July 21 (Bloomberg) -- New Jersey faces a projected deficit of $8 billion next fiscal year, even after cutting $4 billion of spending and raising taxes this year to close a budget gap, the nonpartisan Office of Legislative Services said.

The state would need $2.5 billion in fiscal 2011 to fully fund pension contributions and will lose $1.6 billion of federal stimulus money, David Rosen, the office’s chief budget analyst, said in a July 20 memo to Senate Minority Leader Tom Kean. It also faces $1.1 billion in expiring tax increases, Rosen said.

Rosen predicted a total of $8.8 billion in spending growth and revenue losses, which would be offset by an $800 million increase in collections from major taxes including those on sales, personal income and corporations. “This figure represents growth below normal growth rates, but would be the first year of growth following two years of decline,” he wrote.

The office’s projection comes about three weeks after Governor Jon Corzine signed a $29 billion budget for fiscal 2010, which began July 1. That plan trimmed spending the most in state history while raising taxes on cigarettes, wine, liquor and the wealthy to close a deficit of $8.8 billion.

Rosen’s projection, which was requested by Kean, is based upon fully funding all state programs and obligations with existing revenue sources, his memo said.

One-Time Savings

State programs will grow by $700 million and school costs will increase by $500 million, Rosen said. Another $379 million in savings from a wage freeze and furlough in the current year won’t recur, along with $200 million in one-year savings from refinancing state debt and $200 million in fund transfers. The projection includes restoring $1.6 billion in the coming year to fund property-tax rebates.

Rosen also predicted the state’s Unemployment Compensation Trust Fund Account, which pays out jobless benefits, would begin fiscal 2011 with a $2.2 billion deficit that will grow to $3.7 billion by the end of the year.

New Jersey’s unemployment rate climbed to 9.2 percent in June, its highest since 1977. Corzine and lawmakers transferred a total of $380 million into the state’s unemployment benefits fund in 2008 and 2009 to reduce a statutory increase in payroll taxes, according to the labor department. Those transfers also helped the state qualify to receive $207 million of federal money in March to shore up the fund.

Special Session

Kean, a Westfield Republican, and Assembly Minority Leader Alex DeCroce, a Parsippany Republican, said Corzine should call a special legislative session to address the deficits. The state needs to increase job-creation initiatives and further cut spending, Kean said.

“It’s imperative that we come together to find real solutions,” Kean said in an interview. “Rather than waiting for another year to address this, it’s important for us to recognize it and make plans.”

Robert Corrales, a spokesman for Corzine, said Republicans were “grandstanding” by calling for a special session. The deficit estimate is speculative three weeks into the fiscal year, he said.

“We’ve faced the challenge of balancing New Jersey’s budget during the toughest economic times in our nation’s modern history and remain focused on maintaining fiscal stability while meeting the budgetary needs of our citizens,” he said.

Corzine is a first-term Democrat facing re-election in November.

Tom Vincz, spokesman for Treasurer David Rousseau, said the Corzine administration hasn’t estimated a deficit for the coming year.

Democrats control New Jersey’s Legislature. Matthew Reilly, a spokesman for the Senate Democrats, said it is too early to predict a deficit.

To contact the reporter on this story: Terrence Dopp in Trenton, New Jersey, at tdopp@bloomberg.net.

Last Updated: July 21, 2009 17:44 EDT