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| Gov. Chris Christie and the state's Democratic legislature will butt heads while hammering out some of the toughest budgets in decades. |
Get ready for a rumble in Trenton in the coming months as Gov. Chris Christie and Democratic lawmakers hammer out the first of what are expected to be some of the toughest state budgets in decades.
Financial experts say Christie’s second term comes at a time of reckoning for New Jersey’s economy, with the cost of education, health care and transportation programs all set to explode by billions of dollars over the next four years — and not enough money coming in to keep them afloat.
Christie’s first four budgets averaged 3 percent annual growth, with the current one clocking in at $33 billion.
Now comes the real test, experts say: State revenue needs to grow twice as fast over the next four years — averaging 6.5 percent annual growth — just to keep up with the ballooning cost of schools, Medicaid and public workers’ health care and retirement benefits.
A vigorous U.S. economic recovery would replenish the state treasury and defuse any financial time bombs. But economists say that’s not in the cards for now, which means Christie will have to raise taxes, borrow billions of dollars or drastically roll back education and health care expenses to make ends meet.
On top of that, transportation upgrades and wastewater treatment are expected to cost more than $100 billion over the next decade, according to the State Budget Crisis Task Force, a group of national experts that‘s warning about similar challenges in statehouses across the country.
"The fundamentals are good, but the risks are too many," said Sohini Chowdhury, an economist at Moody’s Analytics, who added that the Garden State is built to thrive during economic booms in New York and Europe but has a steeper climb than other states after a recession.
"Of late, we have seen a growth in professional services employment, but if you dig down deeper, you see that most of what is coming in is in low-paid jobs."
First-term Christie quickly rejected a series of Democratic bills to raise taxes for high earners, and second-term Christie will keep doing so, said his spokesman, Michael Drewniak.
In fact, when the budget season revs up again early next year, the governor will be beating the drum for a 10 percent reduction in New Jerseyans’ income tax bills, Drewniak said, a plan Christie has tried to pass for two years without success.
"We will meet budget challenges ahead just as we always have," he said. "Governor Christie will continue governing as a fiscal conservative, working with the Legislature to keep New Jersey on sound fiscal footing with pro-business, job-growth policies to expand our economy and revenues without raising taxes."
Already being courted to run for president in 2016 by GOP donors and strategists, Christie also could end up leaving office before the steepest bills start to land on his desk.
David Rousseau, a state treasurer under Gov. Jon Corzine and now an analyst at the left-leaning think tank New Jersey Policy Perspective, said Christie could crank out two more budgets before he would need to dedicate himself to running for president.
PREPARING FOR A FIGHT
Governors are always crunched for cash, but Christie will have much less breathing room because of a law he signed in 2011, Rousseau said. To patch up an $86 billion hole in the state’s pension and health care funds for public workers, the state committed to bigger and bigger pension payments every year until 2018. The contribution this year was $1.7 billion; next year it will rise to $2.4 billion.
Those payments alone will eat up about half of whatever new revenue the state collects each year, Rousseau said.
"You’re just going to have to decide that you can’t do as much as everybody wants you to do," he said. "Administrations for the last 20 years have been dealing with the stress of not enough money to meet all the needs out there. Every year, we come up with a balanced budget using different methods — raising taxes, diverting funds, not funding things — but no matter what, we have to balance the budget."
Senate President Stephen Sweeney (D-Gloucester) has been fretting over the looming financial crunch for months and recently vowed to keep Christie’s budget-cutting in check.
"Understand something, we’re going to fight," Sweeney said on election night after results showed Democrats retained the Legislature despite Christie’s landslide in the governor’s race. "The people of this state don’t want a Republican Legislature. They don’t want a rubber stamp for Chris Christie — when he’s trying to control the courts, when he’s made moves to cut women’s health (and) millionaires’ taxes."
The pensions and benefits overhaul doubled or tripled costs for public workers, froze their annual cost-of-living adjustments and raised their retirement age. Christie expects it will save the state more than $100 billion over 30 years. Still, analysts say that’s not enough.
"It’s not a perfect solution, but it could be worse without it," said John Sugden, a New Jersey analyst at Standard & Poor’s. "New Jersey has faced some significant challenges over the past four years and before, so certainly there’s been some improvement … (but) they’re still not fully paying their pension."
New Jersey’s unemployment rate is higher than the national average, at 8.5 percent; the state’s debt load is the fourth highest in the country per capita, according to Moody’s; and foreclosures have piled up to record levels since the 2009 recession, which drove down home prices across the market.
"It is New York’s neighbor, and it has this thriving professional-services industry, a highly educated workforce and a well-connected transportation hub in Newark," which are all strengths, Chowdhury said. However, the state’s thriving pharmaceutical industry and its casino capital of Atlantic City have been in retreat during Christie’s first term, and it doesn’t look like they can turn back the tide, she added.
ROOM FOR COMPROMISE
Patrick Murray, a political analyst and poll director at Monmouth University, noted that Christie and the Democrats struck a budget deal last year quietly and without blasting each other in public. Whether that approach keeps up depends on which Chris Christie will be governing the state: the bipartisan dealmaker, or the conservative firebrand.
"He’s got to look like he’s fiscally sound but still balance the budget without creating too many political waves," Murray said. "Another option is to change the tactic that they’re going to use in 2016, and slash the budget and cut all his Democratic allies loose. I don’t think he’s going to do that this year. I think that’s a possibility for next year’s budget. For now, he still needs some of the kumbayah."
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