Too many people – on the left and the right, politicians and editorial boards – act as if there is a politically expedient magic bullet that will painlessly fix our budget problems. There isn’t. Governor Chris Christie is right when he says our budget problems are serious. The solutions are going to be painful.
First, let’s understand that this problem is rooted in 20 years of bad decisions, by Governors and legislatures, by Democrats and Republicans. Some were careless, and others were craven. But the bottom line is that we are in deep trouble.
Our structural deficit is around $6.75 billion – inclusive of $1.6 billion in transportation investment per year but exclusive of things we’d love to do like cut property taxes.
So how do we plug the $6.75 billion hole – what is the magic bullet? There is none. My fellow conservatives who say “cut 20% across the board and you’re done!” are fooling themselves. Almost 1/3rd of our budget – around $10 billion – is essentially locked in by federal rules or constitutional mandates or obligations. We can’t default on our debt for instance or skip Social Security payments. So right there you go from a 20% cut across the board to a 30% cut on the remainder. But that’s not practical for a big chunk of the remainder as well.
If we cap school aid at $12,000 per student we could save around $700 million. That likely would mean closing some school districts and sending those students to districts spending less, and doing a better job. I can hear the hue and cry now. But we have to focus on areas where it could be argued we are spending too much. Schools that cost us more than $20k a kid per year – and still provide a lousy education – swallow hundreds of $millions. If we make fundamental change there we can save big money – and serve those kids better.
Another area where we spend much more than other states – and is a big percentage of our budget – is pensions and health benefits. I know – I hear the pronouncements “we have to keep our promises.” But in reality almost every dollar we spend has been “promised” to some important cause or constituency. Pension obligations should be around 7% of a state budget. Our fully phased in obligation is 15% of ours (would have risen to approximately 25% before the 2011 reforms). We spend almost $8 billion in pension and health benefits. Let’s say we all can figure out a way to trim those by 10% – that’s $800 million in savings.
So…we have come up with $1.5 billion in savings. We will still need to come up with another $5.25 billion but we only have around $13 billion from which to cut. That’s a 40% cut to operations that are already running on fumes. You going to cut home health aides who are already overworked, haven’t had a raise in years and make $12 bucks an hour? How about massive cuts to higher education (NJ already falls well below national average) or aid to municipalities – which would drive up property taxes?
My friends on the other side of the aisle argue that we should raise taxes to plug the gap, and regularly rule out school funding reform and additional cuts to pensions and benefits. Problem there is that we are already one of the highest taxed states in the nation. And we aren’t talking about small tax increases on small segments of the population. The so-called “millionaires tax” in it’s most optimistic form would only raise around $800 million – and would risk driving away some of our largest taxpayers – leaving the rest of us to pick up the future obligations. If one is going to make an argument against the cuts I mention above he must be honest and admit that he is instead opting for massive tax increases on everyone – not just the “rich.” Want to plug a $6.75 billion hole with income taxes – it would take a 50% increase – on every taxpayer!
So you see folks, there is no magic bullet. This ain’t going to be at all easy. But we have no choice. Only after we understand and accept the overarching problem can we move forward with a dynamic, balanced mix of solutions.
Assemblyman Declan O’Scanlon, Jr. is the Republican Budget Officer in the New Jersey legislature’s lower house. He represents the 13th legislative district.