Next New Jersey governor faces massive financial woes

The winner of this year's New Jersey governor's race will begin his term with a multibillion-dollar deficit, mountainous debt, and a pension system that at last check was $34 billion in the hole.

The shortfalls, persistent for years but even more daunting after a recession, will add pressure to raise taxes or drastically cut spending, potentially leaving less money for schools, roads, parks, and other needs.

Neither Gov. Corzine nor Republican challenger Christopher J. Christie has provided in-depth plans to tackle the financial issues, which offer few easy choices, but in interviews last week they sketched broad outlines of how they would approach the problems.

Corzine talked about maintaining key services during hard times. To him, the state's continuing financial woes are a result of a "Bush-led" recession that hit after the governor made progress early in his term. He said he had found ways to maintain funding for schools and health care and would continue to do so as he tried to restore financial stability.

"Making sure that we continue to invest in the education of our kids, the provision of health care in our society, particularly for our children, and making sure that we have public safety and those fundamental safety-net issues are our first-order priorities," Corzine said.

Christie said Corzine had spent more than the state could afford. He said leaders should focus on top concerns and make tough calls to scale back elsewhere, although he did not name his priorities.

"He just wants to have the money continue to flow in so he can make everybody happy," Christie said. "The job of the governor is to make decisions, and he has failed to make decisions, and as a result that has led us into an economic ditch."

Many states could be described that way, according to the left-leaning Center on Budget and Policy Priorities, which reported this month that 48 states had deficits this year. Its deputy director of state fiscal projects, Jon Shure, said the shortfalls likely would continue.

Shure, who was an aide to Democratic Gov. Jim Florio in the early 1990s, said federal stimulus money had softened the blow, for now.

"One hopes that states use this breathing space to get their economy in order," he said.

So far, the fiscal steps Corzine and Christie have described would cover only a fraction of the deficits likely to persist in coming years. Some plans - Corzine and Christie both called for boosting property-tax rebates - would add to expenses.

Corzine said that he saw hope for an economic recovery that would increase revenue, and that he expected more federal aid to help cover other shortfalls. He said he would incrementally restore funding for the state's pension system, calling that and the rebates "top-drawer" priorities.

Both candidates said they would make government more efficient.

Christie said he would pare the state workforce and reduce overtime costs. Which programs get cut and which are supported, he said, would depend on talks with the Legislature. He said he would slash income taxes across the board during his first term, though he would not say exactly when or by how much. He has also pledged to cut corporate taxes.

Much of the debate centers on Corzine's record after four years with fellow Democrats in control of the Legislature. He came to Trenton touting his Wall Street fiscal credentials; last week, he said he had "made progress" during his first term despite facing a historic drop in revenue during the last year.

But his work to repair state finances was at times overtaken by election-year politics and spending on issues close to his heart.

In 2006, Corzine inherited a $28.3 billion budget soaked with red ink. He took the politically risky, but he said necessary, step of raising the sales tax from 6 percent to 7 percent. With a strong economy behind him, he resumed significant payments to the state's ailing pension fund, which other governors had long ignored.

"We worked diligently with matching incoming revenues with outgoing expenditures," Corzine said Wednesday.

He said he had cut the executive branch's workforce by 5,700 and trimmed state employee benefits, including raising the retirement age to 60, from 55.

Two of his four budgets had no tax hikes.

He pitched an ambitious plan to cut $16 billion of state debt through toll increases of up to 800 percent, though the potential cost sparked a backlash and the plan failed.

"But it was clear that it is something that needs to be addressed, and I think I know that and have argued that more than anyone," he said.

Much of the new revenue Corzine raised in 2006 was quickly put to new, politically popular spending.

After lawmakers agreed to the sales-tax hike, Democratic lawmakers tucked $300 million of pet projects into the budget.

In his second year, Corzine warned that the state still faced a long-range budgetary mire and then dedicated $1.2 billion - equal to a year's worth of revenue from the sales-tax hike - to election-year tax rebates. With the beefed-up checks and pain-free budget, Democrats retained control of the Legislature in the 2007 elections.

Corzine later faced criticism when he called for new borrowing for school construction - 15 days after pitching his complex plan to slash debt.

His second-year budget grew to $33.5 billion, an 18 percent increase from when he took office.

Much of the new spending involved money for the pension system and items promoted as property-tax relief: rebates and aid to towns and schools.

Corzine had promised to increase rebates 40 percent. The checks soared to record levels in fiscal 2008, but Corzine scaled them back in his other three budgets. The state this year spent roughly the same amount on rebates as when Corzine was elected.

The latest trims came as the recession brought deep spending cuts.

Starting last year, Corzine slashed expenses and raised income taxes, mostly on those earning $400,000 and up.

The budget dropped to $29 billion. Corzine now says there has "essentially been no growth" in spending during his term.

But critics note that his bottom line does not count $2.3 billion of federal stimulus aid, used for schools and Medicaid, that will leave another budget hole when it runs dry. Many of the remaining cuts - delaying employee raises and drastically scaling back pension funding - saved money initially but added to long-term costs without permanently shrinking programs.

Corzine's last two budgets skipped $4.65 billion of pension contributions. He put $2.2 billion into the fund in his first two years.

Corzine said the recession-time moves were necessary as demands for services grew and revenues plummeted.

"We had to make all kinds of choices, choices that I wouldn't have made in any other circumstance," he said.

Christie said using temporary fixes avoided tough choices and added to the state's structural deficit, projected by nonpartisan analysts to reach $6 billion or more.

"The governor has just done election-year budgeting to try to get himself by," Christie said.

Neither candidate would go into deep detail on plans for handling the next budget, saying they would wait to see where the state's finances stood next year.

"Taxes should be a last resort," Corzine said, though he would not rule out increasing them.

Christie said he would move new workers, except for law enforcement, into 401(k)-type retirement plans and "revisit" a 9 percent pension increase granted in 2001.

The specifics of his income-tax cuts "are going to be very much dependent on the economic situation on the ground," Christie said. "I'm not going to make pie-in-the-sky promises."

Democrats have hammered him for the lack of details and the potential shortfalls that could grow if tax breaks further sap revenue.

Corzine said Christie "obviously doesn't understand that if you cut corporate income taxes and cut income taxes on the very wealthy, cut income taxes period, you don't have money for property-tax rebates."

Christie said the state must cut taxes to compete with its neighbors.

"We cannot afford not to do it," he said.

Independent Chris Daggett has said he soon will announce a plan for dealing with state finances. He has said it is time to start looking at parts of the budget that others consider off-limits.