Christie Won't Raise New Jersey Taxes to Fill $10.5 Billion Budget Gap

New Jersey Governor Chris Christie won’t raise taxes to close a $10.5 billion deficit next year, a gap almost matching the record hole he and lawmakers filled in the current $29.4 billion budget, his spokesman said.

The fiscal 2012 deficit estimate by David Rosen, chief budget officer for the non-partisan Office of Legislative Services, is based on using existing revenue sources to fund all state programs and obligations. Christie, a Republican who took office in January, cut services and spending to close a $10.7 billion gap in this year’s plan without raising taxes.

“New Jersey doesn’t have a revenue problem, it has a spending problem and it is not our intention to tax our way out of this problem,” Christie’s spokesman Michael Drewniak said in an interview today.

The state will need $3.53 billion to fully fund its pension contribution and $2.3 billion for public schools, Rosen wrote in a July 12 memo to Assembly Democrats, who requested the information. It also faces the loss of $1 billion in federal stimulus money. Rosen projected a total spending increase of $11.5 billion, and only $1 billion in increased revenue.

“Last year was the largest -- and this year will be of the same magnitude,” Rosen said of the deficit in an interview today. “It’s always a moving target and things could change.”

Christie’s budget for the fiscal year that began July 1 skipped a $3 billion pension payment and lowered aid to schools and towns by $1.3 billion. The plan also suspended property-tax rebates until next year, when the state will owe $2.1 billion, according to Rosen.

‘Cost Avoidance’

Assembly Majority Leader Joseph Cryan, a Democrat from Union, said Christie’s municipal and education funding reductions, missed pension payment and rebate cuts amounted to “cost avoidance.” New Jersey will need to look at ways to increase revenue, through a rebounding economy or new sources, as a way of fixing its finances, Cryan said.

“He just didn’t pay the bills,” Cryan said. “We’ve got to look at ways to grow revenue. We haven’t solved anything yet and clearly there’s a whole lot of work that needs to be done for next year.”

Spending Increases

Rosen’s $11.5 billion estimate of spending increases includes $800 million to maintain funding for transportation projects, $400 million of growth in state employee salary and health-benefit costs, $330 million to fully fund municipal aid programs and $300 million of higher Medicaid costs. Rosen said his estimate is speculative given that it’s just three weeks into fiscal 2011.

Assembly Budget Committee Chairman Louis Greenwald, a Democrat from Cherry Hill, today said he has scheduled an Aug. 5 hearing on the looming budget hole. The hearing will focus on “real change and plans to stimulate our economy, create jobs and put people back to work,” he said.

Ben Dworkin, director of the Rebovich Institute of New Jersey Politics at Rider University in Lawrenceville, said plugging the deficit without raising revenue will be a “significant challenge” for Christie that depends largely on an economic recovery.

Further complicating the matter, the entire 120-member Legislature faces re-election next year in districts that will be redrawn after the 2010 U.S. Census, Dworkin said. Lawmakers from both parties may hesitate to approve cuts to municipal and school aid less than six months before they stand in front of a new crop of voters, he said.

‘Shared Sacrifice’

“He’s already gone to the well and asked for what he deemed shared sacrifice,” Dworkin said. “To go there again and say he wants more sacrifice is going to be tough. He’s already eliminated a lot of the low-hanging fruit. The big money is in education and municipal aid, so that’s where he’s going to go.”

Drewniak said Christie’s 2 percent cap on local property- tax increases enacted this month, coupled with health-care and pension expense-cutting initiatives, will “bend the cost curve” and control the levies without requiring additional state money. New Jersey aid and grants aimed at lowering local tax burdens comprise nearly three-quarters of the budget, according to state treasury documents.

“This is not a surprise,” Drewniak said of the deficit projection. “If someone had the idea that there would be a moment of instant gratification it would be delusional. This is a transitional time.”

Health Insurance

In March, the governor signed measures requiring teachers and government workers to contribute 1.5 percent of their pay toward health-insurance costs and removing future part-timers from the system. Christie, the first Republican elected New Jersey governor since 1997, has said he’ll seek additional changes for current workers later this year.

“This is not a problem that is going to lend itself to a single bold, dramatic solution,” Andy Pratt, a spokesman for Treasurer Andrew Eristoff, said in a telephone interview today. “It’s going to take many actions by the governor over the next four years to change this.”

In April, voters turned down a record 59 percent of school budgets after Christie urged residents to reject them in districts where teachers refused to accept wage freezes. Unions representing teachers and public workers have warned of higher property taxes and service cuts as towns and boards of education deal with Christie’s cuts.

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

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