Christie Plugs $676 Million Hole With Borrowing, One-Shots

By Mark. J. Magyar, NJ Spotlight

While Governor Christie’s treasurer laid out plans to fill what it says is a $676 million budget gap with borrowing, fund transfers, and other one-shot revenues, the Legislature’s nonpartisan budget expert warned that state tax collections could still come up another $627 million short -- if not more.

It’s much more than a disagreement over numbers, as Christie demonstrated Wednesday by launching a vicious public attack on the integrity of David Rosen, the Office of Legislative Services budget officer, for daring to suggest that tax collections this year and next year will come in $1.3 billion lower than Christie projected in his February budget speech.

Indeed, the political stakes in this year’s budget battle could not be higher: Christie has based his political message on the idea that he can balance the budget without gimmicks -- and pass a 10 percent income tax cut to prove that the “Jersey Comeback” he has bragged about is real.

Christie and his GOP allies aren’t the only ones hoping for higher revenues. Senate President Stephen Sweeney (D-Gloucester) and Assembly Majority Leader Lou Greenwald (D-Camden) seized upon Christie’s optimistic budget forecasts to propose ambitious income tax cuts built on property tax credits for the middle class.

Indeed, Christie and Sweeney almost reached agreement on a compromise plan last week before dismal April tax collections and Democratic infighting scuttled the deal.

Greenwald, meanwhile, also has been pushing for a larger tax cut, one build on a “millionaire’s tax” that Democratic political strategists believe to be a political winner.

The fiscal implications of the tax cut extend beyond this year and are significant. While the Christie and Sweeney tax cut plans would cost the state about $195 million in revenue next year, all three plans would amend the state’s income tax laws to require tax cuts totaling $1.4 billion a year by Fiscal Year 2016 – a year when the state will be obligated to contribute between $2.5 billion and $3 billion to its pension system. Together, the tax cut and pension tab would eat up almost all of the future tax growth unless the state’s economy really takes off.

Furthermore, the short-term measures required to balance this budget will make future budgets harder. Christie had made reducing the state’s reliance on “one-shot,” non-recurring revenues, borrowing and other budget gimmicks a key promise in his 2009 campaign.

Christie’s February budget has been criticized for relying on $475 million in “one-shot” revenues, including tapping $200 million from the Clean Energy Fund and $200 million in affordable housing funds to help balance a $31.2 billion state budget that is the second-largest in state history (and the largest total state/federal budget in New Jersey history at more than $49 billion).

Coping with the $514 million shortfall in the current year budget and his projected $161.4 million in expected revenues next year required Christie to make other fiscally -- and potentially politically -- unpalatable decisions. The reliance on more than $900 million in one-shot revenues next year, including an additional $79 million from the Clean Energy Fund, creates a high hurdle that will have to be made up by added revenue growth in the Fiscal Year 2014 budget.

But the most controversial move is to take $260 million in New Jersey Turnpike Authority money earmarked to fund transportation capital projects on a pay-as-you-go basis as part of a new Transportation Trust Fund reauthorization and use that money to help balance the budget. The $260 million was originally supposed to go to the Access to the Region’s Core (ARC) rail tunnel that Christie cancelled in 2010, and now that toll money will have to be replaced by an increased $260 million in borrowing.

Greenwald and Assembly Budget Committee Chair Vincent Prieto (D-Hudson) immediately connected the dots between the $260 million in borrowing required to balance the budget and the $195 million in revenue Christie needs to pay for the 10 percent across-the-board income tax he has proposed, which would disproportionately benefit the wealthiest taxpayers.

“Middle class New Jerseyans are going to have pay interest on those bonds for 30 years to pay for $7,000 tax cuts for millionaires when the average New Jerseyan won’t get enough of a tax cut to pay for groceries,” Greenwald said angrily.

“How do we explain to the public that we’re borrowing money to provide income tax relief that mostly benefits the rich?” asked Prieto.

State Treasurer Andrew Sidamon-Eristoff defended the borrowing for transportation capital programs as normal, but conceded, “I wish we had other options.” Under questioning by Assemblyman Gary Schaer (D-Passaic), he refused to accept any linkage between the $260 million Turnpike Authority fund transfer and the $195 million income tax cut that remains in the budget.

Sidamon-Eristoff did use his budget testimony to make a not-so-subtle case for Christie’s proposed income tax cut for the wealthy. He noted that the shortfall in this year’s income tax revenue is largely attributable to a decline in income tax paid by New Jersey’s “decamillionaires” – the 421 taxpayers with taxable income of $10 million or more.

“It appears that, on average, taxpayers in this group paid 10 percent to 20 percent less in 2011 than they did in 2010,” the treasurer said. “This suggests that in 2011 income tax revenue may have dropped as much as $150 million -- or more, if the absolute number of such taxpayers actually fell instead of rising . . . This is yet more evidence of the irrefutable fact that we have a highly progressive income tax system that is reliant on a tiny fraction of taxpayers.”

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