NJ Governor Proposes Cuts in Spending, Jobs

Published June 1, 2008

New Jersey Gov. Jon Corzine (D) did more than make good on his promise to send the state legislature a Fiscal Year 2009 budget that would spend no more than the current budget.

He proposed a FY 2009 budget that would spend slightly less than the $33.5 billion allocated for the current fiscal year.

Stops Big Spending Increases

The proposed spending reduction would end a six-year string of spending increases. Since the FY 2003 budget, annual spending increases in New Jersey have averaged 8 percent.

Corzine’s proposed spending reduction is one component of the four-piece “Fiscal Restructuring and Debt Reduction Plan” he announced in his January State of the State Address. The other components include:

  • capturing the value of New Jersey’s toll roads through a massive borrowing program financed through multiple large toll increases;
  • restricting future government borrowing; and
  • limiting future spending increases to the projected growth of recurring revenues.

Corzine outlined his budget proposal in a February 26 address to the legislature. It received a chilly reception. The only applause Corzine received was when he entered the legislative chamber and then when he left after finishing his presentation.

Jobs, Cabinet Agencies Cut

Corzine’s original promise was to freeze spending, but he explained that softening revenue growth projections caused him to recommend a $500 million cut. He achieved this recommended reduction by, among other things, reducing a property tax rebate program, cutting the state government workforce by 3,000 jobs, eliminating three Cabinet-level agencies, and cutting state aid to municipalities.

While the overall spending cut is popular with the public, some of the specific cuts have drawn criticism. Republican legislators–who are in the minority in the legislature–say the cuts don’t go far enough.

The spending cut that has received the most criticism is the reduction of state aid to local governments. That cut falls most heavily on the state’s least-populated towns.

Municipalities with populations of less than 5,000 would lose all of their aid. Towns with between 5,000 and 10,000 residents would lose one-half of their aid.

Corzine has said he believes these small towns are inefficient and that the reduction in state aid will encourage them to share services with surrounding towns or merge with adjacent ones.

Local Officials Upset

Local officials in towns that would be affected argue this unexpected and substantial aid cut will cause local property taxes to increase.

“This proposed budget is balanced on the backs of the property tax payers who live in small towns,” said William Dressel, executive of the New Jersey League of Municipalities, an organization that represents local governments. “Furthermore, there is no defensible rationale for basing aid reduction on population alone. The assertion that all small towns are inefficient is false.”

To achieve the workforce reduction, Corzine wants to use an early retirement incentive program (ERIP). That proposal also has its detractors.

Early Retirement Opposed

“New Jersey’s experience with ERIPs is that they cost more than they save,” said Paul Tyahla, vice president of government affairs and communications at the Commerce and Industry Association of New Jersey, a northern New Jersey-based organization of employers that opposes Corzine’s ERIP.

“New Jersey’s public employee retirement systems already have staggeringly high unfunded liabilities. An ERIP will exacerbate that problem,” Tyahla said.

Tyahla continued, “We support Corzine’s workforce reduction, but we encourage him to accomplish it without the ERIP. The governor correctly complains that civil service rules make a rational layoff plan impossible to implement. But that’s an argument for reforming the civil service law, not for implementing another costly ERIP.”

A budget must be adopted by June 30. While it is likely the legislature will make changes to Corizine’s budget, the governor has powerful tools to enforce his spending limits. The governor solely determines the amount of revenues available to support the budget. Also, he has broad line-item veto authority allowing him to eliminate or reduce specific spending items the legislature may present to him.

Toll Plan Stymied

The status of the remainder of Corzine’s fiscal reform plan is mixed. Corzine has acknowledged his proposal to sell billions of dollars of bonds backed by a series of toll increases is unlikely to be adopted in the form he recommended. The borrowing would be used to pay down New Jersey’s $32 billion bonded indebtedness and finance transportation projects.

Corzine’s budget proposal does not, however, rely on revenues that would be generated by the toll road borrowing. A constitutional amendment that restricts state government’s ability to issue bonds without prior voter approval is awaiting a vote of the state Senate. The proposal has not seen action in the lower house. If approved by the legislature, the amendment would be submitted to voters at a general election.

Corzine has not offered a specific proposal to tie future budget growth to anticipated growth in recurring revenues, and the legislature has not considered any statutory or constitutional legislation that would implement a spending cap.

The lack of action on the spending cap concerns Jerry Cantrell, president of the New Jersey Taxpayers Association.

“Without a permanent and constitutionally required spending cap, there is a strong likelihood that New Jersey lawmakers will resume their irresponsible spending habits,” Cantrell said. “We need long-lasting reform, and we need Corzine to take a prominent role in arguing for a spending cap.”

Gregg Edwards ([email protected]) is president of the Center for Policy Research of New Jersey.