New Jersey once again faces difficult choices for its next fiscal year, with far greater demands on the state treasury than it can possibly fulfill.
But as Gov. Chris Christie prepares to give his annual budget address on Tuesday, his presidential ambitions and a number of long-building crises are coinciding to create an especially gloomy fiscal outlook.
Of particular concern are a fix for the Transportation Trust Fund, which will run out of money for new projects on June 30, and a lawsuit over pension contributions, which could force Christie to eventually find more than $2 billion to contribute toward the state’s unfunded pension liability.
Apart from some kind of deal to replenish the trust fund, Christie will almost certainly not agree to any new taxes, leaving deeply unpopular cuts to education or other programs — which Democrats are unlikely to accept — as the only quick way to free up money.
“This is a menu that has no tasty choices,” said Joseph Seneca, a professor at the Edward J. Bloustein School of Planning and Public Policy at Rutgers University. “It’s all bitter medicine.”
Beyond those immediate concerns, the budget is also not expected to offer the kind of new investments that economists and advocates say are needed to boost the state’s underperforming economy, improve its damaged credit rating, and help lower the unemployment rate, which at 6.2 percent is half a percent higher than the national rate.
It’s not clear, for example, where additional money would come from to increase the rainy-day surplus, reduce the $53 billion long-term liability for unfunded retiree health benefits, mitigate the property tax burden, give tax credits to low-income workers, aid Atlantic City and other struggling municipalities, satisfy the state’s school-funding formula, better fund higher education, or help hospitals provide healthcare to the poor.
Advocates “should expect very little change in the capacity of the state to do anything much,” said Gordon MacInnes, president of the left-leaning New Jersey Policy Perspective.
Suspense over proposed solutions
While Republicans would address the state’s financial struggles through spending cuts rather than revenue increases, they, too, acknowledge that near-term fixes are not forthcoming.
Assemblyman Declan O’Scanlon (R-Monmouth), the ranking Republican on the budget committee, has written that there is “no magic bullet” to fix the state’s “serious” budget problems, and acknowledged in an interview this week that the Democratic leadership will not take up his proposals to reduce education and pension spending anytime soon.
“I don’t think we’re going to have sweeping things happening this year,” O’Scanlon said.
In the face of the many financial pressures on the state, the impossibility of tax increases, political differences that preclude new pension reforms or other major structural changes, and the paucity of advance hints from the administration, a grim curiosity about Christie’s stance on the Transportation Trust Fund and other issues has taken hold.
“Unfortunately the administration has not shared with the Legislature and more importantly has not shared with the people of New Jersey how it’s going to meet these budgetary needs. The confluence of so many dramatic concerns and a silence at this point from this administration is disconcerting,” said Assemblyman Gary Schaer (D-Passaic), chairman of the budget committee. “As much as anyone and maybe more, I’m looking forward to hearing the governor on Tuesday. There are serious issues confronting this state.”
“It’s a scenario for a very fascinating and interesting budget season, and it will be very captivating to see what the governor proposes, and then the reaction of the Democratic Legislature to those proposals,” Seneca said.
One small bright spot is tax collections. As of December, midway through the fiscal year, those totals were reportedly $180 million above the projections the administration used when it assembled the current year’s budget, boding well for the end-of-year surplus.
Collections amounted to $11.35 billion and were trending 5.8 percent higher than in the previous year, according to the Office of Legislative Services.
However, the increase above the projection can’t be confirmed at least until the bulk of income taxes are paid in April. Even if tax collections are up, the increase in revenues will hardly make a difference in funding a state budget which this year amounts to $32.5 billion.
“We can’t grow our ways out of these issues,” Seneca said. “The economy is growing, employment is rising, tax revenues year-to-date are on target with forecasts, but there’s not a big bonus surprise coming on April 15. I don’t think anyone realistically should expect that.”
Impact on Christie’s national ambitions?
In addition, any extra money may already be spoken for. Christie is said to be asking for a reduction or repeal of the estate tax, and possibly lower taxes on retirement income, as a condition for accepting a gas tax increase.
New Jersey’s high estate tax on wealthy households brings in about $350 million a year, more than the state’s current annual surplus, and eliminating it could create a new hole in the budget.
Christie is reportedly demanding the estate-tax cut to give him political cover for a gas-tax increase as he seeks conservative donors’ support for his nascent presidential bid.
Christie has long worked to avoid increasing the per-gallon tax — he previously did so by borrowing and by diverting funds from a trans-Hudson rail tunnel project he canceled.
Now that it’s unavoidable, he is demanding that state legislators agree to a tax cut before he’ll consider the gas-tax increase, according to a report in the Wall Street Journal.
In short, Christie’s political ambitions may be further complicating already fraught negotiations over the budget.
“This year there’s an added dimension because the political aspect of the document becomes part of a national political environment,” Seneca said. “There is an intense scrutiny that has the typical fiscal evaluation as well as how this all appears to a Republican primary audience — as well as the broader American public — for as long as the governor is a potential candidate.”
Yet it is not clear how exactly Christie’s national profile will affect this year’s budget negotiations.
He may prioritize winning a prize, like repeal of the estate tax, that he could then trumpet on the presidential nomination trail, while avoiding fights on other budget issues.
At the end of June, when the last-minute deals that determine the budget’s final shape are being made, Christie may or may not want to be spending his time haggling with Democratic legislators, Seneca said.
“The governor may really want it out of the way, if he is at that point in time really a viable candidate. Or if he isn’t, it comes back to being a New Jersey fiscal battle,” he said.
Putting off pensions again
In contrast to the Transportation Trust Fund issue, which is of such urgency that a compromise appears likely, the immediate impact of the pension case is less clear. It hinges in part on Judge Mary Jacobson, who heard arguments last month and could issue an order soon requiring the state to make a large pension payment.
State employee unions sued last year after Christie said the state would not make $2.4 billion in contributions mandated by a law he himself signed into law, allowing the continued unchecked growth of New Jersey’s unfunded pension liability. The long-term liability is at least $37 billion, or $83 billion under new federal accounting standards.
A judiciary spokeswoman said this week that no date has been set for release of Jacobson’s decision. And even if she does rule that the state must make a payment in fiscal year 2016, which begins July 1, the state’s lawyers could ask for a stay and appeal the decision. The case could eventually end up before the state Supreme Court, months from now..
“My guess is that the pension litigation will probably have a small effect on the budget this year,” MacInnes said.