A BUSINESSMAN’S APPROACH TO THE BUDGET

by David P. Rebovich What happened to the campaign promise to restore property tax rebate checks to their 2004 levels and increase them by 10 percent? What about avoiding at all costs any increase in broad based taxes? How about support for higher education to provide high quality workers for the state’s information based economy? And remember the “affordability agenda?” For anyone who read about Jon Corzine’s Budget Address, it seems reasonable to conclude that the new Governor conveniently forgot about the key planks of the platform he ran on last fall. And according to some critics of Corzine inside and outside of government, the Governor may have campaigned as a reformer, but he now looks a lot like a typical politician. However, those folks who watched and listened carefully to the Governor’s Budget Address are likely to have come to the conclusion that he’s not a conventional politician. If he was, he undoubtedly would have a better bedside manner as a bearer of bad news. If anything, Corzine seems like the corporate executive he once was, and his Address was less like a political speech and more like an annual report that a CEO delivers to his company’s board of directors. In this case his report was a reality check about the state’s fiscal condition and a no holds barred account of what he thinks must be done to put the state on the path to a better future. The day before the address the Administration briefed political reporters and commentators on the budget. I participated in a conference call with five colleagues and two of the Governor’s aides. The latter gave us a clear account of the main features of Corzine’s proposal, including the reasons behind the Governor’s decision to recommend tax hikes and program freezes and cuts. The briefing was thorough, highly professional and devoid of excuses, rationalizations or political spin. But like the Budget Address the Governor would deliver the next day, the briefing was also lacked any good news, traditionally understood, that is. After hearing from his aides about the tough medicine that Corzine wants to administer, I noted that in the three decades that I have been studying state budgeting, many governors have had to deliver bad news. But no matter how austere their proposals, they always had something positive to offer citizens.. What, I asked, were the positives in Corzine’s budget? The response to this question said a lot. The “good news”, we were told, was that the Governor’s budget proposal represented enormous progress in restoring the state to fiscal health. While its adoption would still leave the state in a $1.5 billion hole entering the 2008 fiscal year, the new budget plan does not contain the kind of borrowing to pay for operating expenses that recent budgets did. The virtue of Corzine’s proposal is that it does not allow political expediency – i.e., short term advantage – to undermine the more important goals of fiscal integrity and long-term budget health. This is not the type of message that elicits spontaneous applause from legislators and lobbyists, and last Tuesday it didn’t! Corzine was prepared for such a reaction. In his Address the Governor said, “To those who thought my financial background would mean I had some magic bullet in my holster to balance the budget, I am sorry to disappoint you. My answer is as simple as old-fashioned arithmetic. We can’t keep spending more than we take in. The solution is simple – stop! We can and we must.” The “magic bullet” metaphor received a lot of attention in the press as this Governor’s way to contrast his approach with the gimmickry of previous budgets. As a former CEO, Corzine is less inclined to worry about political ramifications and more interested in focusing on the bottom line and the well-being of the state for years to come. As such, Corzine used his Budget Address to explain that the state must get its books in order through honest accounting. In his plan almost all of the state’s spending would be put on a pay as you go basis. Cuts in programs were based on determinations about their effectiveness and need. The most important and largest tax increase – the hike in the state sales tax from 6 to 7 percent – was recommended for several reasons. Its effect on the typical New Jerseyans will be negligible, despite its regressive quality. Its effect on the business climate is considered less negative than an increase in income tax rates on middle and upper income earners. And polls show that most New Jerseyans prefer a sales tax hike to an increase in income tax rates. Spending priorities, even those that Corzine campaigned on last fall, have to take a back seat to the overriding goal of putting the state on firm financial footing. While the Governor did take a businessman’s approach in developing his budget proposal, the plan reflects Corzine’s own political values. The choices he made, of course, have consequences for various constituent groups, legislators from both parties, and citizens in general. And yes, as is often the case in politics, Corzine’s values are in conflict. “We must pay our own way.” “The character of a society can be measured by the support we give our most vulnerable.” We must also put New Jersey “…on a pathway to fiscal stability and responsibility.” And, “our final product must have the appearance and the reality of being fair.” The Governor did explain how specific aspects of his budget proposal reflects each of these values to some degree. Political leaders, more than business leaders, must reconcile competing values to try to achieve various goals and satisfy different groups. Recognizing that many New Jerseyans will disagree with various parts of his proposal, Corzine concluded his Address by calling on lawmakers’ “common purpose” to serve the state. He said, “Whatever our party affiliation, whatever our regional or local imperatives, whatever our personal predispositions on policy, let us find a common ground on the big financial issues at stake.” Corzine was right that there would be disagreements with his budget proposal. Republicans are concerned about the overall increase in spending in the plan and the lack of property tax relief. GOP legislative leaders are complaining that he could have recommended more spending cuts to avoid a sales tax increase. Many Democratic legislators are not thrilled by the sales tax hike either or the double whammy of freezing state aid to schools and towns and only slightly larger rebate checks. Property taxes may increase by hundreds of dollars in many communities while rebates will go up by a few bucks. Toss in considerably higher tuition at colleges and universities and the Governor’s budget can be a hard sell for legislators, even those in his own party. Democrats are already wondering how voting for a sales tax increase, will be used against them in the 2007 campaigns. Legislators on both sides of the aisle are talking about finding more savings in the budget and about better than anticipated revenue for the next two quarters that can be carried over into the new fiscal year.. Of course if more money is found, the question then becomes, how do you use it? To increase the size of rebate checks? To increase state aid to school districts and municipalities? To restore some aid to colleges and universities? To apply towards the government workers pension system? To avoid hiking the sales tax? Ironically, an improved revenue picture may make for a more complicated budget season and, unfortunately, prevent legislators from making some of the tough choices needed to improve New Jersey’s long-term fiscal condition. Let’s see if the new Governor can keep his fellow Democrats on the same page and convince enough New Jerseyans that shared sacrifice is indeed necessary for a better future. 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, “On Politics,” for NEW JERSEY LAWYER and monthly reports on New Jersey for CAMPAIGNS AND ELECTIONS Magazine.

A BUSINESSMAN’S APPROACH TO THE BUDGET