TRENTON, N.J. — New Jersey Gov. Chris Christie yesterday declared a fiscal emergency and announced his plans to withhold $475 million of school aid, as well as cut funding to New Jersey Transit, higher education, hospitals, and other programs to fill a $2.2 billion fiscal 2010 billion deficit.
The Republican governor spoke before a special joint session of the Legislature, his first address before both chambers since taking office on Jan. 19. He will return on March 16 to deliver his fiscal 2011 budget address. Officials estimate an $8 billion to $10 billion funding shortfall in that spending plan. Fiscal 2011 begins July 1.
The administration calculates that total fiscal 2010 tax revenue will underperform budgeted estimates by $1.3 billion. That revenue shortfall, as well as $872 million of additional spending and a smaller-than-expected opening surplus, give the state a $2.2 billion deficit.
In late January, officials updated prior bond documents with supplemental information indicating that they expect $655 million of budget savings and revenue enhancements would help reduce the $2.2 billion shortfall to $1.5 billion. Yesterday’s announcements to use surplus school funds and implement additional cuts would help balance the fiscal 2010 budget.
School districts with surplus school funds in excess of 2% will not receive school aid funding this fiscal year. Christie will implement that plan along with additional spending cuts through executive order, rather than seek legislative approval.
After his speech, both Democratic leaders, Senate President Stephen Sweeney and Assembly Speaker Sheila Oliver, said their counsel is looking into the governor’s ability to move ahead with such plans absent legislative consent.
“The governor indicated to Sen. Sweeney and myself that he conferred with the attorney general’s office and the AG’s office gave them a verbal explanation,” Oliver told reporters after Christie’s address. “That’s not good enough for us in the Legislature. We expect and we demand a written legal opinion from the AG.”
Of New Jersey’s 581 districts, 564 school systems have surplus funds. The administration said the initiative would not affect current-year school budgets and that next year’s budgets could absorb the loss of surplus funds through changes in labor contracts and other cost-saving measures.
“Our solution does not take one penny from an approved school instructional budget,” Christie said during his speech. “Not one dime out of the classroom. Not one text book left unbought. Not one teacher laid off. Not one child’s education will be compromised for one minute and not one dollar of new property taxes will be needed.”
Conversely, Democrats believe the plan places unnecessary stress on local governments by requiring school districts to use their surplus funds instead of receiving state aid. Municipalities may be forced to increase property taxes to balance next year’s school budgets.
“When you take $475 million away from school districts at the end of the year, taxes are going to go up [and] there is an impact,” Sweeney said to reporters after Christie’s address. “This is a property tax increase that’s being proposed. It is not the bold and brave changing [and] cutting of government that was promised to the taxpayers of the state of New Jersey. We didn’t hear about reshaping, recreating, downsizing, laying off, furloughs — none of that was in this speech.”
Christie’s predecessor, Gov. Jon Corzine, a Democrat, also proposed using some excess school district funds to help balance the fiscal 2010 budget, though at a smaller amount and via the legislative process.
In addition to using $475 million of school surplus funds, Christie aims to cut $32.7 million of funds that New Jersey Transit was expecting prior to June 30. The administration believes the mass transit system needs to explore operating efficiencies, service reductions, cash reserves, and a potential fare increase.
“The state cannot continue to subsidize New Jersey Transit to the extent it does,” Christie said before the Legislature. “So I am cutting that subsidy. New Jersey Transit will have to improve the efficiency of its operations, revisit its rich union contracts, end the patronage hiring that has typified its past, and may also have to consider service reductions or fare increases.”
The governor’s plan also includes pushing pension payments into the future as the state will eliminate its fiscal 2010 defined benefit pension contribution of $100 million. Lawmakers are working on pension reform legislation to ease New Jersey’s retirement costs.
“The state cannot this year spend another $100 million contributing to a pension system that is desperately in need of reform,” the governor said. “I am encouraged by the bipartisan bills filed in the Senate this week to begin pension and benefit reform.”
State aid to colleges and universities and hospital charity care will also be reduced.
Officials do not anticipate additional new-money borrowing this year to reduce pay-as-you-go capital funding. In addition, earlier this year, the state restructured outstanding bonds to lower fiscal 2010 debt-service payments. The administration does not anticipate future debt restructuring deals.
“I think, frankly, that well is dry,” one administration official said.
The New Jersey Transportation Trust Fund, which supports road and bridge infrastructure throughout the state, has approximately $80 million of bonding capacity in fiscal 2011, an administration official said. It will run out of funding in fiscal 2012.
