WHEN TRANSITION TEAMS TELL THE TRUTH

by David P. Rebovich New Jersey has a new governor, a budget crisis, a bigger than anticipated deficit, and cannot avoid dealing with the state’s fiscal underlying fiscal problems. The recent gubernatorial and assembly campaigns barely touched on these issues, much less what actions should be taken to address them. This is an old story in the Garden State, and headlines from the first weeks in office of the last three governors can be recycled and used to describe what Jon Corzine faces in his new position. As Yogi Berra would say, “It’s deja vu all over again.” Except that this time New Jerseyans seem to know better. When Corzine and Republican gubernatorial candidate Doug Forrester avoided talking about budget matters, including how they would pay for property tax relief, citizens stayed away from the polls in record numbers. Recent surveys give the new Governor low ratings. Quinnipiac’s latest poll shows that only 38 percent approve of the job he is doing. That anemic figure is a reflection of the vacuous campaigns, citizens’ cynicism about politicians generally, the decline in knee-jerk partisanship, and perhaps some concern about Corzine’s capabilities as a newcomer to state government. That same Quinnipiac poll revealed that 92 percent of residents are aware of the state’s budget problems, and 54 percent that these problems are very serious.. Given some new headline stories, New Jerseyans will undoubtedly be even more concerned about the state’s budget problems and what their new Governor will do to deal with them. In his Inaugural Address Corzine proclaimed that he would provide an “honest accounting” of the state’s fiscal condition. He insisted that New Jerseyans want the facts and can understand them, as well as their implications for policy decisions. Well, last week Pete McAleer of the Atlantic City Press obtained a copy of the “Report of the Budget and Reengineering Government Transition Policy Group” and reported on the group’s findings and recommendations. The state’s other newspapers and media outlets followed suit. The transition team’s report on the budget is sobering, even scary. It asserts that New Jersey’s budget problems are more serious than anyone on either side of the aisle assumed, that bold and painful decisions have to be made immediately, and that Corzine’s campaign goals that endeared him to many people in his party’s broad coalition will have to be put on hold. It concludes that getting the state back on track will not be an easy task or one that can be accomplished quickly. For starters, the report calls on Corzine to think like a private sector CEO who must reengineer state government, eradicate unnecessary and low priority spending, and find new sources of revenue. Unless the Governor takes these actions, the state’s fiscal condition will continue to deteriorate and result in a political crisis and a financial catastrophe. And unless he puts the state on firm financial footing, Corzine can forget about ever pursuing the progressive policy agenda that presumably motivated him to run for his new office. What are state government’s fiscal problems? Due to adopting spending programs it cannot afford, the use of one-shot gimmicks, past spending levels, and deferring needed funding, New Jersey is now a “financial basket case.” The state is $30 billion in debt, has $30 billion in unfunded pension and health care liabilities, needs $1 billion for transportation funding, and faces a $6 billion shortfall in next year’s budget. The state’s spending has grown faster than the its ability to raise revenue, and much of that spending is mandated by contracts, court decisions, and popular legislation. The transition team also noted that while the state will need to consider tax hikes, its ability to increase taxes is limited by competition with other states for business investment and good paying jobs. Having said that, the state’s tax structure needs to evolve to take in to account principles of equity, the taxation of new activities and purchases, and the overriding need for more revenue. While reengineering – a euphemism for cutting inefficient practices and ineffective programs – and encouraging economic growth are both necessary, neither will deliver the savings or revenue that the state needs to balance its budget for the next fiscal year and make good on its funding responsibilities. Since there is little public support for tax increases – the latest Quinnipiac Poll verifies that -, lawmakers will need to work hard to convince the public that they are working responsibly and recommending measures that are truly needed. The report suggests that “now is the time for the Executive Branch and the Legislature to beginning the process of returning the state to long-term fiscal health and financial discipline.” Rather than offer a budget proposal, the transition team presented what it calls a “blue print for reform” aimed at moving the state in the right direction However, this blue-print does contain several specific recommendations. The state should immediately cut operating expenses and low priority spending in the budget and prepare a lay-off plan. It should “modernize” the state revenue structure by extending the sales tax to many services and products, treat all retirement plans the same for taxation purposes, and raise fees to match spending in specific program areas. If necessary, lawmakers should enact a temporary tax surcharge to balance the new budget. In addition, economic growth and job creation should be encouraged. The State should also consider reforming the state pension and post-retirement health care plans to make them more consistent with private sector benefits. Yes, an increase in the state gas tax may be needed to provide money for the Transportation Trust Fund. A capital budgeting plan should be developed for the School Construction Corporation. The Governor should also create an office of reengineering government to streamline departments and processes. The civil service system must be changed to focus more on evaluation of worker performance. And, in the budget process lawmakers need to identify “core” government functions to guide their decisions, specify the long-term costs of new programs before passing them, establish a capital budgeting process, consider terminating various “tax expenditures,” and create two year budgets. The talk of possible sales and gas tax hikes and cuts in the government workforce and state worker benefits caused a furor in Trenton. The transition team members concluded their report to Corzine with the following statement. “We approach our task with the underlying assumption that your administration will not be ‘business as usual in New Jersey government.’ Rather, we assume and are encouraged by your vision of working toward a New Jersey government that is highly ethical, professional and responsive to its citizens, and is a viable economic engine that attracts and retains a broad spectrum of businesses that contribute to the financial, cultural and educational vitality, diversity, and unique strengths of our state.” Is Governor Corzine making this same assumption. Well, his staff and then the Governor himself called the leaked report simply a “draft of a draft of a draft.” On further questioning, Corzine admitted that something must be done to address the state’s fiscal woes, although he would prefer to cut taxes, not raise them. He went out of his way to tell reporters that no one should assume that “any line of this report will be followed.” But, he added, the report is indicative of what bright people who look at the state’s fiscal problems believe needs to consider. Where does this leave us, and what might we expect Corzine to do? Well, one view is that the Administration leaked the transition team’s controversial report. After the predictable outrage about possible tax hikes, Corzine could then present an austere budget proposal that may seem acceptable if it does not include all of the report’s painful recommendations. Goodness knows this tactic is often used in politics. But this still leaves the question of how the Governor will tr
y to balance next year’s state budget and begin working toward long-term fiscal integrity. According to the Quinnipiac Poll, 57 percent of New Jerseyans want Corzine to cut services before raising taxes. If tax hikes are going to be made, 61 percent prefer an increase in the sales tax while only 25 percent favor raising income tax rates. What about a gas tax increase to fund transportation projects? 69 percent are against it, while only 27 percent favor the measure. The math shows that the state will need more revenue to fund its many needed, required and worthy programs. Memo to the Governor. First cut spending and cut as deeply as you can to convince New Jerseyans that you understand their very legitimate concerns. And those concerns aren’t in draft form. David P. Rebovich, Ph.D., is Managing Director of the Rider University Institute for New Jersey Politics (www.rider.edu/institute). He also writes a regular column for NEW JERSEY LAWYER and writes monthly reports on New Jersey for CAMPAIGNS AND ELECTIONS Magazine.

WHEN TRANSITION TEAMS TELL THE TRUTH