Gov. Jon Corzine last week announced that New Jersey's current deficit increased to $2.1 billion, up from earlier shortfall projections of $1.2 billion due to underperforming revenues, and called for $800 million of mid-year spending cuts to help balance the $32 billion fiscal 2009 budget.
In addition, the administration will take $500 million from the state's $650 million debt defeasance fund to help close the shortfall, according to budget update documents.
Officials have already allocated $125 million from the debt defeasance program to help support foreclosure prevention programs, food pantries, energy assistance programs, and other immediate needs. Corzine set aside those funds earlier this year to help the state pay down its $32 billion of outstanding debt and ease debt service costs for the state.
Another $275 million will come from New Jersey's $600 million rainy-day fund, and the administration anticipates using $300 million from the expected federal stimulus package.
Administration officials now anticipate revenues for fiscal 2009 at $30.7 billion, down from the projected $32.4 billion budgeted earlier, a 5.2% drop.
Corzine first announced the larger deficit during a conference call on Friday where a handful of governors, who are also slashing programs and expenditures, announced their proposal for a $1 trillion federal stimulus package. That large-scale recovery plan would include money for educational programs as well as infrastructure projects, to help states fill budget shortfalls until the U.S. economy emerges from recession.
The governors of New York, New Jersey, Massachusetts, Ohio, and Wisconsin stressed that immediate federal help is necessary to maintain educational programs throughout the country while at the same time the stimulus plan helps to fuel more public works projects, thereby creating construction jobs and sparking other employment.
The call for federal dollars for public education goes beyond what has previously been sought by states in the anticipated federal recovery package. Up until now, governors and President-elect Barack Obama have stressed the need to support more road, tunnel, and bridge projects to increase jobs while improving the nation's infrastructure.
"As the federal government responds to this crisis with infrastructure resources, we applaud that and we welcome that," Ohio Gov. Ted Strickland said during the conference call. "We think it's needed and it's essential to be part of this package, but we also believe that if the states do not get some significant help with their budget issues, we will have a situation where we may be putting people to work building roads and bridges and sewer systems and the like while at the same time we are laying off teachers, allowing college tuition to explode, and failing to provide adequate Medicaid recourse to the most needy within our states."
Along with a boost in education funding, the governors are asking for additional matching federal Medicaid dollars in the Federal Medical Assistance Percentage funds, or FMAP, along with increased federal assistance to help pay for unemployment benefits, food-stamp programs, and other social service needs.
The governors' proposal seeks $350 billion for infrastructure developments, $250 billion for educational programs, and another $250 billion for FMAP and other social programs.
"Even with the assistance from the federal government, our states are going to have to practice a reduction of expenditures over the next couple of years," said New York Gov. David Paterson. "Our situation is so dire that even the greatest assistance from the federal government, the one that we're proposing here today, will still not alleviate us of the responsibility of some rather severe action. "
The governors, who have been in contact with senior Obama administration officials and congressional leaders, said they wanted to help create a federal stimulus proposal that would assist states as they decrease spending and reduce programs.
"There needs to be a sense that this is a comprehensive, tied-together, holistic approach to try and restore confidence and jobs and prevent states from being an offset to whatever the federal government puts in place, which is extremely dangerous based on what you're hearing from each of us," Corzine said during the conference.
As for distribution of the proposed federal funds, Massachusetts Gov. Deval Patrick proposed using population figures to allocate infrastructure and educational funds while FMAP and other social services would increase based on current federal allocations.
In addition to the governors' announcement, the U.S. Treasury Department Friday released a report to Congress indicating that its asset guarantee program may be made available to some financial institutions whose instability would threaten municipal finance.
The report stopped short of saying that Treasury will extend the guarantees to state or local governments and other municipal bond issuers, however, stating that eligibility will be determined "on a case-by case basis" using "extreme discretion."
Treasury said the program will be used to guarantee assets held by "systemically significant financial institutions" at risk of losing market confidence, to prevent "resulting financial strains [that] could threaten the viability of otherwise financially sound businesses, institutions, and municipalities, resulting in adverse spillovers on employment, output, and incomes."
Audrey Dutton contributed to this story.