Christie’s Jersey Comeback Fails to Match U.S. Growth
New Jersey Governor Chris Christie staked his national ambitions on repairing a state known for chronic deficits, high taxes and a reputation for corruption.
To create what he called the Jersey Comeback, the Republican cut school aid, made public workers pay more for their retirements and canceled a Hudson River commuter-rail tunnel that he said taxpayers couldn’t afford.
As Christie, 51, presented his fifth spending plan today, the largest in state history at $34.4 billion, New Jersey’s recovery is lagging behind both neighboring New York and the U.S., according to Bureau of Labor Statistics data compiled by Bloomberg. Since he took office, employment growth in the state of 2 percent compares with 5.2 percent in New York and 5.9 percent nationwide.
“The economy has rebounded, but not that aggressively,” said Howard Cure, the municipal research director at Evercore Wealth Management in New York, which oversees about $4.9 billion. “They still have a large pension issue.”
While Christie predicated his national persona on being a straight talker who could win in a heavily Democratic state, the benefits of his fiscal choices since taking office in 2010 have been a matter of debate.
New Jersey’s unemployment rate was 7.3 percent in December. While that’s down from 9.6 percent a year earlier, it’s up from the 4.6 percent level at the start of the 18-month recession. The December rate was 6.6 percent nationally, 7.1 percent in New York and 6.9 percent in Pennsylvania.
Christie’s decision to halt the Hudson tunnel cost the state $3 billion in federal assistance and, according to a federal study, more than 202,000 direct and indirect jobs over a decade. New Jersey lost a potential $400 million when it botched the application for a federal education grant after refusing to seek input from the teachers union.
Democrats also heaped criticism on Christie when he called a $12 million special election for a Senate seat three weeks before his own re-election in November, saying he didn’t want his victory margin lessened by having Newark Mayor Cory Booker on the same ballot.
“This has been an era of fiscal restraint,” Christie told lawmakers today in Trenton.
Christie said his spending plan will be $2.2 billion smaller than in fiscal year 2008, excluding pension, health-care costs and debt service. The governor proposed making the largest pension payment ever at $2.25 billion.
The governor said his budget will require no new taxes.
“Now there will be some that would advocate that the answer is to raise taxes,” he said. “Not only is this an unfair solution, it isn’t a solution at all. We just can’t raise taxes enough to pay for the exploding costs of public employee pensions and benefits. Not to mention the burden it would place on our already overburdened taxpayers.”
Campaigning in 2009, Christie blamed both parties for spending gimmicks. He referred to “Corzine Democrats,” a reference to his predecessor, Jon Corzine, a onetime Goldman Sachs Group Inc. co-chairman who Christie said put politics above sound fiscal choices.
When Christie came to office in 2010, he ended Trenton’s “Christmas tree” budgeting tradition, in which lawmakers from both parties divvied up hundreds of millions behind closed doors for home-district projects.
He signed a law to limit property-tax increases to 2 percent annually, raised public workers’ retirement age and made them pay more toward pensions and health insurance. The budget gap forced the state to cut $1 billion from education.
New Jersey’s pension shortfall reached $53.9 billion in 2010 after a decade of expanded benefits and missed payments. The gap narrowed to $36.3 billion after Christie signed the changes, and then swelled to $47.2 billion when he skipped a $3 billion pension payment in fiscal 2011.
The pension threat persists. The governor signed a law in 2011 requiring the state to make one-seventh of its pension contribution in fiscal 2012, then raise the payment each year until it reaches the full annual amount, $5.5 billion, in 2018. The governor’s $32.9 billion budget for this year included a $1.67 billion payment.
“He’s been successful, No. 1, in making the pension payment, and that’s very important,” said Senate Minority Leader Tom Kean Jr., a Republican from Westfield.
Even with the state’s growing debt load, New Jersey securities have outperformed the broader municipal market. Debt sold by the state and its localities has earned 22.5 percent since the start of 2010, surpassing the 21.7 percent gain in the $3.7 trillion market, S&P Dow Jones Indices show.
With the Federal Reserve holding benchmark interest rates at record lows since December 2008, any economic expansion plans from Christie would benefit from the lowest borrowing costs in more than five decades. Since he took office, yields on general obligations maturing in 20 years have averaged about 4.21 percent, compared with an average 5.86 percent since 1961, according to a Bond Buyer index.
The extra yield investors demand to hold 10-year debt of New Jersey rather than benchmark municipals is 26.2 basis points, or 0.26 percentage point, data compiled by Bloomberg show. That compares with a spread of 19.7 basis points in New York.
The increase in New Jersey’s debt last year was driven by borrowing for the Transportation Trust Fund, which finances roadwork, and by pension and health benefits. Christie, after allocating $3 billion from the canceled tunnel toward the fund in 2011, pledged to borrow less. Last year, he lowered allocations to the fund and borrowed $875 million.
Christie told lawmakers last month that New Jersey owes almost $1 billion more in pension and debt-service payments than a year earlier. He intends to make good on the debt, he has said, though he and the Democratic-controlled legislature will have to cut education, public safety and infrastructure.
New Jersey is facing a potential downgrade of its credit rating, third-worst among states, behind Illinois and California. Moody’s Investors Service downgraded New Jersey one step, to Aa3, the fourth-highest level of investment grade, in 2011.
Moody’s assigned a negative outlook to the state’s debt. Analyst Baye Larsen cited a “sluggish economic recovery” in a Dec. 17 note. New Jersey, with high costs of living and doing business, will see economic growth about 15 percent lower than the national rate through 2033, according to a Dec. 11 Rutgers University analysis.
While manufacturing employment has expanded 5 percent in the U.S. since the end of 2009, it’s contracted by 4.5 percent in New Jersey, Bureau of Labor Statistics data compiled by Bloomberg show.
Backers said the Hudson tunnel might have buoyed the state. It was to double peak-period rail trips to 254,000 by 2030 and alleviate crowding.
Initial estimates of its cost rose to $12.4 billion in October 2010 when the tunnel was killed from $7.4 billion in 2006. The bill was to be split by the Federal Transit Administration, New Jersey Transit and the Port Authority of New York and New Jersey. The U.S. portion was to be capped at $3 billion, Christie said when he canceled the project.
Construction would have created 59,900 jobs on site and 98,300 off, according to a U.S. Government Accountability Office study in 2012. Ten years after completion, the region would have gained 44,000 jobs because of improved access, and added $4 billion in personal income, according to the study.
Home values in New Jersey towns served by the tunnel would have risen 4.2 percent, the report said.
An opportunity for such a project, planned since 1995, won’t come around again, said James J. Florio, a Democratic governor from 1990 to 1994.
“The dominant hurt to the region is going to be that cancellation,” he said. “That money was there, was ready to go, and now you’re going to have to start all over.”
Senator Paul Sarlo, a Democrat from Wood-Ridge who heads his house’s budget committee, said this budget may be Christie’s most difficult.
“The public gave a lot of leeway, a lot of patience,” Sarlo said. “But we’re five years later now and our budget is still structurally imbalanced. He kicked the can down the road for the last several years and now he has no one to blame but himself.”
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