This is a first draft of next week’s Dispatches (for this week’s, on Tom Kean and Social Security, click here). Expect some changes as the week goes on.
Even with a budget, there is more hard work ahead
At least for the moment.
The governor and leaders of both houses of the state Legislature pulled the state back from the precipice after a six-day shutdown.
But there are serious questions as to whether the budget will have the kind of impact necessary to fix the state’s long-term fiscal woes.
The deal announced July 6 by Gov. Jon S. Corzine would increase the sales tax by the proposed penny on the dollar. However, rather than using all of the revenue the hike was expected to generate to help plug an estimated $4.5 billion budget shortfall, half of it will be used for what the governor is calling property tax relief.
In addition, the deal calls for the sales tax hike to stay in place for at
least 10 years with half a cent going into a property tax relief fund, which would be created by a constitutional amendment. And in the unlikely event that the state’s finances are ever put back in order, more of the sales tax can be diverted into the fund.While the deal ended the government shutdown, it leaves the state facing serious financial issues. The governor initially included $1.1 million in revenue from the sales tax hike in his original $30.9 billion budget, but the deal now will include about a half a billion dollars in other new “revenue enhancements” and cuts to plug the hole.
That leaves us with the distinct possibility that, when budget time rolls around next year, the governor will be facing the same kind of difficult math that he faced in structuring this year’s spending plan when he started with a structural deficit of $4.5 billion.
The reality is that the state has been spending like a college student with his first credit card for years, running up the balance without giving a thought to where the money is coming from. That left the state with a $4.5 billion budget gap before the governor put pen to ledger in drafting this year’s budget.
And this is by no means the worst of it. Press reports over the last few months have placed next year’s gap at $5.5 bilLion and there is the not-so-small matter of coming up with enough cash to cover the state pension plan, now in a more than $18 billion hole.
That’s why the governor was so adamant about the sales tax increase.
Assembly Democrats — especially those down in the southwestern corner of the state — had a different take on the matter. They viewed the tax hike as political suicide, likely to cause voters to chase enough Democrats from office to hand the Legislature back to the Republicans.
Their frame of reference was the tax revolt of 1990 and 1991, when voters changed the Democrats from office following a $2.8 billion tax hike pushed through the Legislature buy then-Gov. Jim Florio. The tax hike was designed to prevent a budget shortfall and to raise money to pay for an anticipated school funding decision that would force the state to pump more money into poor urban school districts.
The chief component of the tax hike was a penny increase in the sales tax to 7 cents and its expansion to other products and services, including toilet paper, which became a symbol for anti-tax activists.
While Gov. Corzine’s budget was far less aggressive in its remedies than it could have been, it was seen by Assembly Speaker Joe Roberts (D-Camden) and the lower house as politically unpalatable and was dead on arrival.
That set up the showdown that ultimately resulted in a shutdown of state government — including the Atlantic City casinos — and the compromise budget we now have in place.
Politically, this is probably the best budget we could have hoped for. It does begin the difficult work of increasing revenue and makes significant cuts in general spending, while also contributing more money to the state pension plan than anyone has contributed in almost a decade.
And there will be some money for property tax relief (about a half a billion), though not nearly enough to call it a true reform. (We’ll have to hope that the special legislative session anticipated for later this summer can accomplish this.)
In the end, the deal does that it was supposed to do: end the government shutdown and put a budget in place.
No one, however, should have any illusions that next year’s budget discussions are going to be easier.
South Brunswick Post, The Cranbury Press
Hank Kalet 