzo that replaced Sen. Richard Codey (D-Essex), McKeon’s running mate, with Stephen Sweeney (D-Gloucester) as Senate President.

McKeon, Cryan and the rest of the “No to Norcross Nine” bitterly criticized Oliver and Sweeney for leading a coalition of South Jersey, Essex, and Hudson County Democrats that ignored the wishes of the Democratic majority to join with Christie’s Republicans to vote for controversial pension and health benefits legislation last June.

Oliver loyalists pointed out yesterday that the mini-revolt not only gave Cryan, McKeon, and their fellow back-benchers a chance to try to reassert political clout when it counted, but gave them the opportunity to challenge Norcross and Sweeney over their cherished plan to give South Jersey its own research university through the Rutgers-Rowan merger.

Sweeney and Christie are equally committed to the Rutgers-Rowan plan. Ironically, if the nine Assembly rebels stick to their position, Oliver could be forced to negotiate with the Assembly Republicans for the two votes she needs to pass the budget — which would violate the promise McKeon said last fall that Oliver made to him when she promised not to post any bill that did not have 41 Democratic votes in support.

What About Christie?

It is a popular aphorism in Trenton is that “it takes 41, 21 and one to pass a bill.”

While Assembly Budget Committee Chairman Vincent Prieto (D-Hudson) expressed confidence last night that there would be 41 Assembly Democratic votes for the budget by Monday, Sweeney already has his 21 votes committed, with Codey and Senators Barbara Buono (D-Middlesex) and Shirley Turner (D-Mercer) the only potential holdouts.

The crucial “one” is Christie, and he has repeatedly said he will not negotiate a budget with Democrats that does not include an immediate tax cut — a criteria the $31.7 billion budget passed by Sarlo’s budget committee yesterday fails to meet. The governor has already asked his Cabinet for contingency plans for a government shutdown July 1 in case the Democratic-controlled Legislature sends him a budget he feels he cannot sign.

On Tuesday, Christie said the Democratic plan to set aside $183 million in the budget for a tax cut to be authorized by separate legislation later in the budget year reminded him of the cartoon character Wimpy, whose trademark line was that he “would gladly pay you Tuesday for a hamburger today.”

Last night, after the Senate committee vote, he renewed his attack in a prepared statement: “After months of promising to deliver critical tax relief to the people of New Jersey, Corzine Democrats today proved it’s just more of the same when it comes to their addiction to raising taxes and holding tax relief hostage. Corzine Democrats are sending a loud, resounding ‘No’ to tax relief for hardworking New Jerseyans because they’d rather repeat the cycle of the eight years before I became governor, raising taxes and fees every 25 days on the citizens of New Jersey.”

Democrats on the Senate Budget Committee voted unanimously yesterday for legislation championed by Assembly Majority Leader Lou Greenwald (D-Camden) to raise the top income tax rate on New Jersey’s 16,000 millionaires from 8.97 percent to 10.75 percent in order to add $789 million to the existing $398.5 million property tax credit program.

“Governor Christie once said cutting property tax rebates was akin to declaring war on the middle class, but upon taking office he callously threw gasoline on the property tax crisis fire by slashing property tax relief,” Greenwald said. “The governor’s failure to fulfill his promise was to the detriment of New Jerseyans who have been hit with a net 20 percent property tax hike under his watch. This bill gives the governor the chance to begin living up to his promise and provide significantly enhanced property tax relief to the middle-class and seniors.”

The Greenwald property tax relief plan, which was detailed yesterday for the first time, is heavily weighted toward senior citizens and disabled homeowners. Under the plan, seniors and the disabled earning up to $100,000 would receive property tax credits of up to $2,000 (20 percent of the first $10,000 paid in property taxes in 2011), those earning between $100,000 and $150,000 would get 15 percent credits up to $1,500, and those earning between $150,000 and $250,000 who are currently ineligible for the homestead program would receive 10 percent credit up to $1,000.

For non-seniors, the Greenwald plan would double the current income eligibility limit from $75,000 to $100,000, and the average benefits would rise perhaps $100 from the current $408 average because the new benefits would be calculated on the basis of 2011 property taxes paid, rather than 2006 property taxes, as in the current budget. While non-senior renters earning up to $100,000 would receive rebates of $75, senior and disabled tenants earning up to $75,000 would receive rebates ranging from $150 to $850, and those earning between $75,000 and $100,000 would receive $150.

The increased property tax rebates under the Greenwald plan are, however, contingent upon Christie approving the millionaire’s tax, which the governor is expected to veto for the third time in three years.

Christie’s Budget

Sarlo, Greenwald, and Prieto have been saying for days that the Democratic budget bill would not only be based on Christie’s budget numbers, but also would be little-changed from the governor’s original budget proposal, and that proved to be the case yesterday.

The Democratic budget incorporated all of the fiscal strategies laid out by Treasurer Andrew Sidamon-Eristoff during the May budget hearings to balance a combined $672 million shortfall in the current and upcoming budgets, including an additional $89 million diversion of Clean Energy funds and the replacement of $260 million in pay-as-you-go funding for transportation capital projects with increased borrowing.

Sarlo pointed out that the budget bill represents a $62 million reduction in total revenues from the $31.803 billion projected by Treasurer Andrew Sidamon-Eristoff in budget hearings last month.

However, $50 million of that difference is a reduction in income tax revenues due to the Democrats’ decision to raise the Earned Income Tax Credit for the working poor from 20 percent of the federal poverty line to the 25 percent level in the upcoming fiscal year, rather than waiting for Fiscal Year 2014, as Christie had proposed in his budget speech. The Democrats further reduced revenues by taking out a $25 million increase in court fees that would have fallen heavily on the poor.

Offsetting those revenue cuts, Democrats anticipated an additional $10 million in revenue from enhanced debt collection and $10 million in increased recoveries from managed care fraud and abuse – which Sarlo defended as reasonable by asserting that Christie’s budget last year included $300 million in Medicaid savings that have yet to materialize.

As expected, the Democratic budget includes $55 million in additional funding for a wide range of social service and educational programs, including $25 million in increased aid for nursing home operators that has the support of both Democratic and Republican legislators. To pay for the new programs, the budget includes language allocating $55 million in lapsed funds from state programs that do not spend their full budgets in the current fiscal year. Lapsed funds typically are added to the state’s opening surplus, which this year is anticipated to total $303.635 million, up from $300 million in Christie’s original budget.

Sarlo reiterated his concern over relying on the governor’s revenue projections: “To me they appear to be overly optimistic. But the governor has made clear that under the Constitution, his office, and only his office, can certify revenues. We are certifying revenue growth of 7.2 percent, one of the highest rates in the country,” he noted, pointing out that the average for all states is just 4.1 percent, according to the National Governors Association.

“We hope the governor is 100 percent right,” Sarlo said. “What we’ve done in this plan — and the responsible thing to do — is we planned for a tax cut by setting aside $183 million in surplus to pay for a Democratic middle-class property tax relief program to take effect in January 2013. To enable that tax cut, the Senate president has enabling legislation that has been introduced and we are quite confident that the Senate president will be moving on that resolution when revenues are coming in as anticipated.”

Framing the tax cut in those terms puts the onus on Christie to meet revenue projections that the nonpartisan Office of Legislative Services expects to come in $724 million to $824 million below the governor’s expectations. If OLS is right, the shortfall would not only wipe out the $183 million set aside for the tax cut, but also eat up the entire surplus and force midyear budget cuts.

That’s why most Democratic committee members yesterday said they viewed the tax cut delay as a responsible fiscal strategy. The lone exception was Senator Jeff Van Drew (D-Cape May), who insisted he is “ready for a tax cut whether we do it in January or do it four hours from now. The sooner we do it, the better. The money is in the surplus and I certainly am hopeful . . . that there is a ‘New Jersey Comeback.'”

Van Drew’s comments mirrored those of Beck and the other four Republican senators. Beck noted that the governor’s budget anticipated 5.9 percent growth in taxes, which she said is “not unreasonable given the highly progressive nature of our income tax.” She contended that “the delay in the tax cut just isn’t warranted.”

It is an argument that Christie is expected to make forcefully in the days ahead.