N.J. Governments May Need 20% of Service Cuts, Report Says

New Jersey (STONJ1)’s state and local governments may need to cut services by 20 percent to close growing budget deficits over the next five years, a panel that includes former top-level officials said in a report.

The state will confront a gap between revenue and spending of as much as $8.1 billion by 2017, while towns and cities may face collective shortfalls as great as $2.8 billion, said the group, which was convened by the Council of New Jersey Grantmakers. Counties’ deficits may be as much as $1.1 billion while schools’ gaps may reach nearly $1 billion, the group said.

“Any future debate is likely to include the potential loss of entire programs at every level of government,” the panel wrote in the report. “The government we currently have can’t be supported, and business as usual can’t continue.”

Governor Chris Christie, a Republican, cut aid to towns during his first year in office to cope with declining revenue and also limited annual increases in local taxes. Midway through his first term, he seeks a 10 percent across-the-board income- tax cut. Democrats, who control both houses of the Legislature, have proposed giving middle-class families property-tax credits on their income-tax returns.

The report from the 19-member group assembled by the grantmakers council, which promotes philanthropy, doesn’t include any potential tax cuts. It estimates revenue will increase 3.4 percent next fiscal year assuming “moderate growth” and 4.3 percent using “more aggressive assumptions.” Christie’s budget predicts revenue will rise 7.3 percent.

Service Cuts

Christie’s aid reduction and tax cap during the first half of his term led mayors to weigh worker firings and program reductions. The moves also forced some of the wealthiest towns in New Jersey, the third-richest U.S. state, to rethink expenses that once seemed routine.

More needs to be done, said the grantmaker report. Potential fixes include collecting a sales tax on Internet purchases, more shared services for governments and school systems, reducing the size of police forces and implementing a county-based school administration, they said.

The group includes former state Treasurers Sam Crane and Feather O’Connor Houstoun, ex-Attorneys General Robert Del Tufo and John Farmer Jr. and former state Supreme Court Chief Justice Deborah Poritz.

Other members include Richard Keevey, former state budget director; Robert Smartt, former deputy treasurer; and Christopher Daggett, who ran unsuccessfully as an independent candidate against Christie and ex-Governor Jon Corzine in 2009.

The budget gaps estimated by the group don’t include costs associated with the state’s $25.6 billion difference between assets and anticipated payouts for its state pension systems or $59 billion in underfunding for retiree medical benefits.

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

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net