Christie to Withhold $475 Million in New Jersey School Aid Amid Budget Gap-Christie Declares Fiscal Emergency as Deficits Loom (Update2)
By Terrence Dopp
Feb. 11 (Bloomberg) -- New Jersey Governor Chris Christie declared a fiscal emergency and said he will withhold $475 million in school aid to help close a $2.2 billion budget deficit with less than five months remaining in the fiscal year.
Christie, 47, a Republican who took office Jan. 19, also said he will reduce funding for hospitals and colleges, delay capital projects, cut subsidies for New Jersey Transit and eliminate state programs that “sounded good in theory but failed in practice.”
“The cuts I have outlined may sound dramatic. And they are,” Christie said in a speech today to a joint session of the Democrat-controlled Legislature. “Some sound painful. And they will be. I am not happy, but I am not afraid to make these decisions, either. It is what the people sent me here to do.”
Christie scheduled the address after he said he discovered the deficit in New Jersey’s spending plan was twice as big as his predecessor, Democrat Jon Corzine, had projected. The new governor has vowed not to raise taxes to cope with declining revenue and increased costs for services including Medicaid, the health-care program for the poor.
The governor next month must present his plans for closing a gap between projected revenue and spending in the coming year. That deficit is more than $11 billion, the largest per taxpayer of any state in the country “by far,” Christie said today.
Executive Order
Christie said he signed an executive order before the speech that gives him the right to freeze spending to balance the budget. Democratic lawmakers said they didn’t receive a copy of the fiat until an hour prior to the address and said it was an attempt to circumvent legislative opposition.
“To govern by executive order isn’t going to be accepted here,” Senate President Stephen Sweeney, a Democrat from West Deptford, told reporters. “We’ll work with him but we are not going to function like this.”
Sweeney said lawyers for both legislative houses are examining whether the executive order goes beyond Christie’s legal powers and how it can be blocked. The governor’s plan would raise local property taxes, Sweeney and Assembly Speaker Sheila Oliver said. Both said they want Christie to use the state’s $500 million surplus before making the cuts.
Property Taxes
School systems in New Jersey on average receive about 40 percent of their funding from the state, according to the New Jersey School Boards Association. The remainder is financed primarily through local property taxes, which at an annual average of $7,045 are the nation’s highest.
Aid to public schools accounts for $11.1 billion, or 38 percent, of the $29 billion budget Corzine and the Legislature approved in June. The state has yet to pay about $3.5 billion of that aid, making it the largest account that can be accessed this late in the fiscal year, said Assemblyman Joe Malone, a Republican on the budget committee.
Corzine in May cut aid to schools by $67 million and delayed $383 million in payments to the current fiscal year to cope with a $1.2 billion revenue shortage for the previous 12- month period. In December, he proposed saving $260 million by freezing school aid and forcing districts to use surpluses.
Scalpel, Not Axe
Christie said more than 500 school districts will be affected by his decision to withhold $475 million, and more than 100 districts will lose all state aid for the rest of the year.
“We have not reduced school aid with an axe -- we have done it with a scalpel and with great care,” he said.
Frank Belluscio, a spokesman for the school boards association, said districts may have to cut programs to deal with the lost aid.
“It could be disruptive and we’re very concerned.” Belluscio said prior to the speech.
The new governor also told lawmakers he plans to move forward with Corzine’s proposal to forgo a $100 million pension payment this fiscal year. He said he will push for “substantial pension reforms” that will help reduce the system’s $34.4 billion unfunded liability.
Earlier this week, Sweeney introduced a package of bills that would shift future part-time workers into a so-called defined contribution plan that doesn’t promise specific benefits, instead of a pension system that guarantees monthly payments. It also would require teachers and local government workers, some of whom have never made contributions, to pay 1.5 percent of annual compensation toward health care.
Pension Changes
Christie urged lawmakers to pass the pension bills before he presents his budget address next month.
“Until that reform is enacted, we cannot in good conscience fund a system that is out of control, bankrupting our state and its people, and making promises it cannot meet in the long term,” he said.
Nationwide, state tax collections dropped the most in 46 years in the first nine months of 2009, Albany, New York-based Nelson A. Rockefeller Institute of Government reported. The worst economic slump since the Great Depression has forced states to cut spending, raise taxes and shift costs to local governments as they seek to keep spending plans aligned.
New Jersey’s revenue slid 12 percent in fiscal 2009, the worst year in modern history, David Rosen, chief budget analyst for the nonpartisan Office of Legislative Services, told lawmakers Feb. 4. Sales-tax collections fell 9 percent last fiscal year and are down 6 percent so far this fiscal year.
‘Even Deeper’
The state’s budget deficit for the fiscal year that ends June 30 rose from $924 million predicted by Corzine before he left office. The hole will grow next year as temporary tax increases expire and federal aid declines, Rosen said.
“The challenge next year will be even greater,” Christie said. “The cuts likely will be even deeper. The reforms will, of necessity, be even more dramatic.”
At the end of January, the state had $14 billion of unspent money remaining for the fiscal year, Christie said. Of that amount, $8 billion was dedicated to such things as employee contracts, maintenance of money to keep federal funding, debt service and constitutional mandates. That left $6 billion from which Christie had to find the $2 billion of savings, he said.
Christie’s proposal would save $115 million by delaying programs and capital projects. Hospital charity care will be reduced by $12.6 million, or 4.2 percent, while aid to colleges and universities will be cut by $62.1 million, Christie said.
Jobs Program
The governor said he cut spending in 375 different programs. That included termination of Corzine’s InvestNJ program, which gave businesses $3,000 for every new hire, to save $50 million. Christie said InvestNJ has “a large unspent balance and a failed record in actually creating new jobs.”
Christie said he also froze the spending of “unspent technical balances” across programs, which includes everything from funds to upgrade energy systems in state facilities to those aimed at assisting local governments in plans to consolidate. The governor is discontinuing funding for the Office of the Public Advocate and folding its functions into other parts of government.
“Our priorities are to reduce and reform New Jersey’s habit of excessive government spending, to reduce taxes, to encourage job creation, to shrink our bloated government, and to fund our responsibilities on a pay-as-you-go basis and not leave them for future generations,” Christie said.
To contact the reporter on this story: Terrence Dopp in Trenton, New Jersey, at tdopp@bloomberg.net.
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