New Jersey Gov. Chris ­Christie yesterday pushed his proposed constitutional amendment to hold property tax increases at 2.5% and warned that without fiscal controls, the state could be the next Greece, as Treasury Department officials announced a $540 million revenue shortfall for fiscal 2010 and fiscal 2011.

The governor discussed his property tax reform initiative, called Cap 2.5, before the Manhattan Institute in New York City. The institute is a research organization and think tank focused on reducing taxation.

Christie, a Republican who took office in January, said that if New Jersey continues to spend more money than it takes in, its fiscal troubles could mirror Greece’s economic woes. The country has high debt levels and is in need of a bailout from other countries within the European Union.

“We are careening our way to becoming Greece,” Christie said before institute members. “Now, I don’t want New Jersey to be the textbook example for failure of European economies.”

The Garden State has $34 billion of outstanding debt along with a $46 billion unfunded pension liability and a $56 billion unfunded liability for other post-employment benefits, largely retiree health care.

New Jersey also has the highest property taxes in the U.S. Cristie is seeking a reform plan similar to Massachusetts’ Proposition 2.5, which the commonwealth implemented in 1980.

If New Jersey’s Democratic-controlled Legislature approves Christie’s property tax plan, the initiative would go before voters in the November general election.

Cap 2.5 would limit the growth of property taxes within a municipality to 2.5% annually. One exemption is that local governments would still be able to raise property taxes above that cap for debt-service costs. In addition, municipalities could opt to increase property taxes above the 2.5% ceiling if two-thirds of voters approve the hike in a local referendum.

Cap banking, in which localities could bank unused tax increases for future years, is allowed under Christie’s plan, though lawmakers haven’t work out the details.

To help cities, towns, and school districts stay within the 2.5% limit, Christie proposes mandating arbitrators to craft contract awards that would not push a local government’s property tax increases beyond the 2.5% cap. Other potential reforms include restricting sick leave and carry-forward of vacation days for current employees, allowing local governments to implement furloughs, and civil service reform, as well as other proposed changes.

“I think labor is best served by collective bargaining, so we should give mayors the ability to opt out of civil service, and to manage like a business,” Christie said in his speech.

Critics of Cap 2.5 point to rising fuel, utility, and insurance costs for local governments that may require cities and towns to increase property taxes beyond a 2.5% ceiling. The New Jersey League of Municipalities, which supports lowering property taxes in the state, would like the reform bill to include exemptions not only for debt-service costs, but pension payment obligations and costs from natural disasters such as flooding and blizzards.

Christie’s initiative also includes limiting state spending increases to 2.5% per year, though pension payments and debt-service costs would be exempt from the spending limit.

Meanwhile, in New Jersey’s updated revenue forecast, Treasurer Andrew ­Eristoff yesterday announced that the state will collect $540 million less in revenue in fiscal 2010 and fiscal 2011, mostly due to underperforming income tax receipts. Fiscal 2010 ends June 30.

The Office of Legislative Services, a nonpartisan legislative agency that conducts fiscal and revenue analysis, offered a more dire revenue outlook. OLS budget and finance officer David Rosen yesterday said before the committee that he anticipates the state will collect a combined $767 million less in revenue this fiscal year and next than previously projected.

The Treasury Department anticipates $325 million and $115 million less in revenue in fiscal 2010 and fiscal 2011, respectively. The OLS expects revenue to come in $402 million and $365 million below fiscal 2010 and fiscal 2011 budgeted estimates. The administration proposes to address the shortfall with $232.4 million of cuts and “lapses” in expenditures, some of which require legislative approval.

“Lapses are a moving-around of money,” Treasury spokesman Andrew Pratt said in a phone interview. “And they’re a broad term for saying we may eliminate, we may be cutting, but we also may be moving around money from one program to another. Or, we may also be saying that we got anticipated savings from some program or another.”

Anticipated state expenditures also would decrease by a net $92 million by using Medicaid clawback funds this year rather than in fiscal 2011, and $33 million of health insurance savings. Eristoff’s proposal also includes tapping into $197 million of reserve funds next year, which would leave the state with $305 million of reserve funds, down from $501 million.

The treasurer said his goal before the end of fiscal 2011 is to bring that amount back to $500 million. He briefed all three rating agencies on the budget changes.

“I told them and I made a commitment that — over the course of the next weeks as we are finalizing our budget and then as we manage the fiscal 2011 budget process over the course of months — it will be our goal to try to increase that end-fund balance to at least a $500 million level where it really should belong,” he told the Senate Budget and Appropriations Committee.

Moody’s Investors Service analyst Edith Behr said the agency is keeping an eye on the fiscal 2011 budget process, as the proposed budget includes “significant” cuts to close an $11 billion deficit. In addition, Moody’s is tracking the state’s unfunded pension liability, along with New Jersey’s fund balances.

“This administration has said that its target is $500 million, which is what is projected for the end of fiscal 2010,” Behr said. “If they go much below that, we would take a close look at it.”

Regarding the decrease in state income tax revenues, Rosen said an income tax hike that neighboring New York adopted last year may account for the underperforming revenues. New Jersey residents with New York income pay the Empire State tax on that income, which New Jersey residents apply as a credit towards their New Jersey income taxes. Both the OLS and the Treasury Department anticipate income tax receipts will drop more than $420 million this year and next.

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