Gov. Chris Christie is running for reelection on the mantra that he restored fiscal responsibility to New Jersey. It is a claim that he has made a centerpiece of his campaign, blaming both his predecessor, Gov. Jon Corzine, and his Democratic opponent, Sen. Barbara Buono (D-Middlesex), for a decade of failed fiscal policies.
Christie has asserted in his budget speeches that he has restored fiscal stability to the state’s budget process by reducing the state’s overreliance on “one-shot” budget maneuvers – the fund raids, one-year fiscal gimmicks and other nonrecurring revenues that have to be made up in the budget the following year.
Republican leaders like Sen. Kevin O’Toole (R-Essex) repeatedly point out that Christie reduced the state’s use of one-shot revenues from 13 percent of the budget under Corzine to just 3 percent in the past fiscal year.
However, an NJ Spotlight comparison of Christie’s four budgets with Corzine’s four budgets shows that with federal stimulus aid deducted, Christie’s reliance on state one-shot revenues to balance his budgets is actually greater than Corzine’s. And Christie relied more heavily on fund raids and other fiscal gimmicks.
While all budgets contain some nonrecurring revenues — indeed, $300 million to $400 million can be considered normal — an overreliance on them to fund ongoing operating expenses creates a problem in the following year’s budget, particularly in the case of an economic downturn when regular revenues fall and cuts have to be made, as O’Toole and budget experts from both parties have noted.
To understand how one-shots work, consider Christie’s recent decision to push back the payment of $392 million in homestead rebates from May 2013 to August 2013, when revenues came up more than $400 million short of administration projections last spring.
Because the state fiscal year runs from July 1 to June 30, Christie’s decision to push back the rebate payments from May to August shifted their cost into the following budget year, creating a nonrecurring savings of $392 million for the FY2013 budget.
To make the one-shot work, all future rebates will also have to be paid out in August to the senior citizens earning up to $150,000 and other homeowners making up to $75,000 who are eligible for the program.
Further, the state may very well have to borrow money to pay the rebates this year or in future. The state’s surplus is rarely large enough to cover the cost of paying rebates in August — less than two months into a new fiscal year, when tax collections are relatively low. In May, by comparison, the Treasury’s coffers are usually flush from final April income tax payments. The state often had to borrow money in the past to cover the cost of homestead rebates that were mailed out in October.
Finally, the $392 million provided by the homestead rebate one-shot to pay for various ongoing programs in the FY13 budget will not be available to pay for those programs in the FY14 budget. This means that the Christie administration needs that much additional revenue growth in the new fiscal year just to pay for existing programs and fill the additional $392 million hole that was created in the FY14 budget by reliance on that nonrecurring revenue.
According to the Christie administration state revenues will total $32.9 billion in FY14. But once again, the nonpartisan Office of Legislative Services is projecting that the Christie administration’s revenue projections will come up short, this time by a total of $760 million for the 14-month period ending June 30, 2014. If the OLS is right, the governor’s office would need to make further budget cuts next spring.
Governors and their state treasurers have a tendency to regard fund diversions and other nonrecurring revenue as “free money” — a relatively painless way to plug a budget gap for yet another year without the political pain of cutting more popular programs or proposing tax increases or fee hikes. And that’s how they sell them to risk-averse legislators, especially in election years like this one.
While the leaders of the Democratic-controlled Senate and Assembly budget committees criticized Christie’s increased use of nonrecurring revenues in the FY13 and FY14 budgets, they did not propose alternative spending cuts, as Christie administration officials pointed out. Democratic legislative leaders say their inability to muster the two-thirds majority needed to override Christie’s budget vetoes limited their ability to make changes.
Comparing Corzine’s FY10 one-shots to those in Christie’s current budget has become an article of faith for GOP lawmakers who want to differentiate Christie’s Republican leadership from his Democratic predecessor.
O’Toole cites statistics from the state Treasury Department’s FY14 Budget Summary issued in February that showed Corzine relying on $3.82 billion in nonrecurring revenues to make up 13.7 percent of a $27.8 billion budget, compared with Christie’s use of just $1.07 billion to help balance his $32.9 billion spending plan.
Both former Republican Gov. Thomas H. Kean and Richard Keevey, who served as director of the Office of Management and Budget under both Kean and Democrat Brendan T. Byrne, give Christie credit for limiting the state’s reliance on budget gimmicks compared to some prior governors.
In fact, compared with former Democratic Gov. Jim McGreevey, whose $9.2 billion in one-shots in just three years made up one-eighth of his total budgets, both Christie and Corzine qualify for budget sainthood.
But simply comparing the fiscal maneuvers in Christie’s current FY14 budget with Corzine’s final FY2010 budget leaves out several important points.
First, Corzine’s FY10 budget was created in a year when state revenues plummeted by $3.5 billion as a result of the Great Recession, which officially started in December 2007 and ended in June 2009, just as that budget was adopted. In February 2010, one month after he took office, Christie enacted another $2.2 billion in cuts through executive order to balance the budget, including at least $410 million in additional nonrecurring-revenue savings on top of Corzine’s original $3.86 billion for FY10.
Second, Corzine’s $3.86 billion in one-shots in the FY10 included $2.28 billion in Obama administration stimulus funding dispatched to New Jersey to help the state government avert massive spending cuts in the wake of the Great Recession. The purpose of the stimulus funding, which continued the following year with $1.033 billion in special federal aid used by Christie to balance his FY11 budget, was specifically to help states continue essential programs until revenues began to bounce back, as they did in New Jersey in FY12.
Third, when Republicans calculate Corzine’s FY10 one-shot total, they include a $1.083 billion surcharge on income taxes for those earning over $400,000. That surcharge was a tax hike that would undoubtedly have been extended for at least another year by the Democratic Legislature if Corzine had been reelected. Christie vetoed Democratic legislation in the spring of 2010 to extend the so-called millionaire’s tax.
With the $2.28 billion in federal stimulus money and the $1.083 billion income tax surcharge deducted, Corzine’s fund raids and budget gimmicks for FY10 actually totaled just $500 million — or about $300 million less than Christie’s $800 million in FY11, after the $1.033 billion in federal stimulus aid New Jersey received from the Obama administration that year is deducted.
Overall, Corzine’s total nonrecurring revenues for his four budgets from FY2007 to FY2010 totaled $7.13 billion, including $2.8 billion in federal stimulus aid, leaving $4.3 billion in state one-shot revenues. With the income tax increase subtracted, Corzine’s total would be just over $3.2 billion.
Meanwhile, Christie’s one-shots total at least $6.175 billion — including $410 million in FY10 diversions of nonrecurring revenues and the $392 million shift in the 2013 homestead rebate payments from FY13 to FY14 that Republicans have not been including in their comparisons. With the $1.033 billion in federal stimulus funds deducted, the Christie administration’s use of at least $5.124 billion in nonrecurring revenues is higher than the four-year total for the Corzine administration – with or without the one-year income tax surcharge included.
Treasury Department spokesman William Quinn confirmed the nonrecurring revenue totals in Christie’s four budget proposals, but declined to discuss the pros and cons of particular fund raids or one-shot maneuvers.
Putting Christie in Perspective
Christie’s record on one-shots pales in comparison with some of the horror stories laid out by Keevey, who analyzed New Jersey’s fiscal record for the State Budget Crisis Task Force, and Richard Ravitch, the former New York City deputy mayor who cochaired the task force.
New Jersey employers are currently paying a heavy price for New Jersey’s long record of fiscal gimmicks, the task force report noted, pointing out that the state’s long history of raids on the Unemployment Insurance Trust Fund forced the state to raise unemployment taxes on employers to cover the cost of jobless claims when the recession hit.
While former Republican Gov. Christine Todd Whitman came in for heavy criticism in the State Budget Crisis Task Force report for “the sale of $2.6 billion in bonds for deposit into the pension fund and the later elimination of annual state contributions to the state’s pension fund,” it was McGreevey who earned the lowest position in the report.
Whitman’s pension debt restructuring was the first time New Jersey issued debt as a one-shot to cover current operating expenses, but McGreevey trumped her by issuing long-term bonds to fund operating expenses in FY2003, FY2004 and FY2005 — all three of the Woodbridge Democrat’s budgets.
“In FY2003 and 2004, it was executed by the securitization of tobacco dollars due the state over the next 30 years,” the State Budget Crisis Task Force noted, referring to McGreevey’s decision to cash in billions of dollars in a tobacco lawsuit settlement that was supposed to go to future health programs.
“In FY2005, the state again issued bonds — this time, the debt was supported by new revenues from motor vehicle surcharges,” again representing the immediate expenditure of future revenues, the report stated.
Sen. Leonard Lance (R-Hunterdon), the Legislature’s leading budget hawk and now a member of Congress, challenged McGreevey’s FY2005 maneuver in court, and the New Jersey Supreme Court ruled the maneuver unconstitutional and barred similar bonding without voter approval in the future, but allowed the FY2005 gimmick to stand to avert an immediate budget crisis.
State voters in November 2010 closed off another fiscal gimmick when they approved a constitutional amendment to prevent future raids on Unemployment Insurance funds by requiring that contributions collected from assessments on wages be used “solely for employee benefits, and prohibiting the use of contributions from these assessments for any other purpose.”
Wanna Buy a Road?
In retrospect, New Jersey’s most infamous one-shot — former Democratic Gov. Jim Florio’s “sale” of 4.4 miles of Route 95 between the George Washington Bridge and what was then the northern terminus of the New Jersey Turnpike to the New Jersey Turnpike Authority for $400 million — doesn’t look so bad.
Florio’s road sale, which spawned a slew of “Wanna buy a highway?” jokes, was a tortured effort to try to justify what was then considered unjustifiable — the diversion of money paid by toll road users to bail out the state budget.
Fast-forward 20 years.
Christie has managed to get the New Jersey Turnpike Authority to give the state $1 billion in toll revenue originally earmarked to help underwrite the construction of the Access to the Region’s Core (ARC) passenger rail tunnel under the Hudson River. The theory behind using toll revenue for a rail tunnel was that it would relieve congestion on the Turnpike by getting more commuters onto trains.
When Christie cancelled the ARC Tunnel, Assembly Transportation Committee Chairman John Wisniewski (D-Middlesex) told the governor he should give the money back to Turnpike users by reducing the size of the toll hike, but Christie decided to leave the full toll increase in place and use the extra cash as the pay-as-you-go match for the Transportation Trust Fund. When state revenues came up short for FY12, FY13, and FY14, Christie used more than $600 million of that Turnpike toll money to prop up the state budget and then increased state borrowing to fill the hole that the elimination of the pay-as-you-go funding left in the Transportation Trust Fund.
Unlike Florio, who had to “sell” that infamous 4.4-mile stretch of highway, Christie didn’t have to give the Turnpike Authority anything for his $1 billion cash infusion.
That put Christie one-up on Florio. As another former governor, Brendan Byrne, once said, “In New Jersey, if you don’t get something for nothing, you feel like you’re not getting your fair share.”