Christie to Democrats: Let’s Make a Deal

Mark J. Magyar | July 2, 2012 | Budget
Governor boosts surplus to strengthen argument that New Jersey can afford tax cut

Gov. Chris Christie’s campaign for a tax cut, his case for reelection as governor, and his quest for a leading role on the national stage all get rolled into one with his speech to a joint session of the Legislature this morning.

The high-profile speech gives Christie a platform to draw a sharp contrast with New Jersey Democrats on the tax cuts that would be the signature issue of his gubernatorial reelection bid. It also offers a final opportunity to showcase his rhetorical skills as Mitt Romney weighs his choices for vice president and keynote speaker at the Republican National Convention in Tampa just eight weeks away.

Most significantly, Christie’s decision to call the Legislature into special session shows that he has not given up on his fight for an immediate tax cut — either the across-the-board 10 percent income tax cut he originally called for or some variation of the middle-class property tax credit that Senate President Stephen Sweeney (D-Gloucester) proposed.

With tax revenues coming in hundreds of millions of dollars short, the Legislature’s Democratic majority showed rare unanimity last Monday in voting to defy the popular Republican governor by deferring implementation of any across-the-board income or property tax cuts for at least six months until they see revenues improve.

Christie immediately attacked the Democrats for “holding tax relief hostage.” His decision to call the Legislature back into session today is just one of a series of moves designed to bring the political pressure needed to win over the five Democratic votes he would need in the Senate and nine in the Assembly to enact a tax cut.

Shallow Cuts

First, Christie’s minor cuts in the $31.7 billion budget approved by the Democratic Legislature increased the state’s surplus from $303 million to $438 million — not including the $183 million that Democrats set aside for a future tax cut at Christie’s request. Christie will argue that his treasurer’s revenue forecasts have proved reliable in the past, and that the $438 million increased surplus represents will provide an adequate cushion to cover any future shortfalls, so a $183 million tax cut should be approved immediately.

Just as Christie’s agreement to support Sweeney’s tax cut plan seemed timed to overshadow the release of terrible April revenue numbers that forced $672 million in often-questionable budget maneuvers, Christie’s call for immediate legislative action on a tax cut could have the advantage of getting out in front of the scheduled mid-July release of the June revenue numbers.

David Rosen, budget officer for the nonpartisan Office of Legislative Services, is projecting that those mid-July numbers will show that the Christie administration’s revenue projections have come in another $50 million to $100 million below expectations for the fiscal year that ended Saturday at midnight. That would bring Rosen’s projected shortfall for the next 12 months to between $724 million and $824 million — well above even Christie’s enlarged state surplus.

Based on past practice, Rosen will most likely provide Democratic and Republican leaders with an early prognosis today or tomorrow based on his analysis of up-to-the-day revenue collections recorded in Treasury’s computer system, but Treasurer Andrew Sidamon-Eristoff will not certify the June revenue numbers until about July 16.

Second, Christie’s decision not to immediately veto the “millionaire’s tax,” as he did a year ago, shows that he is saving it for a special purpose. One option would be for the governor to make a show of signing the veto on the stage during his speech this morning.

But it is more likely that Christie is holding onto the millionaire’s tax bill in order to have it available to be rewritten through his conditional veto power as tax cut legislation that could then be ratified by the Senate and Assembly in a single day, rather than having to have a new tax cut bill introduced, go through legislative committees and pass both houses over at least a two-week period.

Christie could veto the millionaire’s tax and unveil the rewritten bill as his new tax cut proposal during today’s speech, but he would most likely want to know what the requisite five Democrats in the Senate and nine in the Assembly would be willing to vote for before he lays out his plan.

Third, Christie has vociferously attacked Senate Budget Committee Chairman Paul Sarlo (D-Bergen), the leading Democratic proponent of deferring the first stage of Christie’s planned multiyear tax cut until revenues turn around. The same holds for Assembly Majority Leader Lou Greenwald (D-Camden), the main Democratic sponsor of the millionaire’s tax.

On the Attack

But while he has characterized Democrats overall as “liars,” the governor has been careful not to attack Sweeney by name. Perhaps it is because Christie and Sweeney have been working together closely on the Rutgers-Rowan overhaul of the state’s higher education system that passed last week. But Christie also recognizes that Sweeney and the coalition of South Jersey, Essex and Hudson Democrats aligned with power brokers George Norcross, Joseph DiVincenzo, and Brian Stack that supported his pension and health benefits bill a year ago represent his only hope for passing a tax cut sooner than December or January.

For now, it’s a slim hope, since Sweeney has been firm in his public opposition to passing a tax cut before the revenues come in to pay for it. Further, Democratic leaders have little incentive to give Christie — and themselves — a short-term political victory that would only make next June’s budget battle more difficult.

Christie’s reliance on more than $1 billion in one-shot non-recurring revenue in the Fiscal Year 2013 budget that began yesterday, combined with another $900 million in increased costs for pension payments, debt service, transportation funding, and the third year of already approved Fiscal Year 2014 business tax cuts, starts off the next budget year with a $1.9 billion hole in the budget that already exceeds all of that year’s expected revenue growth.

The addition of a multiyear income tax or property tax cut at the level proposed by Christie would take $183 million out of the current surplus, would cost $575 million in revenue in Fiscal Year 2014, and would most likely create a major budget crisis just 4 1/2 months before the governor and all 120 members of the Legislature are up for reelection in November 2013.

And those admittedly scary budget projections assume that the Christie administration is correct is projecting that New Jersey’s tax revenues will grow 7.3 percent over the next 12 months — a growth rate much larger than the 4.1 percent average rate that the other 49 states are projecting, even though New Jersey ranked 47th in economic growth during the first two years of the Christie administration overall.

Christie, however, may have another political trick up his sleeve.

Let the People Decide

In his letter to Sweeney and Assembly Speaker Sheila Oliver (D-Essex) demanding that the Legislature return today, Christie not only promised to outline his recommendations for how to achieve immediate tax relief, but also suggested that Democratic legislative leaders let the people decide whether they want a new tax cut.

The governor pointedly noted that the upcoming July 4th ceremonies would mark the 236th year since citizens united against a “history of repeated injuries and usurpations” by a tyrannical British government, including the imposition of taxes “without our consent.”

“Today, our citizens deserve the same opportunity to decide whether a new direction, embodied in the recommendations I will share, is needed to end the cycle of tax increases that has paralyzed our State’s growth, and stunted our citizens’ progress,” Christie said.

That appeal to Democrats to let New Jerseyans decide could presage a call by Christie for the Legislature to put a public question on whether to enact a tax cut on the November ballot and agree to abide by the results.

More broadly, Christie could call for the enactment of initiative-and-referendum, which New Jersey Republican leaders have frequently urged in past years and which California and Massachusetts voters have used to limit tax increases

He also could call for a constitutional amendment requiring a supermajority for passage of any tax increase, which is popular with Republican conservatives nationwide.

Clearly, Christie believes he has popular support for cutting taxes, and any strategy that can help him make that point is a winner.