State Spending and the Budget

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When governors and legislators talk about the state budget, they are referring to the $28 billion to $33 billion raised each year through state taxes. But the budget they approve by June 30 each year also includes $8 billion to $13 billion in federal aid–New Jersey’s share of various programs approved by Congress–and $4.5 billion to $5 billion in “other state revenue.” This revenue is mainly Transportation Trust Fund money for highway and mass transit projects that comes out of the gas tax and hundreds of fines and fees paid by citizens and businesses that are supposed to be dedicated for specific purposes, but are often diverted to balance the budget as needed. With federal aid and “other state revenue” added in, New Jersey’s annual state spending is actually in the $44 billion to $48.5 billion range. This is the actual amount of annual spending the governor and legislature allocate, and it’s not possible to understand the budget process without understanding the relationship of all three areas.

Two examples are most important. First, when Democratic Gov. Jon Corzine said he cut the state budget from $33.6 billion in his second year to $30.8 billion in his third year to $29.8 billion in his fourth year, he did not mention that federal aid–particularly President Obama’s federal stimulus money–was increasing by $4.5 billion at the same time. Total state spending dropped by $800 million in Corzine’s third year, but jumped by $1.8 billion in his fourth year to a record total of $48.5 billion. Second, the budget for the upcoming fiscal year agreed to by Christie and Democratic legislative leaders calls for New Jersey to spend $46.0 billion this year–a $2.5 billion cut that is by far the largest drop in total state spending in modern New Jersey history.

There are two main reasons for the drop. First, Federal stimulus aid, which Christie and the legislature do not control, is dropping by almost $1.2 billion, mostly in funding that went to school aid last year. Christie is proposing cutting school aid by $850 million as a result. Second, the temporary $1.1 million income tax surcharge on those making over $400,000 a year expired January 1. While the Democratic-controlled legislature proposed a millionaire’s tax extension for one more year, Christie wasted no time in vetoing the extension because he believes the tax is driving high-income families to flee the state.