Christie’s Plan to Cut N.J. Sales Tax Leaves $1.6 Billion Chasm

  • Pact would unlock $16 billion in roads spending over 8 years
  • No explanation of how state would make up missing revenue

New Jersey Governor Chris Christie’s hastily proposed 1 percentage point sales-tax cut, his condition for unlocking billions of dollars for transportation projects, would blow a $1.6 billion hole in the general fund.

Christie, a two-term Republican, and newfound allies among Assembly Democrats are hailing the reduction as a fair trade-off for a higher levy on gasoline to fund road and rail work. Neither the governor nor legislative leaders, though, are saying how New Jersey, the nation’s third most-indebted state, could afford such largess or how they would make up for the shortfall.

“It is a shell game,” Senator Jennifer Beck, a Republican from Red Bank, said in an interview. “You are promising tax cuts in exchange for a tax increase.”

Christie, 53, spent most of last year campaigning out of state for president, an effort he ended Feb. 10 after failing to make inroads in early primary states. Now a potential running mate for presumed Republican nominee Donald Trump, the governor in the past week has introduced two of the potentially biggest policy changes of his second term. On June 21 he proposed upending state aid for schools, redirecting money from poor urban districts to the suburbs, and on Monday he pushed his tax plan.

New Jerseyans pay heavily to their government. Property taxes are highest among U.S. states, averaging $8,353. But after promising widespread relief, Christie has been hampered by a Democratic-led legislature and disappointing revenue since a 2010 bipartisan deal that made cuts to pensions and benefits for state workers. Elected leaders have resisted a second round of reductions. Almost all growth in this year’s budget was for pensions, benefits and debt service rather than education, health or new initiatives.

Now Christie, in a vote expected to take place Thursday, wants the Senate to pass his sales-tax plan. He would increase the gasoline tax by 23 cents per gallon, to 37.5 cents, to support an eight-year, $16 billion commitment to highways, bridges and rail improvements.

“I’ve never signed a tax increase in seven years as governor and I didn’t want to, but I also don’t want our roads to fall apart, our bridges to fall down and our trains not running,” Christie said in Wall Township on Tuesday. Annually, the average New Jerseyan would spend $200 more on gas, he said, and save $465 on sales taxes.

Brian Murray, a spokesman for Christie, didn’t respond to an e-mailed question about how the state would make up for the lost revenue.

Moving Fast

The Assembly approved the proposal early Tuesday after a day of hastily called meetings between the administration and Assembly Speaker Vincent Prieto, a Democrat from Secaucus.

Senate President Steve Sweeney, a Democrat from West Deptford, left the statehouse late Monday night telling reporters that he was committed to an earlier proposal that left the sales tax untouched and funded transportation at $20 billion over 10 years. On Tuesday, Senate members from both parties remained puzzled by Christie’s changes.

Senator Ray Lesniak, a Democrat from Elizabeth, predicted an immediate credit downgrade if the measure is signed into law, following three handed to Christie’s administration by three ratings companies.

In a Pew Charitable Trusts report last month, New Jersey ranked as the third-most-indebted U.S. state, based on 2013 figures. In 2015 the state had $153.5 billion in aggregate bonded and non-bonded obligations, 7 percent higher than in 2014.

New View

Just five months ago, Christie warned about a possible sales-tax increase, to 10 percent, should New Jersey voters in November support a constitutional amendment mandating minimum payments on a pension system with an $83 billion unfunded liability.

Yet even with that matter unsettled, he’s now pushing for the tax to go to 6 percent, from 7 percent, leaving New Jersey short $1.6 billion by 2019, a year after it would take effect, according to the nonpartisan legislative services office. That would be a direct blow to the state’s general fund, with more than $30 billion annually applied toward departmental programs, salaries and other operations.

“It came out of left field,” Assemblywoman Holly Schepisi, a Republican from Westwood and appropriations committee member who voted against the changes, said in an interview Tuesday. “I just fundamentally felt uncomfortable voting yes on something that I still don’t know, as I sit here this morning, what the implications will be.”

Assemblyman John Burzichelli, chairman of the lower house’s appropriations committee, acknowledged that the impact of a sales-tax reduction is unclear and may require hard-to-find spending cuts. Still, he said, residents would realize immediate savings, and the Transportation Trust Fund will run dry without help by July 1. When the fund was established in 1985, it was supposed to be supported mostly by fuel taxes; today, all that revenue goes to debt service.

“There’s not a question in anyone’s mind that the Transportation Trust Fund has to be reauthorized with a revenue stream attached,” Burzichelli said in an interview.

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