New Jersey Budget Crisis Ends with $1.8B Price Tag

Published August 1, 2006

Sales taxes and other taxes in New Jersey are projected to rise by $1.8 billion for the next fiscal year, the apparent price of ending a stalemate between New Jersey Gov. Jon Corzine (D) and Assembly Democrats that forced a week-long shutdown of all non-essential government operations in July.

Lawmakers and the governor reached agreement on July 8. The main revenue increase will come from the state sales tax, which will rise from 6 to 7 percent, a 16 percent increase. Half of the additional sales tax revenue, estimated to increase by up to $1.4 billion over the next year, is slated for property tax relief.

“I was hoping we would have something better to do than hang around the Statehouse on a Saturday night,” Corzine joked to reporters before signing the budget at his Statehouse office.

The shutdown occurred after lawmakers and the governor failed to agree on a budget by the state’s constitutional deadline of July 1. Corzine ordered layoffs of 45,000 state workers, including state casino inspectors who by law must be present in New Jersey’s 24-hour casinos. That forced all 12 of Atlantic City’s casinos to close, putting nearly 36,000 people temporarily out of work.

Assemblyman Jim Whelan (D-Atlantic City) said, “It is unconscionable that hard-working people are losing their paychecks so the governor can raise the sales tax.”

Debt Grows With Revenues

The tax increase will do little to alleviate New Jersey’s budget woes or attract new residents, according to a new study from the research arm of the nonpartisan National Taxpayers Union (NTU). After reviewing years of data, the authors of the analysis found that despite more than $3 billion in tax increases since fiscal year 2002, New Jersey is sliding deeper into debt.

“From FY 2000 to 2002, spending in New Jersey increased 21 percent,” said NTU President John Berthoud. “Meanwhile, as an economic recession set in and unemployment rose, revenues actually declined 23 percent. This addiction to spending gave lawmakers in Trenton an excuse to pass the overdue bill on to taxpayers” by increasing taxes in subsequent years.

Further Hikes Proposed

The study found that if New Jersey had restrained the rate of spending growth to the sum of population growth plus inflation over the past 10 years, the state’s budget would be approximately $42 billion, or about $8 billion less than the total budget Corzine submitted for fiscal year 2007. Taxpayers could have saved approximately $900 per person if lawmakers had stayed within such spending limits.

By raising taxes more than $3 billion since fiscal 2002, New Jersey has hiked taxes more than any state but neighboring New York. Yet New Jersey is still one of only 10 states with a structural deficit.

“Regrettably, freshman Governor Jon Corzine has not learned from New Jersey’s profligate past, and proposed a 9.2 percent budget increase, along with $1.8 billion in additional revenue,” Berthoud said.

Sales Tax Dominates Discussions

The governor’s budget included myriad tax and spending increases even though Corzine himself stressed that overspending is a major concern of taxpayers. The foundation of his plan was the sales tax hike. New Jersey now is tied with Mississippi, Rhode Island, and Tennessee for the highest state-level sales tax, according to the Tax Foundation.

Corzine estimates the new sales tax would cost the average taxpayer about $260 a year. Democrats and Republicans alike rallied against the plan virtually from its inception.

Several members of Corzine’s own party strongly denounced his proposed sales tax hike. Assemblyman Jerry Green (D-Union) told the Asbury Park Press for a June 16 article, “This penny tax would just take the public over the edge because we have so many things we’re taking away already.”

Opposition ‘Overwhelming’

Most Democrats acknowledged that opposition to the $1.8 billion in total “revenue enhancements” was simply “overwhelming.”

On June 16, House leaders met privately with Corzine and reportedly told him a sales tax hike would go nowhere. A few days later Corzine announced he would veto any budget that lacked a replacement for the sales tax hike.

Alternative budget plans came under equally harsh criticism from taxpayers in the state. Some lawmakers proposed a total repeal of state-funded property tax rebates, which were supposed to increase dramatically this year. Without the rebates, property tax bills would continue to skyrocket in a state with one of the highest tax burdens in the nation.

Some policymakers recommended a plan to avoid a higher sales tax rate by broadening the base to everything but food and clothing. New Jersey’s sales tax currently exempts agricultural purchases (seed and fertilizer), clothing and footwear, custom computer software, grocery food, farm and manufacturing machinery, medical services and devices, nonprescription medicines, newspapers, and periodicals.

In June, three legislators offered to curb future pension benefits for state employees. In a June 16 article in The New York Times, state Sen. Stephen Sweeney (D-Gloucester), who backed this approach, said, “Bring New Jersey back into the real world. New Jersey has a government we can’t afford any longer.”

To no one’s surprise, the idea of spending restraint was quickly rebuffed by special interests and unions.

Pension, Health Costs Climb

Though the budget cuts some low-level programs, the state’s retirement system and health care spending will continue to fuel budget growth. The NTU study recommends a transition from a defined-benefit retirement plan to a defined-contribution arrangement to lessen the state’s future burden. In addition, New Jersey could emulate some of the health care reforms currently taking place in South Carolina and Tennessee, where private health care accounts and a consumer-driven market are favored over blanket state coverage.

“If Governor Corzine thinks simply adding to New Jersey’s already high tax burden will drive economic growth and fill the coffers, why is the state still mired in deficits after recently soaking residents for $3 billion in additional taxes?” Berthoud said. “New Jersey government has played the role of tax-hiker well over the past few years. After billions of dollars in higher taxes and increased debt, perhaps it is time to audition for a different part, one in which elected officials will learn the lines of fiscal discipline.”

Sam Batkins ([email protected]) is a policy analyst and deputy press secretary for the 350,000-member National Taxpayers Union.

For more information …

“New Jersey’s Tax Hikes: Sowing Disaster in the Garden State” is available online at