MAKING SENSE OUT OF THE BUDGET FIASCO

by David P. Rebovich Three and half months is an eternity in political time. Things change, such as the policy positions of lawmakers, public opinion on the issues, and the ability or one politician or another to influence colleagues or events. What almost never changes, however, are the underlying political interests of elected officials. That was certainly true this budget season and is a main reason why New Jersey state government was shut down for a week. But so too were differences in principles, specifically Governor Jon Corzine’s commitment to fiscal integrity and the belief among Democratic legislators that they cannot do any good in policy terms unless they do what is necessary to maintain their majorities in the General Assembly and Senate. The inconveniences caused by the political wrangling last week will likely keep many New Jerseyans skeptical about the willingness and ability of the Democrats who control state government to change politics and public policy for the better. So too will the perception that despite all the drama about the new budget, not much has changed. There will be some modest property tax relief, but many taxes will be higher. And, state aid and program support will be tight. However, Governor Corzine and Democratic as well as Republican legislators will have the opportunity to convince New Jerseyans of their commitment to political and tax and spending reform this summer in the planned special legislative session and in next year’s budget. Looking back, it was naive to think that the way state government has conducted itself for decades could be changed in six months. Of course the reform-oriented new Governor would clash with veteran lawmakers from both parties. On March 21st, moments after Corzine made his Budget Address to the joint session of the Legislature, Republican legislative leaders and, more importantly, Democratic ones complained vigorously about the new governor’s proposed one-cent tax hike. The Republicans’ objection was based on their small government ideology, anti-tax policy perspective, and political interest in being identified as advocates of the state’s beleaguered taxpayers. The Democrats, especially the South Jersey contingent in the General Assembly and Senate, had two major concerns, one political and the other policy-related. The political one was that supporting the Governor and voting for the sales tax hike would hurt legislators’ reelection prospects in November 2007. The policy concern had two components. Several Democrats thought that increasing the sales tax rate simply to balance the budget would be political disaster for the party in power, as it was on three other occasions in New Jersey political history. Rather, any sales tax hike should be used to provide property tax relief or, better yet, be part of a major property tax reform plan that would win over most residents. Secondly, the sales tax is a regressive measure that hits the neediest the hardest. If more revenue really was needed to balance the new state budget, why not increase taxes that fall more heavily on better off residents, like the progressive income tax or luxury and business taxes? Or, as Senator Steve Sweeney argued, why not ask state workers to give back some of their benefits? Senator John Adler would later suggest that the state lay-off 2,000 members of its 82,000 workforce rather than increase the sales tax. And, the Republican Assembly caucus recommended making over $2 billion in cuts in order to avoid any tax increases in the new budget. As it turned out, the Governor did get his one-cent tax increase but not on the terms that he wanted. Indeed, state government may still be shut down if the Governor and Speaker Joe Roberts did not agree on a compromise proposed by Senate President Richard Codey, the former governor. Corzine had been holding strong to his commitment to signing a budget in which expenditures match real revenue, not money gained from gimmicks. And, he wanted that one-cent increase in the sales tax, and the $1.2 billion in revenues it would provide, to balance this year’s budget and reduce the structural deficit next year to a more manageable $2 billion. The Governor got the sales tax hike but only one-half the revenue for the 2007 budget and for future ones if citizens decide to support a constitutional amendment to that affect And, Roberts almost blew apart the already tenuous budget agreement arrived at on Thursday afternoon when he announced on Friday that he would propose a second constitutional amendment to dedicate all the revenue from the new sales tax hike to property tax relief. The Governor regarded the latter as a goal, one to be considered only after fiscal integrity is achieved and the climate for business in the state is improved. In Corzine’s terms, Roberts’ proposal may perpetuate the state’s structural deficit and lead to fiscal crises in the future. Corzine was able to put Roberts’ proposal on hold for now. But the Speaker’s attempted end run around the Governor added to the running story during the state shutdown about palace intrigue and which state official – Corzine, Roberts or even Codey – would be the real winner in this year’s budget process. When Roberts gave into a sales tax hike just a day after emphatically declaring the idea dead, he was deemed a loser. But the Speaker had also said that any sales tax hike should be used for property tax relief, and he did get at least half of that in the compromise. What about the Governor? Corzine, called the winner by many newspapers, later admitted that he got only about 75 percent of what he wanted in the new budget. Besides compromising on the sales tax and losing out on some $550 million in recurring revenues that he wanted to use to reduce the state’s structural deficit, Corzine also lost his proposed hospital bed tax, alcohol tax, water tax and half of the new cigarette tax hike. And, to make matters worse, the Democratic-controlled legislature tacked on $340 million in district-oriented spending, usually referred to as “Christmas tree items,” to the budget they sent to Corzine Saturday morning. And, they cut his planned increase in rebate checks for seniors and reduced by $100 the checks that families making over $70,000 a year would receive. One interpretation of what occurred is that $890 million – the $550 million that would go to property tax relief and the $340 million in Christmas tree items – of the anticipated $1.2 billion in new revenues from the sales tax hike would go to spending, while only $310 million would be used to close the much-ballyhooed deficit this year and for budget balancing in the future. That was the buzz among veteran State House reporters at the Saturday evening press conference when Corzine would sign the budget. The big question was would he line item veto lots of those Christmas tree items from the budget to free up funds for further deficit reduction and to send those old school, uncooperative legislators a message. At the budget signing, the Governor line item vetoed some 53 items to save a rather modest $51.3 million dollars. When pressed by reporters, Corzine did not exaggerate what the new budget accomplishes in terms of tax reduction or providing new policy initiatives. But he insisted that after all the bickering and compromising, the end product goes “…a long way down the path toward fiscal integrity,” at the very least because the state is now digging itself out of its fiscal hole rather than digging itself deeper in that hole. In particular he noted the $1.1 billion payment to the state’s pension system. And, while no one can defend the lengthy government shutdown, Corzine believes that state lawmakers have learned a lot from the experience. In the future there will be a greater commitment to paying for government programs with recurring revenues, for paying attention to the impact of government decisions on people and the economy, for making decisions “in the light of day” and not behind closed doors, and for doing so in a timely fashion. Beyond these consequential changes in budgeting and policy-making, Corzine is committed to making the special legislative session this summer a highly productive one. Speaker Roberts spoke forcefully about the work that the legislature would do over the summer to reduce government spending and set the stage for property tax reform. In his Friday press conference Roberts explained how he and his colleagues in both chambers and parties would study state worker pension reform, school funding reform, regionalization and shared services. For his part, Governor Corzine would focus on reengineering government operations and departments to rid the state of waste and inefficiency. Such steps are necessary to restore citizens’ faith in government, something Roberts admitted that had been lost this budget season, and to save money before shifting away the reliance on property taxes. But citizens’ faith in their public officials will quickly disappear unless lawmakers explain to them that lower property taxes will likely require hikes and other taxes and perhaps some loss of local control over schools. If not, it won’t be just state and casino workers who will march on the State House. 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 and is a member of CQPOlitics.com’s Board of Advisors that provides weekly commentary on national political developments.

MAKING SENSE OUT OF THE BUDGET FIASCO