New Jersey Lawmakers Continue to Make Progress on $33B Budget Plan

New Jersey lawmakers continue to more forward with a $33 billion fiscal 2009 budget that may include savings generated from a proposed debt-reduction fund that could decrease the state's debt service costs next year by roughly $130 million.

Assembly members are set to vote on the 2009 fiscal plan on Monday and lawmakers have until June 30, the end of the current 2008 fiscal year to pass the operating budget.

Tied to the $33 billion plan is a measure that would allocate $684 million from the general fund to a yet-to-be-formed long-term obligation and capital expenditure fund, which would then pay down $650 million of existing state debt. That would in turn offer the state $130 million in refunding savings that would be used to help pay New Jersey's estimated $2.8 billion of debt service costs in fiscal 2009, which are up by $100 million from the current year.

The $2.8 billion of principal and interest payments accounts for 8% of the fiscal 2009 budget. The proposed $130 million of savings could extend beyond next year's budget as the legislation indicates that "for the next four fiscal years thereafter, annual debt service requirements will be reduced by similar amounts."

While Republican lawmakers said the initiative is fiscally sound in particular because the $684 million of funds comes in part from surplus income and corporate tax revenues from fiscal 2008 the annual debt service savings creates only a small dent in the state's $2.8 billion debt service payment and current plans offer savings for five years, not longer.

"I think I favor [the bill], but it's only a minor improvement," said Sen. Leonard Lance, R-Warren and Hunterdon.

Along with the $130 million of savings to be used to pay debt service costs, the bill would allow $34 million for capital improvements at prisons and correctional facilities, state hospitals, and school upgrades, among other infrastructure projects throughout the state. Overall, the initiative would restrict funds within the debt-reduction fund to only be used to support capital projects, help defease New Jersey's $32 billion of outstanding bonds, and pay down the state's unfunded pension obligation of $25 billion, along with its $68.7 billion liability from other post-employment benefits.

The debt reduction measure currently sits in the Senate Budget and Appropriations Committee and the Assembly Budget Committee.

Gov. Jon Corzine proposed his $33 billion fiscal 2009 plan in late February, a budget that's $500 million less than the current fiscal 2008 plan and incorporates $2.5 billion of budgetary cuts. Since then, lawmakers in both parties have been revising the proposal, including decreasing Corzine's cuts in municipal aid and hospital aid by $35 million and $59 million, respectively.

Cutting from other programs and extending the state's energy facilities assessment tax, which will bring in roughly $60 million for the state next year, helped legislators ease Corzine's reductions while maintaining the $33 billion balance, according to Jennifer Sciortino, spokeswoman for Senate President Richard Codey, D-Essex.

Yet critics say reducing municipal aid to towns and villages with populations under 10,000 could prompt local governments to increase property taxes, thereby forcing homeowners to take on the state's fiscal burdens.

"Overall, it's an honest budget, but it has its problems," said Gregg Edwards, president of the Center For Policy Research of New Jersey, a non profit think tank that favors free markets. "One is that by cutting municipal aid it is basically balancing the budget on the backs of some property taxpayers because their property taxes will have to increase to deal with the loss of state aid."

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