TRENTON, N.J. — New Jersey Gov. Chris Christie yesterday unveiled his first budget proposal, a $29.3 billion plan for fiscal 2011 that is $2.9 billion smaller than the current budget and fills a $10.7 billion deficit.
The deficit takes into account not only immediate but also future retirement costs of more than $3 billion. The state has historically delayed making annual allocations to meet a portion or all of its future pension liabilities.
While Christie's plan cuts spending across all state departments in fiscal 2011, which begins July 1, long-term proposals include a "hard" 2.5% property tax levy cap for local governments that would not allow for exceptions or waivers, unless voters approve increases in local referendums.
The current property-tax increase ceiling is 4%, though municipalities and school districts can seek waivers to that limit through the state's Local Finance Board, which approves budgets and borrowing at the local level.
To help cities and towns live within the potential 2.5% cap, the governor proposed limiting municipal payroll and employee benefit cost increases to 2.5% as well.
Along with the proposed belt-tightening at the local level, Christie seeks to restrict state spending hikes on direct state government services to 2.5% annually.
Both the 2.5% property tax levy cap and the yearly state spending limit would require voter approval. If the Legislature approves the initiatives, voters would then weigh in on the issues in November.
Christie, a Republican, took office on Jan. 19 after campaigning on a platform of lower taxes and less government spending.
The administration believes that holding down property tax increases, cutting back on state aid to schools and municipalities next year by $819.5 million and $445.9 million, respectively, and not paying out $848.2 million of property tax rebates in 2010, will help the state gain a stronger financial footing. New Jersey has $33.9 billion of outstanding debt and an unfunded pension liability of $46 billion.
In addition, New Jersey homeowners pay some of the highest property taxes in the U.S.
Christie's plan does not include increases to personal or business taxes, nor to the state's sales tax. He stressed that he would not support such initiatives if the Legislature chooses to boost those revenue streams.
"I was not sent here to approve tax increases," Christie said during his nearly 50-minute speech before a joint session of the Legislature. "I was sent here to veto them. And mark my words today, if a tax increase is sent to my desk, I will veto it. Simply put, it is time for the tax madness to end."
Legislative leaders pointed out that holding back property tax rebates from homeowners, cutting municipal and school aid, and forcing local governments to live within a 2.5% property tax levy is in a sense a tax hike, since residents will be paying more and receiving fewer services.
Senate President Stephen Sweeney, D-Salem, and William Dressel, executive director of the New Jersey League of Municipalities, said limiting local government's taxing power must occur in tandem with lower employment costs at the municipal level in order for cities and towns to be able to absorb working with less property tax revenue.
Sweeney — who supports less government spending at the state and local levels — also said allowing a one-year personal income-tax hike on those earning $400,000 or more to expire, as the state did last year, takes the burden off of higher-income families and places it onto households with limited incomes.
"People want lower taxes and they want smaller government, but what we haven't given them today is smaller government," Sweeney told reporters after Christie's speech.
"What we did is, we gave them spending cuts. I'm not arguing with most of them because most of them have to be made, but when you take revenue, a tax, and take it off the table and say you're going to veto it, when that could fund all your school aid cuts, when that could fund a multitude of problems to ease the pain and burden across the state, that has to be questioned," he said. "We support cutting spending, but we don't support hurting the poor and the middle class, and that's where this is squarely landing."
Officials peg total fiscal 2011 debt-service costs on general obligation debt and state appropriation bonds at $2.5 billion. The Treasury Department anticipates refinancing prior debt in fiscal 2011 to generate more than $400 million of debt-service savings. Treasurer Andrew Eristoff told reporters after the governor's speech that the refinancing would produce net present-value savings.
To help with cash flow, Christie proposed changing the property tax relief program to a direct-credit system rather than issuing rebate checks to homeowners. Residents would see that credit beginning May 1, 2011.
Treasury officials said that change would allow the state to sell fewer tax anticipation notes, which are used to help pay rebates in the fall and are repaid by revenue that comes in later in the fiscal year. New Jersey spends $10 million to $11 million each year in borrowing costs on notes that help finance the property-tax rebate program, Treasury officials said.
The budget proposal includes 1,300 of layoffs to begin after Jan. 1. The cuts would involve both union and non-union employees.
Officials anticipate collecting $28.26 billion of total tax revenue in fiscal 2011. That is $547 million above what the state expects to receive in the current year.
During his speech, Christie pledged a "new course" for New Jersey and criticized prior years of excessive spending and borrowing.
"The attitude has always been the same — continue to spend, continue to borrow, and drop the catastrophic sum of all these poor choices into the lap of the next guy," Christie said. "Well, time has run out and the bill has come due."
