NJ Spotlight: If Budget is Approved, NJ Faces Fiscal Crisis Next Spring

If the Legislature approves the proposed $31.7 billion FY13 budget and the tax cut that Gov. Chris Christie is demanding, New Jersey will face a built-in $2.5 billion hole in the following year’s FY14 budget – a gap almost twice as large as the combined increase in income, sales, and corporate taxes that Christie is projecting for the year ahead, a NJ Spotlight analysis shows.

Even if the Democratic-controlled Legislature decides next year that the state cannot afford the controversial tax cut, the state would still need to come up with $2 billion in revenue growth in Fiscal Year 2014 just to cover the required increases in pension costs, transportation borrowing and already-approved business tax cuts, and the more than $1 billion in one-shot revenues built into the Fiscal Year 2013 budget.

In short, with or without a tax cut, New Jersey is facing a net budget shortfall of $500 million to $1 billion next spring.

It gets worse. That’s actually the best-case scenario. That analysis assumes that Governor Christie’s projections of 5.9 percent growth in income, sales and corporate taxes – the most optimistic in the nation – will come in on target.

If David Rosen, budget officer for the non-partisan Office of Legislative Services, is correct, Christie’s revenue projections will prove to be $724 million to $824 million too high. And as Rosen noted, OLS’ revenue projections are bullish: Moody’s Investors Service pointed out that if New Jersey’s economy continues to grow at the same pace as this year, revenues could be off as much as $2 billion.

Read the rest of the article here on NJ Spotlight.

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22 COMMENTS

  1. This article was written by Mark Magyar Policy Director for Chris Daggett, Christie’s opponent in ’09 primary. It was too long for me to read on a Monday but it would be nice if that was noted somewhere in there so we know where it’s coming from.

  2. Herb,

    Chris Daggett was Christie’s opponent in the 2009 General Election, not the Primary – although I’m pretty sure that both of Christie’s opponents in the 2009 Republican Gubernatorial Primary (Steve Lonegan & Rick Merkt) would agree with much of what Mark Magyar said in this article – as does this candidate from the 2009 Democratic Gubernatorial Primary.

    My problem with the article is that its focus is too narrow. There is nothing new about these one-shot gimmicks and other trickery used to “kick the can down the road” – successive governors from both parties have used them year after year. Christie promised that he would not, yet since being elected, he has done so every single year.

  3. Your right he was an Indy candidate. The pension bill in this state will be death of us down the road. More people collecting than are in the workforce. Both parties have screwed this up but the legislature always gets a “bye” because the average state resident doesn’t even know what they do. If they did, they’d be tossed out every election.

  4. The problem is that the system is rigged – it’s pretty close to impossible to defeat the machine-supported candidates in the primaries, so we wind up with the only candidates with a realistic chance of winning the general election being individuals who are part of the problem and who have no desire or intention (or even the ability in many cases) to do anything substantive to fix the long-term problem, or even to stop making it worse.

    Unless the electorate starts to become more involved and force changes, we are heading for a disaster of epic proportions.

  5. Bebop,

    That seems to be how we manage things in the modern political world – wait till it blows up, then live with the mess – bachelor living applied on a societal level.

    I understand your point, one way or another, these things will get corrected. I would prefer doing it in a more orderly fashion – a stitch in time and all that – while it’s a bit more painful in the short-term, it would be a lot less painful and a lot less destructive in the long term.

    JG,

    Sorry for the use of the cliché, but in this case I believe it to be apt.

  6. “And what will happen with any taxes collected from it.”

    The same thing that happened with the lottery money that was supposed to towards funding education. They’ll mess it up.

  7. Carl may be wrong. It could be a disaster of cosmic proportions. Or perhaps a disaster of exaggerated importance. Or of stimulated phosphorescence. Or of punctuated equilibrium.

  8. Carl, sorry, I didn’t mean the words themselves, I really meant I hate the idea of an impending disaster of epic proportions.

  9. No offense taken, JG.

    P.S. I’d love to be wrong about this, but math is pretty unforgiving.

  10. Carl,
    Unfortunately, I don’t see the electorate facing the problem any time soon. There is still a belief among people that problems can be solved without any sacrifice from themselves.

    Everybody running for office promises sunshine and light and nobody is saying “I have nothing to offer but blood, toil, tears and sweat.” No voter wants to hear about the pain.

  11. What about the Parade of the Horribles that preceded our current governor? Florio(D), Whitman(R), McGreevey(D), and Corzine(D)? The only people that would have benefitted from a second Corzine term are creditors of MF Global, which he epically mismanaged. Yet, ~77% of our local citizens thought that he was the man for the job. New Jersey has deeply entrenched problems that stem from decades of fiscal mismanagement. Christie has the guts to stand up to those who would maintain the status quo and is predictably demonized for not being sensitive enough to our heretofore sacrosanct classes. Earners in this state bear a heavy burden, yet the chorus is “more, more, more.” When I see the “for sale” signs go up in front of the homes of long term residents, and hear successful people speak with increasing earnestness about what the real benefits of living here are, it becomes obvious that the problem will not be solved by increasing the transfer of wealth. Anyone with half a brain will vote with their feet at some point. Face it, there are better managed, lower taxed communities that have better schools, and equal or better commutes to the city. And the concept that somehow we need to extract a premium for our diversity is a ludicrous canard.

  12. MMMM,

    It’s not true that everyone who runs promises sunshine & light, but it does seem to be true that the electorate prefers liars who promise sunshine & light over “reality-based” candidates.

    Of course, another big part of the problem is that the liars:

    a) Can raise a lot more money, and
    b) Generate much more press coverage

    (actually, a & b are pretty much the same thing)

    Deadeye,

    Christie talks a good game, but it’s mostly just that – talk. He’s made a few changes for the better (mostly on things that cause pain for others, not himself), but he’s still using all the same gimmicks that the other charlatans you list above used – and some new ones – his new borrowing scheme for the Transportation Trust Fund is so byzantine that it is virtually indecipherable.

  13. People in other regions are shocked when they hear how much we pay in real estate taxes, and then have insult added to injury if we are in the AMT category. I had dinner last week with a friend from New Orleans and another from Boca Raton and they both have really lovely homes, one has a horse and the other is getting one for his kid because he’s trading up and getting more acreage. Their annual tax bill is comparable to my monthly one.

  14. It’ll be more death by pin-prick than something epic. Tax increase here, fee increase there, higher costs overall, ineffectual politicians, etc.

  15. Maybe, Bebop. But remember, these things tend to happen in waves. Everything is leveraged against everything else, once things start to slide, it’s often hard to stop. Then people panic.

    MMMM – People want everything, but they don’t want to pay for anything – so when the politicians tell them they can have their cake and eat it too – they want to believe. Man’s ability to delude himself is seemingly infinite.

  16. The Fed’s balance sheet also seems limitless.

    Greece cant extend and pretend anymore because Germany said no.

    I can see the Fed start backing state bonds, either through guarantees or outright buying of State/muni bonds. That’ll let them kick the can down the road a bit more.

    Cut taxes, and increase borrowing. Damn that cake tastes good.

  17. Last I heard, Montclair’s debt on a per capita basis is more than NJ’s unfunded pension obligation.

    If we can generate $11M and $13M surpluses two years in a row with the school budget, it is further evidence things have been terribly mismanaged. Had the BOE not started looking in the details, my guess is this money would have been spent on things not benefiting the students (i.e., the “driver” that was on the payroll). Thank you to the BOE for asking the tough questions and looking where others haven’t bothered to look in years past. If this was done on the county and state level in all departments, we might find surpluses elsewhere and start solving some problems.

    But not too many elected officials, if any, want to deal with this. The good news is the gambling/betting will bring in some easy revenue.

  18. Carl, you are describing what is commonly referred to as the “fractional reserve” system. The system is founded upon faith and trust in the obligor. Without that element of trust, such a system cannot sustain itself. That breach of faith in govt is what we see playing on the European stage. Strangely enough, many Americans are not appreciation the lesson to be learned from watching this repudiation of Keynsian principles unfolding. There is a lesson to be learned here. Sadly, the facts don’t fit with the progressive world view. I will put my money on fact, rather than fantasy. An economy cannot tax itself into prosperity. All that happens is that the standard of living is lowered for all, and particularly the middle class.

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