Spending has been cut, but so has the state’s credit rating. Tax collections have grown, but not as rapidly as forecast. And though there have been no new taxes, some people are still paying more.
For Gov. Chris Christie, a Republican who took office in early 2010 preaching fiscal discipline, his stewardship of the state budget has yielded the proverbial mixed bag.
His supporters credit him with changing the approach of his immediate Democratic predecessors, who relied on income, business and sales-tax hikes to support spending increases.
Christie has also slowed the rate of growth in state debt after years of heavy borrowing by prior governors from both parties left New Jersey among the most indebted states in the country.
[related]Yet borrowing has increased more than Christie originally promised it would — from $38 billion to near $44 billion, according to the latest available figures — thanks to tax collections that failed to grow fast enough to provide the “pay-as-you-go” funding for transportation spending that Christie originally planned for.
And cuts to a popular property tax relief program and a reduction of the state’s Earned Income Tax Credit have left some, including seniors and those who make the lowest wages in New Jersey, paying more as a result.
In all, the current state budget is on course for $32.8 billion in spending, which is nearly $1 billion less than the state spent in 2008 when Democrat Jon Corzine was in office and the state economy, fueled by a real-estate bubble, was still flourishing.
But earlier on during Christie’s tenure the state was actually spending far less than the current budget. Just a few months after Christie beat Corzine in the 2009 gubernatorial election, he was forced to cut more than $2 billion out of the Corzine budget he inherited in 2010 as a crippling recession took a huge toll on New Jersey tax collections, which are heavily reliant on the incomes of the state’s highest earners. And Christie’s first full budget lowered total state spending to $29.4 billion.
At the time, he resisted calls by Democrats to spend more, though spending did grow modestly coming into the next fiscal year, to just under $31 billion.
But that conservative approach would change as Christie prepared for the 2013 fiscal year.
Missed revenue projections
In the midst of what he termed a “New Jersey Comeback,” Christie projected more than 7 percent revenue growth and he pitched the first phase of what he hoped would be a 10 percent income-tax cut. That proposal was heavily promoted as Christie was picked to deliver the keynote address at the Republican National Convention in Tampa Bay, FL, and as he prepared for his successful 2013 re-election campaign.
But while Democratic legislative leaders had questions about his income-tax proposal, they went along with a $2 billion business-tax cut launched in 2011. That, however, was taking revenue away from the budget at the same time job growth stagnated, contradicting Christie’s comeback message.
He ultimately failed to win Democratic support for his income-tax cut plan and his budget, even without the income-tax cuts, still came up short of his lofty revenue goals, according to a final auditing. That forced him to delay Homestead property tax relief payments for several months to maintain balance, something the state constitution requires.
Missed revenue projections have also caused other spending cuts and lapses during Christie’s tenure, and funds dedicated to other purposes have also been regularly raided, including money for affordable housing and clean energy.
Some money from environmental lawsuits has also gone into the general fund instead of to improve environmental programs
Though prior governors have always had to rely on one-shots to some extent, Jeff Tittel of the New Jersey Sierra Club says things have gotten worse under Christie.
“The difference is it’s now become an integral part of the budget framework,” Tittel said.
Property taxes still climbing
The revenue shortfalls have also put the popular Homestead property tax relief program, which nearly 700,000 New Jersey seniors and other low- and moderate-income homeowners qualify for, into the crosshairs. Once funded in the state budget with nearly $2 billion, Christie cut the program’s allocation after taking office, saying the focus should instead be on a 2 percent cap on property tax increases he signed into law in 2010 that has helped slow the growth in average property tax bills.
The Homestead relief now comes in the form of a direct credit on property tax bills instead of the rebate check that was mailed out to recipients under prior governors, and the program is funded with $374 million in the current budget.
But as property tax bills have continued to grow over the last four years — to a record high of $8,161 last year — the reduced funding for property tax relief has left many homeowners with a larger net property tax bill than what they paid before Christie took office. And in two years, 2010 and 2014, there were no Homestead credits paid out at all, exacerbating those increases.
But it’s now harder to see where that’s occurred. The governor who promised a new era of transparency in his 2010 inaugural address saw his administration , as Christie turned his attention to exploring a run for president in 2016, delete data last year from a state department website that detailed exactly where those higher net property tax burdens were. Lawmakers are trying to pass legislation to reverse that move.
Property tax-relief payments were also delayed once again last year, this time until May 2015.
And Christie’s administration has also stopped the practice of releasing monthly revenue reports that include a detailed comparison of tax collections against forecasts in precise dollar amounts, making it much harder to determine the size of any shortfall.
The latest report said tax collections are up 4.9 percent compared to this time last year, but still trail the 5.3 percent growth rate Christie is banking on to ensure that his budget remains balanced. It’s not clear right now how big that margin is in dollars.
The largest missed revenue projection of Christie’s tenure occurred last year when state Department of Treasury officials uncovered a $1 billion gap after final income-tax payments were counted in April, leaving little time in the state’s fiscal year to fix the problem.
Christie turned to cutting the state contribution into the public employee pension system], a move that went back on an earlier promise he had made to increase payments into the system, which covers the retirements of an estimated 773,000 retired and current employees, and has suffered from years of underfunding by Christie and prior governors.
Reforms signed into law by Christie in 2011, including forcing employees to contribute more toward their pensions, were supposed to combine with the bigger state contributions Christie committed to making to save $120 billion over 30 years. But Christie cut a planned $1.57 billion contribution down to $697 million last June to help close the budget gap, and because faulty baseline projections were built into his original revenue estimates for the current fiscal year, he reduced the $2.25 billion payment that state was planning to make this June to $681 million.
Court orders pension payment
Public employees challenged that reduction in court, and a judge ruled last month that Christie and state lawmakers need to come up with another $1.6 billion for the pension system, a decision that Christie is in the midst of appealing and which could end up having huge budget implications later this year.
Yet Christie has refrained thus far from patching over the budget problems with borrowing gimmicks, such as the tobacco-settlement bonds floated by former Gov. Jim McGreevey.
In an interview with NJ Spotlight after the pension ruling came down, Assemblyman Declan O’Scanlon (R-Monmouth) said Christie deserves credit for taking on the pension system’s chronic underfunding and the state’s other significant legacy problems.
“This hole was dug over the past 20 years,” O’Scanlon said. “These reforms would not have happened had Governor Christie not been elected.”
And Senate Budget and Appropriations Committee Chair Paul Sarlo (D-Bergen) also said the impact of the recession should be considered when evaluating Christie’s budget policies.
“In all fairness, the governor has governed during some of the most difficult economic times that we’ve had in the state of New Jersey,” Sarlo said.
Still, Christie’s pension cuts last year brought on two rounds of credit-rating downgrades, with three agencies lowering the state’s credit rating twice and another once. Coming on the heels of a prior round of rating cuts by all three agencies in 2011, that left the state’s overall rating among the worst of any in the country, something that can drive up borrowing costs ultimately borne by taxpayers.
Now, along with his latest proposed spending plan — a $33.8 billion budget put forward in February — Christie is calling for another major change to the pension system.
He wants to freeze the current system, which now has a funding gap of between $37 billion and $83 billion, and enroll employees in a new retirement plan with features of a 401(k). Christie is also proposing taking savings from less-generous health plans and using those dollars to help pay down the pension system’s debt.
He made the case for more benefit reforms during a recent town hall-style event in Freehold, saying much of the state’s other fiscal problems have been addressed.
‘Things are a lot better’
“Things are a lot better than they were five years ago from a state fiscal perspective, but this is the big problem, and if we don’t fix that problem we’ll go broke,” Christie said. “I don’t know how that helps anybody. It doesn’t help the taxpayers, it doesn’t help the people who are hoping to collect a pension.”
But Democrats who control the state Legislature see things differently, referring back to Christie’s economic policies, including the business tax cuts and corporate-tax incentives that have been offered at an accelerated rate during
Christie’s tenure by the state Economic Development Authority. They say those policies, combined with Christie’s four rejections of Democratic attempts to raise the income tax on earnings over $1 million, have simply not grown tax collections in a way that would make the pension payment and other items more affordable.
Though unemployment has improved during Christie’s time in office, the state’s 6.3 percent unemployment rate still trails the national average.
“The problem we have in New Jersey now is the economy,” said Senate President Stephen Sweeney (D-Gloucester).
In addition to the pension issue, there have also been other direct consequences for the budget rooted in the lack of substantial growth in the state’s revenue base.
Christie at one point presented a plan for state transportation spending that projected more than $500 million in annual revenue from “pay-as-you-go” budget funding that would ease the reliance on debt. That revenue, however, hasn’t materialized, forcing the state to go through authorized borrowing quicker than expected.
Transportation fund nearly broke
Now, the state Transportation Trust Fund is saddled in debt and revenue from the state’s gas tax will only go to pay off that borrowing as of July 1. Christie and lawmakers have yet to strike a deal on a new source of revenue for the fund, with many believing an increase of the state’s 14.5-cent gas tax is inevitable. State transportation spending will total a little roughly $1.5 billion in the next fiscal year, a little less than the $1.6 billion Christie originally planned.
Still, the governor has won praise from the business community for holding firm against a millionaire’s tax increase, which it considers a tax on small businesses, and for not scaling ing back the business-tax cuts, which will total $660 million worth of lost revenue in the next fiscal year.
“These are precisely the types of actions New Jersey business owners are looking for,” said Michele Sierkerka, executive director of the New Jersey Business and Industry Association, in response to new jobs numbers that showed growth in January.
But Senate Majority Leader Loretta Weinberg (D-Bergen) gives Christie a much tougher grade, citing the credit-rating downgrades and sluggish employment numbers.
“Nobody can call this a success, and it’s been five years now,” she said.